Offshore Investment to Grow

As the world seeks for low-carbon energy alternatives, the offshore oil and gas industry is expected to reach greenfield investments of more than US$200 billion by 2025, says Rystad Energy. These investments could set up the industry to stay in operation well into the 2050s, although many stakeholders have taken up on the challenge of reaching net-zero by 2050.

The offshore sector is expected to witness its highest investment in a decade as a US$214 billion budget lines up. Rystad reports that greenfield CAPEX surpassed US$100 billion in 2022 and is expected to do so again in 2023. This marks the first consecutive breach of this threshold since 2012-2013.

According to Reuters, as companies move operations offshore, they are also reversing the trend of declining spending on these long-term projects. Oil investments plummeted in 2022 to US$1.621 billion, the lowest level in four years. Despite the increase in crude oil prices, both PEMEX and private players invested fewer resources in E&P. While many E&P activities were abandoned in 2022, no further bidding rounds have been granted during this administration, which is further stalling investment.

Although offshore production results in lower emissions due to projecs’ massive scale and new technology, they still carry huge environmental risk. In 2021, the International Energy Agency (IEA) recommended avoiding new fossil fuel projects for the world to achieve net-zero emissions by 2050. However, Wood Mackenzie estimates that even in its most ambitious 2050 energy transition scenario, oil demand is only likely to only halve or potentially increase. Moreover, the profitability of offshore projects is dependent on future oil demand, which is subject to varying forecasts.

While the world seeks low-carbon options to navigate the energy transition, oil projects must reinforce environmental risk measures, which include plans to gradually rely less on fossil fuels. According to the European Central Bank, “high emissions tend to be associated with higher credit risk. But disclosing emissions and setting a forward-looking target to cut emissions are both associated with lower credit risk, with the effect of climate commitments tending to be stronger for more ambitious targets.”

While the aforementioned offshore investments are mostly led by West Asia, the UK and Brazil are just slightly behind. In North America, spending on offshore projects in the US will top US$17.5 billion and US$7.3 billion in Mexico. Furthermore, in long-term forecasts, Middle Eastern growth is set to continue, while South American spending will slow in 2025, reports Rystad.

Mexico’s energy policy has been driven by favoritism toward PEMEX, which in turn has caused discontent among private investors. However, despite the huge federal economic support lent to the NOC, the state-company’s debt challenges represent a huge setback to further develop the oil industry in Mexico.