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Inflation leading to significant cost increases

Norway, the world’s top market for undersea tieback projects in the coming years, faces inflation-led cost increases of $ 6.5 billion in future contract awards for goods and services in the offshore oil and gas industry by 2026. The Rystad Energy report reveals.

According to Rystad, Norway is expected to order about 275 undersea trees in five years, and such projects are sensitive to rising material and labor costs, so the main bill to be added by operators. It will be a driving force. Must be swallowed in the country.

According to Rystad, based on 2021 pricing, the Norwegian oil and gas industry will have to pay approximately $ 91 billion for all contract awards scheduled by 2026.

Instead, Rystad found that inflation would bring the total cost of five years to $ 97.5 billion. This is because some of the largest oil and gas companies operating in Norwegian waters (Equinor, ConocoPhillips, Aker BP, VårEnergy, Shell, etc.) have reassessed their budgets as the old break-even calculations are no longer accurate. increase.

According to Rystad, Norway will be the world leader in awards related to undersea tiebacks for the next five years, with the total value of its suppliers expected to reach $ 55 billion based on 2021 pricing. Probably. The US undersea market is the second largest, with $ 44 billion in new contracts expected, followed by the UK at $ 29 billion, Russia at $ 25 billion and Brazil at $ 24 billion.

Additional undersea costs will account for more than $ 2.2 billion of the additional $ 6.5 billion facing Norway, while other supply segments are also affected by inflation. The maintenance department faces an additional cost of $ 1.6 billion, drilling is $ 1.4 billion, and EPCI has completed the top four segments for $ 800 million.

“The Norwegian oil and gas industry will actually feel the impact of inflation in the coming years due to the nature of future contracts. The price of undersea equipment for Norwegian projects is already over 10% since mid-2020. It will be even more challenging as it is rising, demand continues to grow and the global undersea supply chain is saturated, “said Matthew Fitzsimmons, Senior Vice President of Rystad Energy. Responsible for cost and price research.

Undersea and maintenance contracts pose the greatest risk to operators, Ristad said. But Mr. Ristad said the other segments are not without a fair share of the inflation agenda. For example, take a closer look at services and products. Subsegments like OCTG are expected to ease over the long term after steel prices soar in 2021, while other subsegments like drilling services are not yet flat.

The cost of drilling services to continue climbing

In retrospect, the Norwegian drilling services segment was unaffected by inflation during the pandemic and recorded a 5% increase in 2021, Ristad said.

Increased equipment and labor costs were a universal cause for price increases, but price behavior was different in the drilling services subsector. Traditional drilling services in the NCS region plummeted in the first quarter of 2020 and became a valley in April of that year. After that, it recovered sharply and increased by 20% by 2021. Conversely, directional drilling services have taken some time to recover from their mid-2020 lows. There was no significant increase until the third quarter of 2021, and current costs are still below 2019 levels.

“The price of NCS drilling services is expected to continue to rise in 2022, driven by the continued increase in local and international activity in the North Sea. Due to the recent increase in activity, active wells It is expected to grow by 4% year-on-year. Oil prices are expected to fall in 2023, the level of activity of regional drilling services will decline, and the number of drilling days in the region will decrease by more than 12% from 2022 to 2023. The segment is set to be before additional activities begin after 2024, “Ristad said.

Demanding maintenance workers

Short-term price increases may challenge new jobs, but long-term cost challenges are rooted in labor shortages. Demand for maintenance work will increase over the next few years as more areas go online and legacy assets do not become younger. Given this background, supply and demand imbalances are likely to increase in many segments, Ristad said. For example, by 2025, the demand for equipment repairers in the oil and gas industry will increase by 18% compared to the balance between supply and demand in 2021.

“Traditional industry urges to solve such labor shortages result in higher wages, but rising labor force participation solves all the problems posed by such labor shortages. Not so. While experienced talent is leaving the sector, it’s becoming increasingly difficult to hire new, vibrant talent. “

According to Rystad, suppliers and operators will likewise challenge the resulting decline in labor productivity as well as the rise in labor rates. This gives both sides the mutual benefit of reducing project management redundancy to avoid situations where operators, suppliers and subcontractors are forced to compete with each other for the same limited human resources. ..

“Players who can’t counter these rising cost pressures will undoubtedly find themselves writing larger checks for energy services in the coming years,” Rystad said.

https://www.oedigital.com/news/493550-norway-inflation-to-lead-to-hefty-cost-increase-in-offshore-oil-and-gas-goods-services Inflation leading to significant cost increases

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