Global project sanctioning is set for a staggering decline this year of over 75% from 2019 levels, as the COVID-19 pandemic has caused E&P spending to drop much lower than what was expected at the beginning of the crisis. Other conditions, such as political uncertainty in Guyana is delaying government approvals for at least one major offshore development so far, at the ExxonMobil-operated Stabroek block.
Rystad Energy estimates total sanctioning value will end up at around $47 billion, an amount that would be even lower if not for recent developments in Norway and Russia.
Of total global sanctioning value in 2020, some $27 billion is expected to be for offshore projects, with the remaining $20 billion for onshore. Rystad Energy said in 2019, the total sanctioning value reached $197 billion, with $109 billion going to offshore projects and $88 billion to onshore projects.
So far this year, the projects that have been committed are worth a combined $29 billion, with $16 billion going to offshore and the remaining going to onshore. Rystad Energy’s forecast is based on a scenario in which Brent averages around $40 per barrel this year, not far from its current market price.
“At the beginning of this year, the project commitments forecast for 2020 were expected to be comparable to 2019, but the industry downturn thanks to COVID-19 has caused commitments to fall sharply. Going forward, Rystad Energy estimates that sanctioning will not pick up again and recover to 2019 levels anytime soon,” says Karan Satwani, energy service analyst at Rystad Energy.
ExxonMobil’s Payara Development which was initially expected to be sanctioned in 2019 was pushed back to 2020 but a more than 4-month delay in elections results in Guyana could see project sanctioning being further stalled, with approval now likely in 2021.
Rystad Energy said on a positive note, a month ago total sanctioning globally was projected even lower than what is now anticipated, as developments in Norway and Russia have given total estimated levels a boost in its July update.