Upstream oil and gas got its mojo back in 2022. Record cash flows restored confidence and repaired balance sheets. For many, there is excitement about the year ahead.
Wood Mackenzie said that there was a renewed sense of purpose to provide secure and affordable energy – particularly into tight European gas markets.
The analyst company added that the good times also exacerbated some of the challenges. In 2023 serious questions will be asked about the sector’s future. At all levels, the upstream industry needs to capture and broaden the energy narrative. Its social license depends on it.
Woodmac’s team of global experts came together to share its annual round-up predictions for the industry in the year ahead – and the wildcards to look out for. Also, the company looks at how global upstream trends might play out in certain regions.
In Asia Pacific, all eyes will be on the policymakers in 2023, with regulatory developments featuring heavily across the key themes for the year.
In a quiet year for E&A activity, we highlight the two key basins where explorers are going deeper and the big licensing rounds where the company expects some surprises. According to Woodmac, 2023 will also be a much bigger year for project FIDs, compared to a quiet 202
Macro events outside of Canada dominated the headlines in 2022. But plenty still occurred within the country’s upstream sector, which spans all resource themes from advantaged, short-cycle unconventional plays to deepwater to heavy oil.
The unconventional output will grow, but rarely exceed single digits while operators will outpace federal methane policies.
Export routes for Kazakh oil and Azerbaijani gas will be scrutinized, major project start-ups will support near-term volume growth – and it is unknown if Kazakhstan will confront its looming gas shortfall.
From Central Asia to Azerbaijan, the landlocked Caspian region enters 2023 with risk management at the top of the agenda. The repercussions of Russia’s invasion of Ukraine and the resulting ‘new geopolitical normal’ are here to stay.
But, as ever, the Caspian upstream sector is not only defined by its challenges. It remains home to large-scale opportunities across the energy value chain, some of which are primed for progress in the year ahead.
From the Netherlands to the Black Sea, Continental Europe enters 2023 with concerns about energy security and affordability looming large. The geopolitical shocks since Russia’s invasion of Ukraine have forced more governments to accept, somewhat begrudgingly, the importance of their own domestic supply.
Continental Europe’s upstream sector is diverse: in scale, maturity, and socio-political context. Activity in the next 12 months will once again reflect this, including major developments and high-impact exploration at the region’s geographical frontiers.
Change is a constant in Latin America and 2022 was no exception. While some countries are reaching new milestones, others are struggling to replenish reserves. The political landscape shifted in a big way. Two of the main oil-producing counties, Brazil and Colombia, voted in new leaders. Change of power is the unknown factor for 2023. On the positive side, Latin American production grew in 2022, breaking a seven-year trend of annual declines.
Middle East and North Africa
Buoyed by high prices and swelling NOC coffers, the investment will ramp up in 2023. Spending will be heavily skewed to gas and LNG developments. Gas will also be emphasized in exploration throughout the region as governments capitalize on high prices and the longer-term shift away from Europe’s dependency on Russia. Carbon reduction and sustainability will be dominant themes.
The North Sea will continue to churn out cash in 2023. This time governments rather than companies will set new records. Production will be stable, driven by up to 14 start-ups, including Shell’s Penguins redevelopment in the UK.
The investment will creep up, helped by a record number of FIDs in Norway in 2022. The UK could sanction the highest level of spending in 20 years but there is lots of uncertainty. And the time ahead is probably a ‘now or never’ situation for Cambo and Rosebank.
Sub-Saharan Africa is firmly back on the agenda. Giant discoveries in Namibia’s Orange Basin make it the world’s hottest new exploration basin and Europe is eyeing up the region’s vast undeveloped gas resources to help solve its energy crisis.
Upstream investment is returning, with several greenfield final investment decisions expected. Despite several new projects coming onstream in 2023 – the highest number this decade – all is not rosy. Tens of billions of dollars of capex are at risk at already committed major projects.
US Gulf of Mexico
Record cash flow of close to $40 billion, reinstating Lease Sale 257, an uptick in M&A activity, and increased production and investment brought excitement to the US Gulf of Mexico upstream sector in 2022.
Most probably, 2023 will bring another year of production and investment growth underpinned by delayed startups. But inflation will continue, and some operators will be exposed.
US Lower 48
Despite a chaotic macro environment in 2022, stability was the watchword for US E&Ps. Control what you can control. Remove business volatility wherever possible. As such, reinvestment remained steady, production growth was limited, and M&A activity included plenty of bolt-on deals.
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