Oil markets have been tossed around by opposing forces lately; on one hand the fear of recession, on the other, the reopening of China, the world’s second biggest consumer.
Crude was down 8 per cent last week on jitters over the major economies, only to get a boost Sunday when the head of the International Energy Agency touted China’s recovery as a key driver for oil prices.
The IEA expects half of global oil demand growth this year will come from China, executive director Fatih Birol said.
“This may be even stronger if the Chinese economy advances stronger than we assume. Global oil and LNG demand will go upwards.”
One section of the industry could be set for especially strong growth, even when oil eventually enters another downturn.
Rystad Energy, a research firm headquartered in Norway, predicts the global market for oil and gas contractors will rise to a peak of US$1 trillion by 2025 and remain there for several years.
“Global oil and gas suppliers look set to echo the biblical story about the Egyptian pharaoh’s dream of seven years of feast and seven years of famine – only in the opposite order, said Audun Martinsen, head of energy service research at Rystad Energy, in a recent report.
“All signs point towards 2022 being the start of another super cycle for the energy services sector.”
The “seven years of famine,” the report refers to began in 2014 when the industry was hit first with an oversupply of oil from the U.S. shale boom, then OPEC and Russia flooding the market in response. The two-year COVID-19 pandemic that followed crushed demand, depressed oil prices and limited upstream spending, said Rystad.
From the peak in 2014 to the trough in 2021 revenue of the biggest contractors fell almost 60 per cent.
Last year was a turning point when the post-pandemic recovery ignited oil demand. Prices for oil surged and gas prices shot to record highs. Energy security concerns pushed oil and gas companies to ramp up production and contract more goods and services from suppliers, which quickly sold out of fracking fleets, rigs and casing and tubing steel, said Rystad. Prices for these goods soared.
“After the rebound in 2022 we are entering a very promising 2023, with potential for 13 per cent growth both for oil and gas investments and 10 per cent for low-carbon investments,” said the report.
Strong growth in the liquefied natural gas industry should keep oil and gas spending above US$920 billion annually on average until 2028.
Even with the risk of another downturn in oil and gas after 2025, oilfield service suppliers should be able to balance it out by branching into the expanding renewables market, said Rystad.
“The key for suppliers is to continue chasing obvious opportunities within geothermal energy, hydrogen, offshore wind, and carbon capture, utilization and storage,” said the report.
“Together with oilfield services, this expansion into other energy areas could provide a US$1 trillion market for suppliers by 2025, which could be sustained for several years after that.”