By Yange Ikyaa
The entire contract value of the global oil and gas industry dropped by nearly half in the first quarter of 2023, resulting from rising inflation and increased capital cost borrowing.
This is according to a report by GlobalData, which revealed that the overall contract value decreased from $64.9 billion, while the number of contracts issued also decreased from 1,623 in Q4 2022 to 1,440 in Q1 2023. It further stated that the number of contracts saw a year-on-year decrease of 22% when compared with the same period in 2022.
While contract value saw a significant drop when compared with the previous quarter, when compared with the same period last year, it fell by 5%.
A detailed analysis of the report indicated that Europe had majority of the contracts issued, with 564, followed by North America with 379, and Asia with 261 during the quarter. The largest proportion of the contracts was awarded in the upstream sector, numbering 1,132 contracts; which was followed by the midstream sector, with 215 contracts; and the downstream sector, with 123 contracts.
Some of the top contractors were Yinson Holdings, which led in the upstream sector; Hyundai Heavy Industries, which led in the midstream sector; and Maire Tecnimont, which led in the downstream/petrochemical sector.
While Yinson Holdings secured a 15-year contract extension worth $5.3 billion for the Agogo Integrated West Hub Development, located off the Western coast of Angola, a five-year contract, estimated to worth $2.6 billion for integrated logistics services went to ADNOC Logistics & Services in Abu Dhabi, United Arab Emirates.
However, “it appears the contract value momentum has slowed down due to high interest rates and a rising inflationary environment in the major economies. This could have potentially resulted in fewer high-value contracts during the quarter in the oil and gas space,” said Pritam Kad, an analyst for GlobalData.
Of the contract figures under review, GlobalData explained that operations and maintenance represented 57% of total contracts in Q1 2023, followed by procurement scope with 17%, which it said was in line with the same period in previous years. It also noted that contracts with multiple scopes accounted for 14% within the said period.
On the African continent, projections by Market Research.com indicate that Nigeria will dominate the landscape of upcoming projects in Africa and will account for 23% of the total ongoing projects that are expected to begin operations by 2027.
Africa as a whole is expected to witness 492 projects that are billed to commence operations between 2023 and 2027. Of these projects under review, upstream projects estimated to total 139, while midstream projects will claim the highest figure and total 162, with refinery projects totaling 77 and petrochemicals totaling 144 projects.
In the midstream sector, the trunk/transmission pipelines segment alone will constitute 34% of all projects, followed by oil storage and gas processing with 28% and 22% respectively. On their part, refinery and petrochemical projects will constitute 39% of all upcoming oil and gas projects in Africa between 2023 and 2027.
However, across all segments, new build projects will dominate the landscape of upcoming projects in Africa, constituting 82% of the total across the value chain. The share of new build projects will be particularly high in the midstream sector, with 38% of the total new build projects, while expansion projects will lead in the upstream sector.
Currently, around 40% of projects in Africa are in the construction and commissioning stages, and these are more likely to commence operations during the outlook period. Furthermore, another 40% of projects are in the planning stages, and the rest have either been approved or are awaiting approval.
From now to the year 2025, the global market for oil and gas contractors is projected to rise to a peak of $1 trillion and remain at such high levels for several years thereafter.
According to Rystad Energy, a Norwegian energy intelligence firm, strong growth is expected in the midstream part of the industry to liquefy, transport, and re-gasify natural gas, and will help push overall oil and gas spending to stay above $920 billion annually on average for the 2022-2028 period.
The company maintains that the key for suppliers is to continue chasing obvious opportunities within geothermal energy, hydrogen, offshore wind, and carbon capture, utilization and storage. And together with oilfield services, this anticipated expansion into other energy areas could provide a $1 trillion market for suppliers by 2025, which could be sustained for several years after that.
While Rystad expects the next seven years to provide a strong market for energy services, companies will still have to improve their economics to make it a feast. Luckily, overall utilization is improving rapidly and suppliers are careful not to over-invest in more capacity, as rigs, vessels, plants, and other units in the supply chain are affected by natural wear and tear.
The result of this is better pricing for suppliers, as the past 12 months have driven up prices for offshore rigs, land rigs, frac fleets, proppant, OCTG, vessels, and subsea infrastructure to levels not seen in a decade.
Furthermore, energy security concerns prompted petroleum producers to raise production and contract goods and services from suppliers, and the oilfield service industry was quickly sold out of fracking fleets, rigs, and casing and tubing steel.
In Nigeria, the production of crude oil rose to 1.3 million barrels per day (bpd) for the month of February 2023, making it the highest production volume in a period of 13 months. This is according to the Nigerian Upstream Petroleum Regulatory Commission (NUPRC) in its latest ‘Oil Production Status Report.’
On a month-on-month basis, Nigeria’s crude oil output rose by 48,154 barrels per day from 1.26 in January 2023 to 1.3 million barrels per day in February 2023. Then, from February 16, 2023, the country crossed the 1.6 million bpd oil production threshold, moving from 1.3 million barrels per day at the beginning of the same month, according to data from the Nigerian National Petroleum Company (NNPC) Limited.
This was reflected by the rig count in the Nigerian upstream petroleum industry, which serves as an indicator or index that is used in gauging the level of exploration, development, and production activities in a country’s oil and gas sector. Rig count is a particularly viable yardstick due to the fact that active oil exploration through active rigs attracts investment and revenues into petroleum-rich countries for economic growth, ensuring the sector’s contribution to a nation’s Gross Domestic Product (GDP).
Before the coronavirus (COVID-19) pandemic, Nigeria’s oil and gas sector generally accounted for about 9.0 per cent of the country’s Gross Domestic Product (GDP). Then, between October and December 2020, the oil and gas industry’s contribution to the total real GDP dropped down to 5.9 per cent, a decrease of roughly three percentage points as compared to the previous quarter. Going forward, in the third quarter of 2022, the contribution of the oil sector to the country’s GDP reached 6.33 per cent.
Nigeria is expected to implement over 115 new oil and gas projects across the upstream, midstream and downstream sectors between 2023 and 2027 in a bid to maximize the development and exploitation of energy resources to achieve energy security and drive economic growth.
In the upstream, there are up to 32 developing projects that aim to address national production decline and make up for supply deficits relative to Nigeria’s approved volumes by the Organization of Petroleum Exporting Countries (OPEC). A few of such projects are listed below.
OML 13
Operated by the Nigerian Petroleum Development Company (NPDC) Limited, the $3.15 billion OML 13 field development will significantly expand Nigeria’s crude oil reserves and daily production. Currently in its construction stage, the project has a capacity of 184,333 barrel per day (bpd). It has been estimated that, when completed, OML 13 will increase government earnings from energy monetization, with the Federal Government expected to generate $10.2 billion in revenue from the project for 15 years. The project is expected to commence operations in 2023.
Bonga North
With a production capacity of 110,000 barrels per day (bpd), the Bonga North Deep-Water Project is expected to be operational by 2025. Operated by Shell Nigeria Exploration and Production Company (SNEPCo), Bonga North is an expansion of SNEPCo’s existing operations at the Bonga Fields, which commenced in 2014. The $5 billion project will unlock an estimated 525 million barrels of additional crude oil reserves in the Bonga Field, which reached a 1 billion-barrel milestone in February 2023.
Okpokunou/Tuomo West Cluster Development
As one of Nigeria’s several projects crucial for advancing industrialization on the back of natural gas exploitation, the Okpokunou/Tuomo West Cluster Development is a conventional gas project set to produce 85,000 bpd equivalent of gas for local consumption. Currently in its feasibility phase, the SNEPCo project is set to come online as early as 2024.
Hi Field
Located in the shallow waters of OML 144, Hi is a conventional gas development project, which is currently in the front-end engineering design phase. Operated by SNEPCo, Hi is expected to be operational by 2025 with a production capacity of 75,000 barrels per day.
Preowei Field
Discovered in 2004, Preowei is an oil field in development by TotalEnergies Exploration & Production Nigeria Limited. Once operational in 2024, the conventional oil project is anticipated to produce 70,000 barrels per day of crude oil. The project is expected to produce through 2027.
HA Field
Currently under construction, HA is a $1.6 billion development project in the shallow waters of Nigeria in Block OML 77. Also operated by SNEPCo, HA is expected to produce 60,000 barrels per day of oil and 250 million standard cubic feet per day of gas once operational in 2024.
Gbaran Nodal Compression
An expansion of Gbaran Phase 1 and 2A fields, the Gbaran Nodal Compression initiative includes the installation of gas compression trains to enhance the recovery of reserves in the OML 28 block. Currently under construction, the project is set to add 60,000 bpd to SNEPCo’s production portfolio in Nigeria. Operations are expected to commence in the year 2023.
JK Field
Presently in its feasibility stage, JK is a conventional oil project located in shallow waters in the OML 74 block. Operated by SNEPCo, the project is set to achieve first production of 55,000 barrels per day in 2026.
HD Field
A new field under development, HD is in its feasibility stage and is scheduled to enter its operational phase in the year 2026. Operated by SNEPCo, the project will produce 50,000 barrels per day of oil.
In the midstream segment of the Nigerian petroleum industry, most of the progress is being made in the utilization of the country’s gas resource through conversion to Liquefied Natural Gas (LNG) for export. As a result, growth in gas utilization has not had significant impact on the domestic economy.
This is obvious from the 2017 gas disposal statistics which shows that only 10% of gas produced was utilized domestically for power and industry, while 45% was exported as LNG and NGLs, 35% re-injected and about 10% was flared.
The gas utilization projects in Nigeria include the Escravos Gas-to-Liquid (EGTL) Plant, which is jointly owned by Chevron and NNPC; the Nigerian Liquefied Natural Gas (NLNG), which projects include the 1.25 Bscfd Gbaran Ubie Gas Plant (Shell), the 1.04 Bscfd Soku Gas Plant (Shell), and the the 0.21 Bscfd Bonga FPSO (Shell Exploration – PSC).
Others are the 0.53 Bscfd Obite Gas Plant (Total), the 0.45 Bscfd Amenam Production Platform (Total), the 0.32 Bscfd Akpo FPSO (Total Upstream PSC) and the 1.07 Bscfd Obiafu Obrikom Gas Plant (ENI).
There are also various pipeline development projects, including the Ajaokuta-Kaduna-Kano (AKK) pipeline and the West African Gas Pipeline (WAGP), among many others.