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US still driving oil investment recovery

Executives see plenty of enticing opportunities, but spending will be heavily weighted to the US and they can't commit without signs of a sustained path toward higher-priced oil

Total global energy industry spending will rise by 7% this year, to $580bn, according to a report released this week from Bernstein Research—an investment bank.

But that growth is heavily weighted to the US, and will be driven by tight oil development in particular. Spending on new production outside the US is expected to rise by just 4% this year—around $15bnto $380bn, noted the bank, and remains far below the peak in 2014.

US drillers plan to lift investment by around $25bn this year, from $175bn to $200bn, more than the rest of the world combined, according to Bernstein's figures.

There are a number of reasons why capex outside of the US has been so sluggish since the downturn. For one, Opec's major producers have put a lid on spending to keep output in line with their commitment to production cuts. Capex growth in 2018 across the Middle East is expected to be just $2-3bn, according to Bernstein.

Holding fire

Outside Opec, some of the brightest prospects for major growth are in the world's major deep-water provinces. Executives see plenty of enticing deep-water opportunities with Brent above $65 a barrel, but they're afraid to pull the trigger on new projects because they fear higher prices will send a surge of tight oil into the market, undercutting the price and the economics of their offshore projects.

There are exceptions, of course. ExxonMobil is pushing ahead with a multibillion-dollar development at its finds in Guyana. Statoil, which plans to soon change its name to Equinor, has managed to push costs down offshore Norway and has given the go-ahead with the Arctic Johan Castberg development. Petrobras still has a pipeline full of pre-salt projects off Brazil.

But these highlights aside, the offshore industry remains mired in a deep recession. Bernstein, for its part, doesn't see a meaningful recovery on the cards before 2020. "Operators need to see not only a higher absolute oil price, but also a sustained path toward higher priced oil for several years out," the bank argues.

That clear line of sight towards sustainably higher prices may not come until tight oil growth starts to level out in the next decade. In other words, the oil market probably isn't big enough for booming tight oil and deep-water sectors.


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