Average capital costs for offshore oil and gas projects by 2025 are still likely to be 25% below 2014 levels due to an oversupply of offshore rigs, supporting a long-term increase in gas projects in particular, the International Energy Agency said in a report Friday.
* Rig oversupply holds down costs
* Offshore wind expanding but still costly
* Gas to exceed oil in 2040 offshore output
The Offshore Energy Outlook also highlighted a five-fold rise in offshore wind deployment since 2010 to 18.7 GW in 2017, led by Europe and particularly the UK, but said the economic potential of offshore wind remained "highly uncertain and sensitive to technology cost declines."
In the conventional oil and gas sphere, the IEA expects gas to become the largest component in offshore hydrocarbon output in 2040 under its central "New Policies Scenario."
Under the scenario annual offshore gas production rises to 1,700 Bcm by 2040, having risen almost 30% to over 1,000 Bcm/year in the last decade. The offshore accounts for just over a quarter of all gas production presently, but rises above 30% by 2040 under the scenario.
The IEA said day rates charged for offshore rigs were now 30-35% lower than in 2014 on average, reflecting an over-supplied market in which 30 new units were delivered in 2016.
Another report by Norwegian consultancy Rystad Energy this month estimated that 100 offshore oil and gas projects would be approved by the industry this year, costing about $1 billion each on average, and up from 60 project approvals in 2017 and 40 in 2016.
The IEA report also highlighted a sharp reduction in offshore exploration and appraisal drilling in recent years, accelerated by the oil price collapse.
Many industry leaders argue better seismic interpretation is enabling more accurate exploration, reducing the drilling of unsuccessful wells. However a report earlier this month from consultancy Westwood Global Energy said the industry was still consistently over-estimating the probability of success of individual exploration wells by a wide margin.
The IEA said that, compared with more than 2,000 offshore exploration and appraisal wells drilled globally in 2008, just 700 were drilled in 2016. Meanwhile the offshore rig count has fallen from 320 in 2014 to 220 at the end of 2016 and has remained at similar levels since, the report said, citing service company Baker Hughes.
On the renewables front, the report notes that offshore wind projects commissioned globally in 2016 were on average 150% more expensive than onshore ones, and 50% higher than utility-scale solar photovoltaic projects, but says costs are set to fall.
It said average capital costs per unit of new offshore wind capacity had barely changed since 2010, rising by a few percentage points to $4,487/kW in 2016, but underlined that costs were likely to come down.
The UK is the leading venue for offshore wind, with Norway's Statoil now developing the world's first floating wind farm, Hywind, in UK waters.
A report on May 2 by Westwood Global Energy found that of 121 oil and gas discoveries made off Norway and the UK in the last five years only four had amounted to more than 100 million barrels of oil equivalent and of these two, in Hurricane Energy's west of Shetland license area, have yet to prove commercial.
Over the same five years only 3% of 68 oil and gas prospects declared to be potentially "high impact" had actually delivered commercially viable high-impact discoveries, Westwood Global Energy said.
