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The latest
IHS Markit North Sea Industry Trends report states that North
Sea operators and service companies specifically were already
reeling going into 2020, and the ongoing difficulties caused by
COVID-19 have only exacerbated the situation going into 2021.
Despite the introduction of a COVID vaccine into the European
market in late 2020, the economic consequences from the pandemic
during most of last year have been ongoing and substantial, if
differentiated by individual countries' mitigation strategy:
Hit hard by the COVID-19 pandemic, the UK economy is expected
to contract 11% in 2020. Inflation is expected to remain low owing
to low energy prices and depressed levels of consumer
spending.
The Norwegian economy's outlook improved since the last
publication: IHS Markit's assessment now stands at -3.8% before
expanding by 2.5% in 2021 (a slight pullback from the previously
expected 2.9%). Whereas oil and gas investments are expected to
take a heavy hit owing to the low commodity price environment, the
Norwegian government and central bank have announced fiscal and
monetary actions to mitigate the impacts of COVID-19.
In the first nine months of 2020, the Dutch economy was the
best performer in Western Europe, with GDP down just 3% year over
year.
The Danish economy has performed well relative to its peers,
with a contraction of only 3.8% for the first three quarters of
2020; IHS Markit expects a contraction of roughly 3.7% for the full
year. Denmark is conducting the most COVID-19 tests per capita in
Europe, and the government quickly implemented measures to mitigate
the economic effects of the pandemic.
IHS Markit expects the German economy to contract nearly 5.6%
in 2020 owing to deteriorating economic conditions resulting from a
second round of European COVID infections; rising infection counts
toward the end of 2020 are likely to impact future, revised
assessments.
The depressed economic state has lowered demand for oil &
gas, and oil prices. Reflective of these conditions, we have
revised our global offshore E&P spending assessments downward
for 2020. This year, however, saw an upward revision owing to hopes
of a widely available vaccine by summer, and 2021 is indeed
expected to be the start of an upswing going out to 2025, though
spending is not projected to recover to the previous high level of
2014.
Given the high levels of regulations and associated cost, the
North Sea is at particular risk of commodity price fluctuations and
associated capex cuts, since the most expensive barrels and
projects will be the first under the microscope when operators
reevaluate their portfolios. Perhaps in acknowledgement of this
dynamic, several developments this quarter indicate that Europe
sees a future with an energy mix that incorporates more than just
oil and gas, as well as mitigates the footprint of those legacy
energy sources:
Denmark canceled its licensing round and pledged to cease oil
and gas production by 2050.
In response to an increase in offshore wind activity, IHS
Markit has expanded its
FieldsBase database to capture such projects globally; in
Germany, most of the new projects added since the last North Sea
Industry Trends report in fact are for offshore wind.
Certain contractors mentioned in this report have entered into
agreements to study applications of carbon capture, utilization,
and sequestration.
With slack capacity in supply chains for oil and gas work, these
additional avenues explored by operators could mean benefits for
the environment as well as contractors' bottom lines; notably, up
to 50% of remotely operated vehicle (ROV) work for instance is now
for offshore wind projects. These "green" shoots will not bring
activity back to historically high levels (at least not in the
near-term), but it may allow some service companies to hang on long
enough to see a second wave of demand for their work, still
energy-related but not necessarily for legacy oil & gas
projects.
For more information on the IHS Markit North Sea Industry
Trends report, IHS Markit's Upstream Cost and Technology group, IHS
Markit FieldsBase, or IHS Markit's offshore wind research, please
contact James
Blanchard.
Posted 12 January 2021 by David Vaucher, Associate Director, Cost & Technology, Upstream Consulting, IHS Markit
