Survey: Executives Expect Oil & Gas Capex to Increase in 2017

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Researched by Industrial Info Resources (Sugar Land, Texas)--A recent survey of Oil & Gas Industry professionals by Deloitte (New York, New York) showed optimism in both the price of oil and in higher capital expenditures for 2017. The survey was based on 251 interviews with professionals from all areas of the oil and gas sector. Industrial Info is tracking more than $479 billion in United States upstream, midstream and downstream project activity.

In the oil sector, most capital expenditures start with stronger oil prices, and most of the professionals surveyed expected West Texas Intermediate (WTI) crude oil prices to return to at least the $60 to $80 per barrel range by 2017, which in turn could lead to increased capital expenditures. Of the participants, 44% indicated they believed oil would be in this price range in 2017. In addition, 42% said that they expect capital expenditures for exploration activities to rise in 2017, indicating optimism for a recovery. This compares to 26% each for those who thought capex would decline and those who thought it would remain roughly the same.

Industrial Info is tracking more than $381 billion in U.S. Oil & Gas Production projects. Many of the larger projects are for liquefied natural gas (LNG) production and export plants, spending for which has been brought into question as LNG prices in Asia have plummeted over the past few years with a glut of gas on the market. However, survey respondents expected Asian natural gas prices to be higher than Henry Hub prices by the end of 2016 and through the next several years, perhaps creating an opportunity for future North American LNG projects. One of the larger LNG projects currently being planned in the U.S. is Kinder Morgan Incorporated's (NYSE:KMI) (Houston, Texas) planned LNG terminal in Pascagoula, Mississippi. For more details on this project, see September 20, 2016, article - LNG Terminal Project Dominates Mississippi's Jackson County.

Respondents were somewhat less optimistic about the midstream sector, although most expected capital expenditures in this industry segment to rise. "Contraction in the upstream sector has begun to wear on the midstream sector, once thought to be somewhat immune from commodity price volatility," said Andrew Slaughter, managing director of the Deloitte Center for Energy Solutions. "However, the sector's fee-based contracts are at risk of being renegotiated or challenged in bankruptcy court, given the financial stress of upstream producers." A majority of respondents expected a moderate level of consolidation in both 2016 (62%) and 2017 (59%). However, opportunities were found for capital expenditure in this sector.

Many see the LNG industry will need additional terminals and storage capacity to expand its U.S. footprint, while those new to the crude oil export business will need additional crude oil pipelines. Industrial Info is tracking more than $73 billion in U.S. Pipelines and Terminals projects. The spending in Oil, Gas and Refined Products Pipelines has been a strong point for projected 2016 spending according to Industrial Info's North American Project Spending Index. For more details, see September 20, 2016, article - North America Sees Planned Project Spending Plummet 11% from Year Earlier.

A degree of uncertainty was present regarding capex in the downstream sector. Deloitte noted in its survey results that refinery margins "have narrowed by 50 percent, from an average of about $20 per barrel in 2015 to an average of about $11.16 per barrel through May 2016. Yet professionals estimate that an average of $13.24 per barrel will close out 2016." On the whole, results were fairly evenly divided about future capex in this segment. Of the respondents, 33% said capital expenditures will increase from 2016 to 2017, but by no more than 10%. Thirty percent expect a net reduction in capex next year, while 28% say spending will remain unchanged. Industrial Info is tracking more than $25 billion planned U.S. Refining projects. Among the largest of these is Meridian Energy Group's (Irvine, California) planned 55,000-barrel-per-day (BBL/d) grassroot refinery in North Dakota's Bakken Shale. For more information on this project, see August 26, 2016, article - Meridian Chooses Engineering Firm, Process Technology for Grassroot Refinery in North Dakota.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.