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Signs of recovery, but costs won't fall much further

By Tom Nicholls

Energy markets are entering a recovery phase that should continue into next year, says Claudio Materazzi, chairman of GE Nuovo Pignone, part of equipment and services supplier GE Oil & Gas. "I'm moderately optimistic," Materazzi told WGC News.

But he added that any oil and gas firms hoping for a further big drop in costs are likely to be disappointed, because the recession has taken a large amount of capacity out of the sector. He said costs are unlikely to end up falling by much more than 10-15% from the peaks of mid-2008, when oil prices peaked at just below $150 a barrel. And with oil at $60-70 a barrel there will be a "fair amount" of upstream activity, which would be likely to limit the downside for costs.

Exploration and production is showing "good signs" of recovery, he said – especially the deep-water sector, amid continuing upstream activity offshore Brazil, west Africa and in the US Gulf of Mexico.

And the LNG business is on an upward trend, driven by Australia. Materazzi expects between three and five new LNG projects to receive the go-ahead in the next five years.

The pipelines-construction sector has also proved reasonably resilient to the financial melt-down, he said, with projects in China and central Asia propping up activity. And among the worst-affected areas of the energy business – refining and petrochemicals – may not be far from entering recovery. "We are seeing signs of projects being restarted. Probably mid next year we will see real activity."

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