Why are record oil prices no longer triggering a wave of new capital spending? In this episode, Shaheen Chohan (Senior VP of Global Analytics) sits down with Jesus Davis (Senior VP of Energy Services) to unpack the forces reshaping oil and gas investment in 2026. They examine how Middle East disruption is stalling billions in project kickoffs, driving new pipeline routes around the Strait of Hormuz, and tightening regional labor markets. They explore the diverging spending trends between crude and gas, the surge in LNG FIDs, Permian takeaway bottlenecks, and the emerging winners across North America and Latin America. With capital discipline holding firm despite high prices, is the industry facing delayed schedules rather than cancellations?
Shaheen Chohan (00:00):
The oil and gas industry is navigating one of its most volatile stretches in years. Geopolitics remains the biggest disruptive force right now, leaving the market caught between an increasingly diverging supply side outlook, with the Middle East production hemmed in but with strong production levels being seen in the US and Canada. And then on the demand side, persistent monetary, trade and geopolitical uncertainty could swiftly reshape market sentiment and investment priorities, which could lead to some more clear winners. And certainly there will be some losers that emerge this year and most likely into next year too.
Shaheen Chohan (00:58):
Welcome to Navigating the Currents of Change, where we bring together over four decades of trusted research to data and industry insights built for the answer age. Let's dive in. My name is Shaheen Chohan, and I lead Global Analytics here at Industrial Info Resources. And to help me unpick some of the trends and put some answers to those questions that we're seeing, I am delighted to be joined by Jesus Davis, who is IIR’s Senior Vice President of Energy Services. Welcome, Jesus.
Jesus Davis (01:32):
Thank you Shaheen.
Shaheen Chohan (01:32):
But before we do that, I would like to say a very big thank you to today's podcast sponsor, Hilco. Hilco brings fluid contamination problems under control cost effectively with a full range of engineered filters, cartridges, reclaimer, coolant recyclers and fluid conditioning systems. Jesus, it would certainly be amiss if we didn't start our conversation about what's happening currently in the Middle East. The big question is, is it actually impacting capital spending activity? Have you seen spending levels which were due to kick off across the GC this year, have you seen any of that kind of fallout or slippage occurring?
Jesus Davis (02:17):
Yeah. We've definitely noticed some slippage in kick offs and projects in the Middle East right now. At the beginning of the year, we're tracking about 45, $46 billion worth of spending that we're supposed to kick off construction sometime this year. We're still waiting on $39 billion of that to actually move forward. So, you know, a very small portion of it did move forward. And that was probably January or early February when those projects actually kicked off. But since then, we haven't seen any of the large scale projects actually move into moving to construction yet.
Shaheen Chohan (02:52):
And I guess they'll probably be something of a reprioritization, right? I guess on the conventional side, when we saw some of those big LNG projects in Qatar and some of those offshore projects, I guess they're the ones that have probably been paused, but we've probably seen CapEx moving more towards bypass or take away capacity to try and, you know, move production that's currently being hemmed in and look at different types of options. I'm assuming pipelines must be being accelerated. Would that be right?
Jesus Davis (03:21):
Yeah. So we've seen a couple of different things. So funny you mentioned offshore. So we are seeing some of the offshore projects still move forward, but mainly with the with the off site fabrication, the topsides being fabricated, whether it's in China, Korea, we're seeing a lot of activity there. I was actually surprised when I started looking through some of the data to see some of the offshore projects moving forward, but it's really, you know, just offsite fabrication. Obviously, they're not doing any installations in in the Gulf right now with everything going on. But yeah, you're definitely correct. A lot of it is related to pipelines, new ways to avoid the Strait of Hormuz. And either get crude end products, you know, out to the Red sea or potentially even up to the Mediterranean Sea. There's pros and cons to that. Obviously, you know, the new capital spending, new pipelines, as well as new loading facilities, new terminals that will need to be built. But when you really start to look at it, especially some of these projects that are looking at going towards the Mediterranean, it doesn't really help, right? Because most of that crude that would be coming out of the Strait of Hormuz, a lot of it is destined for Asia. So if you come out of the Mediterranean Sea, that's a lot. It's a much longer, more expensive trip if you have to go all the way around the southern tip of Africa, coming out of out of the Mediterranean Sea. So obviously it is it's safer if you're on the boat, obviously rather go that way. But that does mean for a longer, more expensive voyage. Then also, when you mention reprioritization, we're going to see a lot of competition for labor. Not only within those oil and gas projects, but a lot of just reconstruction overall. Like I said, we're looking at, you know, 30 or $40 billion in CapEx to be spent on new projects. Some of the estimates I've seen for rebuild projects in the Middle East is about 58 to $60 billion. So when you have another $50 billion dumped on top of what was already happening, and we all know that, you know, in Saudi and other places, they already had very ambitious plans, to begin with. But there's just going to be a lot of, probably really going to see a lot of inflation due to labor costs. A lot of the workers and expats that are, mainly labor, comes from other places, you know, India, Bangladesh, Pakistan, Nepal and a lot of those guys, they left, right? You don't want to you don't want to stay, in that region while there's, you know, what's not the safest place to be. So a lot of them have returned home and not quite sure when they when they will return back to the Middle East region. And that just means that that labor market is going to be a lot tighter and probably a lot more expensive when they when they do, when they do return. And not to mention, you know, the supply chain issues. You know, you can't get a ship in and out or in or out of the strait right now. You know, obviously we focus on crude and LNG, but just, you know, just general materials. If you can't get in there, you can't really build anything. So, there's a lot of uncertainty. In most times we've seen, you know, when there's uncertainty. Prices seem to escalate.
Shaheen Chohan (06:19):
Now with trade flow and exports obviously hemmed in. Should we expect to see, I guess, some near-term CapEx being channeled towards storage capacity in particular? I know you talked a lot about pipeline development, but is storage a big issue now?
Jesus Davis (06:33):
Oh, yes. Storage is definitely a big issue because storage is full, right? We have a lot of right now. We're using a lot of floating storage to, you know, store this excess capacity or it's not excess capacity, but capacity that cannot be loaded on the tankers and shipped out. So in the near term, we do expect to see additional storage built, whether it's at the ports themselves or potentially, you know, in the field or some potentially smaller shop fabricated tanks just installed to help alleviate some of the oversupply. In addition to that, we have seen some of these other ports, begin to export or try to export some of the crude or, you know, take some of the crude that was coming through the strait, but they are unable to load as quickly. So there will need to be some upgrades made to be able to hopefully load some of those vessels a little faster so it could, you know, return not necessarily to pre-war levels, but just increase that capacity somewhat.
Shaheen Chohan (07:24):
Now, obviously when we have market conditions like this, there are always winners and losers. Now, the Middle East producers, as we know, we've just said, you know, are clearly being negatively impacted. But on the other side of the coin, there are clearly going to be some winners. Which countries, and in particular, are there any particular sectors that you're seeing where we might actually see more upside in terms of spending based off this sort of supply-demand disruption?
Jesus Davis (07:58):
I'll start with the US. The US is definitely a, you know, a beneficiary of this, whether it's related to crude oil or LNG. We've seen exports of both go up. Just for example. You mentioned Qatar earlier in their LNG plant. They've purchased 33 spot cargoes just this year to supply Asian buyers. So those are, you know, additional volumes that, you know, I'm not really sure where they would have gone, but they definitely found a home, coming from some of the plants that have been coming online here in the US, and then also one that we thought was going to kind of taper off, and maybe not in terms of spending we're not going to see a lot, but in terms of just operational stability, Australia. Australia is going into this year, they're expecting to see, you know, a shortfall in revenue from LNG. But they're actually expecting to see a significant uptrend or significant profits from exports out of their primary plants. And then outside of that, places like Brazil. It's a slight increase. Brazil doesn't really have the capability to ramp up as quickly as places like the US, but what we're actually seeing out of Brazil, seeing from Brazil, is the destination of the crude. So they are targeting higher markets that are paying higher premiums, mainly India, parts of Asia, where they're actually going to pay more for those barrels. So seeing Brazil and Guyana and some of those other Latin American countries benefit from this quite significantly.
Shaheen Chohan (09:25):
Now, I guess with crude oil prices hovering around that $90 level and the potential for this to possibly go higher, although nobody really, really wants to see that. Has this created better economics for Canadian oil sands in particular? And I know they were always, they typically had some of the highest breakeven costs, but they've worked super, super hard to bring those costs down. Could we expect to see maybe more grassroot development coming out of Canadian oil sands, or will it just be produce more with what we've got?
Jesus Davis (10:03):
Overall, I think it's going to be a lot more, in the short term it's going to produce more with what we've got. Earlier this year, we saw IPC bringing online their Blackrod project and that's had, you know, maybe 30,000 barrels, will add once it ramps up 30,000 barrels a day of additional capacity. But really when you look at what's going on in Canadian oil sands, the economics are better. But the problem, and we'll address this again, and we've already addressed it once. The pipeline takeaway capacity. Keystone is running full like it is like it normally is. The Enbridge Lakehead system is running full. Trans Mountain is nearing full capacity. Bottom line there will need to be additional pipeline take away capacity to get that Canadian crude out before development. Oilsands developer really will move forward with that with their project. They will need be able to get that crude out one way or another, whether it's one of the two projects proposed to the West, or there's another project that's proposed to bring crude down to Cushing and ultimately down to the Gulf Coast. So before we see, you know, FIDs on some of those oil sands projects, we’ll need to see FIDs on a larger pipeline project to get that crude out of Canada.
Shaheen Chohan (11:12):
But we are seeing, I think, a much more positive stance by the Canadian government, not dissimilar to what's happening with the Trump administration in trying to fast track some of these takeaway pipeline projects, right? I mean, that's really big priority now for Canada.
Jesus Davis (11:25):
Definitely, the Canadian government is, you know, behind one of these projects, trying to push it forward, develop it, at least through permitting, and hopefully find someone that would, you know, carry forward, kind of like they do with the TransCanada or Trans Mountain came in and took over that project, but a similar process where they could carry it so far and then move it forward. But yes, the Canadian government is definitely behind, helping out the oil and gas industry in Canada right now.
Shaheen Chohan (11:49):
Now, I'd like to sort of switch across the Atlantic and get across to, you know, the North Sea. The offshore North Sea. It'd be fair to say that CapEx levels in the North Sea have been fairly moderate compared to sort of the growth that we've seen in other big oil and gas producing centers. Do you think possibly there's a new window of opportunity open for North Sea producers now that we are seeing this really quite chronic situation for supply and demand, that imbalance occurring and especially Europe's, you know, shortage of gas, right? Could we see more CapEx being channeled that direction?
Jesus Davis (12:23):
We could, we are seeing some. So just looking at what's supposed to begin construction in 2026, we're tracking about 170 projects, 170 projects in the North Sea. 93 of them are decommissioning projects. So when you look at project numbers, the bulk of it is related to the decommissioning. But when I looked at dollar value, we're tracking $43 billion in capital spending in just North Sea. So $34 billion of that is new construction. So there is a lot of capital allocated to it. There's a few new platforms, but a lot of subsidy activity as well. So we are seeing money being allocated to increase capacity. But when you just look at pure numbers it is a little discouraging at first, but when you kind of dig into it, there are some favorable trends.
Shaheen Chohan (13:09):
Okay. But in the North Sea it's less about new field development and more about developing existing operational assets. Right?
Jesus Davis (13:20):
Definitely.
Shaheen Chohan (13:20):
Now, would it be correct also to say we're kind of seeing a divergence, not only in the kind of the pattern and the location of where spending is, but a divergence now between the liquids market and the gas markets? And I think the optic is the gas market, you know, crude markets are still being treated relatively moderately, but what we're actually seeing is the gas markets, in particular LNG, starting to outshine.
Jesus Davis (13:49):
Correct. We are seeing an increase in, you know, crude exports out of the US, but we're not seeing a lot of money being allocated. Right? That's all coming out of existing assets. There are still a handful of really large VLCC loading projects that have been proposed and have been proposed for five, six, maybe more than that years. We've seen one of them actually go to FID. So that's been quite encouraging. But realistically, yes, all the money and talk is really focused on the gas markets as far as LNG. You know, every year we go in there, we say, oh, maybe 1 or 2 are going to get approved. And we've already seen, you know, three approved. And you know, we still have a few months to go. So wouldn't be surprised if we see another LNG project get approved out of North America. May not be out of the US. Definitely potential, but there's also potential for something out of Canada to get approved to get gas out of.
Shaheen Chohan (14:35):
Now with the loss of Qatari supply, as you kind of highlighted a little earlier, markets are clearly tight on the gas side. Right? And we're seeing, you know, hugely elevated gas prices around the world. Some of that must have eroded demand, right? And in particular, Asia for a long time has been the point of destination, right, for a lot of US gas and as you just said, Australian gas is now going to be channeled over to the Asian markets. But we've also seen because of these high levels of gas prices, we've seen a degree of gas to coal switching by Asian power plants. Do you think that could impact some of the upstream gas producers and certainly the LNG exporters, or do you think actually what they'll do is they will just try and move forward with projects, export more to flip it back to a coal-to-gas market?
Jesus Davis (15:26):
Honestly, I do see it flipping back. If you kind of look and see I think Mitsubishi just invested heavily in US shale, and I just think they'd rather have the flexibility or optionality to have access to everything. I think that's what it's always been is kind of an all-of-the-above approach, whether it's renewables, coal, gas, oil. Qatar been kind of sidelined right now; they are, you know, scrambling for or, you know, looking for additional supplies of LNG. But I definitely think that's going to be a long-term plan. I think we're going to continue to see more of that into the future. I don't expect to see them burning coal continuously.
Shaheen Chohan (16:09):
Now coming back to the US market in your backyard. Permian. Permian gas production is accelerating at quite a pace, right? I mean, it's outshining most other plays. Is storage and pipeline infrastructure managing to keep pace with the volume of gas production coming out of the Permian?
Jesus Davis (16:35):
The short answer is no. It's funny, when you were mentioning high prices around the world, there are high natural gas prices all around the world except for the Permian. Natural gas prices out of Permian are actually quite low compared to the rest of the world. And that's because of the lack of takeaway capacity out of the Permian. But with that, we are seeing, you know, I think we're tracking, you know, $60 billion of spending of natural gas pipelines, as well as natural gas storage facilities in the US. And I would say about $30 billion of that is really focused on the Gulf Coast area. And that's really either to get gas to LNG plants, which has been kind of a traditional thing that we've been doing. But then also with the growth in data center development, seeing a lot of pipelines being proposed that are taking gas from the Permian or even the Eagle Fort, but away from the Gulf Coast and to inland Texas and Oklahoma and even to the Rocky Mountains, to supply power plants that are being built to handle the increase in power demand that's driven by data centers. So we are seeing quite a bit of spending driven by.
Shaheen Chohan (17:35):
So have you actually seen any noticeable improvement in the FERC permitting process to help accelerate that takeaway capacity?
Jesus Davis (17:41):
So there has actually been some proposals made for adjustments to the process, but several states are pushing back on that. And not surprisingly, none of those states are Texas and Louisiana. But there are some; I think it's 13 states that are pushing back on some of the changes to regulations. So kind of like everything else, I think it's going to end up in a courtroom somewhere and kind of drag out a little longer. So I don't expect to see any immediate changes to the to the FERC process right now. But with that, we are seeing quite a few projects move forward, relatively quickly for FERC. And also, we've even seen some projects up in the northeast that were at one point canceled that have come back to life. The biggest concern is those projects are way more expensive than they were when they were canceled. So developers are dealing with that. But they obviously feel that they could get through the permitting process a little easier this time around.
Shaheen Chohan (18:35):
And when you say those projects are more expensive, that's to do with what, I guess, steel, aluminum tariffs, tight labor supply, would they? Was that what's driving cost escalation?
Jesus Davis (18:46):
Yes. All of the above. Yes. Definitely a steel cost. Tariffs are still having impact. You know, obviously the situation where the tariff is still not resolved. I think we started another 150 day, temporary, tariff process. So I think right now tariffs are between 12.5 to 15%, depending on what the product is. But we know that only lasts for 150 days. So that makes it quite difficult to propose a, you know, multi-billion dollar project when your costs can swing 10%, depending on what's going on at that time.
Shaheen Chohan (19:21):
Are we seeing LNG FIDs moving forward at pace? Obviously, we know that production levels, gas production levels are, I think, at a historical highs, right? And only projected to go higher. Are those FIDs and those decisions coming through certainly for the export side of the gas supply chain?
Jesus Davis (19:38):
Yeah. This year we've definitely seen a healthy market, a healthy activity in FIDs for LNG projects. And we still expect to see, you know, expect that to continue. So even though we are seeing, you know, price escalations and concerns there, we are seeing some of these projects still move forward.
Shaheen Chohan (20:00):
Now Jesus, I'd like to just actually step back a little bit, and just take a big broad brush view of the market. Are you seeing the big oil majors committing to higher levels of investment? I mean, in the past, you would see high prices, stimulates and incentivizes more CapEx. We are in a high price environment, but so are the big majors coming in and actually saying, yeah, we're going to build more.
Jesus Davis (20:19):
Actually they're not. I mean, we've seen Exxon and Chevron come in with record profits and, you know, record quarters, and = the name of the game is still, you know, just capital discipline. Everyone is just staying very focused and sticking to what the plans were that was that were proposed, you know, earlier this year or late last year, as far as the majors. Some of your larger independents, they have increased production and trying to, you know, benefit from the from these from this high-price environment. But overall, we're not seeing a massive increase in CapEx when it relates to, you know, oil and gas or a massive revision to CapEx. Everyone's really sticking with where they were.
Shaheen Chohan (21:00):
Over the last 24 months we've seen, I guess, a refocus, if that's the right way to look at this, on scaling up E&P activity in the Gulf of America. Clearly, with the supply-demand imbalance and still fairly generous and incentivized pricing, is capital expenditures in the offshore Gulf of America continuing?
Jesus Davis (21:20):
Was underway, continues to be underway, but we haven't seen a lot of new announcements or new FIDs in the Gulf of America. And it really just has to do with the length of time it takes to develop one of these projects. I mean, it's, you know, anywhere in a very, very quick, perfect world, you know, 4 years and some of these things drag out to, you know, 6 to 8 years. So what's going on right now, obviously, we all hope that it won't be continuing for the next, you know, several years. And if that's the case, you know, expect that oil prices will come back down. So again the majors aren't, you know, making any just knee jerk reactions and, you know, committing, you know, significant, you know, amounts of money to offshore projects to capitalize off of this. So we are seeing, you know, maybe some drilling projects here and there and some efficiency upgrades and things like that. But not seeing any major FIDs that are driven by what's going on right now.
Shaheen Chohan (22:13):
And I guess post the Biden administration moratorium on the leases in the offshore. You know, President Trump is very supportive of that part of the sector. Are these leases and these auctions, are they being well received?
Jesus Davis (22:27):
No, the auctions actually are not, not as well-received as one would expect with all of the good news, that kind of, comes before them. We're not seeing the record auctions or, I mean, I think, I don't know, for the last one or one before, but there were no bidders. So it's been, yeah, not as optimistic as we, as some of us would have thought.
Shaheen Chohan (23:00):
Sticking with the influence that geopolitics has on the oil and gas markets. Do we think we may see some additional production coming out of Venezuela? And do you think some of this actually, if it does occur, do you think some of this will actually head towards US refiners, giving them that additional optionality in terms of their crude slates?
Jesus Davis (23:20):
Yeah. It's funny that you ask. I mean, we just recently learned that Citgo Lake Charles has increased their refinery capacity from just 460,000 barrels a day to 500,000 barrels a day. And that's because they are receiving additional imports of Venezuelan crude. We have seen exports from Venezuela go up from, I think, about 800,000 barrels to maybe 1.2 million barrels and, you know, still expect to see incremental increases. But before we see any significant increases to really get them back to, you know, that big 3 million barrels that they're exporting at one point in time, estimates are, you know, there will be, you know, need to be at least 100 to $150 billion invested in a region to get production capacity back up to what it was. So we are trending the right way. But to actually get, you know, all the way back to full output, it is going to take a significant amount of money to get there.
Shaheen Chohan (24:17):
So, Jesus, in closure. Would it be safe to say that on the whole, the upstream markets specific to CapEx is below previous historical years? But I guess that statement we're seeing slightly divergent spending trends now, maybe more on gas, less on crude. I mean, what's your summary on what we're seeing?
Jesus Davis (24:42):
Yeah. Overall, if you just walked in and saw what was going on and just try to predict where CapEx would be, you would expect it to be higher than it is. Like we said, there's a lot of capital discipline that's in place right now. And even on the gas side, gas spending is definitely high. But gas spending has been high for the past 3, 4 or 5 years also. So it's not a bad thing that spending is not going up because we are at a relatively high level. But it's definitely not, you know, again, if you were just you know, had woken up from a coma and looked at what was going on, you would expect everything to be a little higher than it is. But we're holding steady, which is actually really good, because, you know, before all this started, we were starting to, you know, think about oversupply and LNG market and what was going to happen there. And, you know, this has definitely been a driver to continue spending in the natural gas side, whether it's LNG liquefaction, gas storage pipelines and even on the, on the on the crude side, we, you know, maybe not here domestically, but I think around the world, again, like I said, someplace like Latin America and other places, they are definitely trying to capitalize off of this high price environment right now.
Shaheen Chohan (25:51):
That brings us to the end of our discussion. I guess it is fair to say that the outlook across the oil and gas market is a pretty difficult one to predict right now. In normal conditions, high prices signals for more capital spending. But that relationship, I think, as we just heard, has decoupled due to the volatility that we are now seeing, certainly on the supply side. And increasingly, we are seeing a decoupling in the spending between crude oil and gas. What is assured is that we have not seen any major waves of new project cancellations, but more likely an environment where we see more project schedules possibly being pushed out, certainly into next year. I think that would probably be the most accurate summary of conditions right now. So with that, I'd just like to say a couple of thank yous. First, to the folks over at Hilco. Thank you very much for your support today. If you'd like to find out a little more about the products and services that they offer, then please do visit their website address that you can see here. And then also to you Jesus. A big thanks to you for sharing your insights and perspectives. You've really helped shed some light on what is now a very tricky market to try and get a handle on. And again, if anybody has any questions on any of the points that we discussed today, please do reach out to myself or Jesus on the contact details that you can see here. A big final thanks to all of you who've taken the time to join us. I hope we have helped you all better navigate some of the currents of change that we're seeing. Welcome to the answer age.
The oil and gas industry is navigating one of its most volatile stretches in years. Geopolitics remains the biggest disruptive force right now, leaving the market caught between an increasingly diverging supply side outlook, with the Middle East production hemmed in but with strong production levels being seen in the US and Canada. And then on the demand side, persistent monetary, trade and geopolitical uncertainty could swiftly reshape market sentiment and investment priorities, which could lead to some more clear winners. And certainly there will be some losers that emerge this year and most likely into next year too.
Shaheen Chohan (00:58):
Welcome to Navigating the Currents of Change, where we bring together over four decades of trusted research to data and industry insights built for the answer age. Let's dive in. My name is Shaheen Chohan, and I lead Global Analytics here at Industrial Info Resources. And to help me unpick some of the trends and put some answers to those questions that we're seeing, I am delighted to be joined by Jesus Davis, who is IIR’s Senior Vice President of Energy Services. Welcome, Jesus.
Jesus Davis (01:32):
Thank you Shaheen.
Shaheen Chohan (01:32):
But before we do that, I would like to say a very big thank you to today's podcast sponsor, Hilco. Hilco brings fluid contamination problems under control cost effectively with a full range of engineered filters, cartridges, reclaimer, coolant recyclers and fluid conditioning systems. Jesus, it would certainly be amiss if we didn't start our conversation about what's happening currently in the Middle East. The big question is, is it actually impacting capital spending activity? Have you seen spending levels which were due to kick off across the GC this year, have you seen any of that kind of fallout or slippage occurring?
Jesus Davis (02:17):
Yeah. We've definitely noticed some slippage in kick offs and projects in the Middle East right now. At the beginning of the year, we're tracking about 45, $46 billion worth of spending that we're supposed to kick off construction sometime this year. We're still waiting on $39 billion of that to actually move forward. So, you know, a very small portion of it did move forward. And that was probably January or early February when those projects actually kicked off. But since then, we haven't seen any of the large scale projects actually move into moving to construction yet.
Shaheen Chohan (02:52):
And I guess they'll probably be something of a reprioritization, right? I guess on the conventional side, when we saw some of those big LNG projects in Qatar and some of those offshore projects, I guess they're the ones that have probably been paused, but we've probably seen CapEx moving more towards bypass or take away capacity to try and, you know, move production that's currently being hemmed in and look at different types of options. I'm assuming pipelines must be being accelerated. Would that be right?
Jesus Davis (03:21):
Yeah. So we've seen a couple of different things. So funny you mentioned offshore. So we are seeing some of the offshore projects still move forward, but mainly with the with the off site fabrication, the topsides being fabricated, whether it's in China, Korea, we're seeing a lot of activity there. I was actually surprised when I started looking through some of the data to see some of the offshore projects moving forward, but it's really, you know, just offsite fabrication. Obviously, they're not doing any installations in in the Gulf right now with everything going on. But yeah, you're definitely correct. A lot of it is related to pipelines, new ways to avoid the Strait of Hormuz. And either get crude end products, you know, out to the Red sea or potentially even up to the Mediterranean Sea. There's pros and cons to that. Obviously, you know, the new capital spending, new pipelines, as well as new loading facilities, new terminals that will need to be built. But when you really start to look at it, especially some of these projects that are looking at going towards the Mediterranean, it doesn't really help, right? Because most of that crude that would be coming out of the Strait of Hormuz, a lot of it is destined for Asia. So if you come out of the Mediterranean Sea, that's a lot. It's a much longer, more expensive trip if you have to go all the way around the southern tip of Africa, coming out of out of the Mediterranean Sea. So obviously it is it's safer if you're on the boat, obviously rather go that way. But that does mean for a longer, more expensive voyage. Then also, when you mention reprioritization, we're going to see a lot of competition for labor. Not only within those oil and gas projects, but a lot of just reconstruction overall. Like I said, we're looking at, you know, 30 or $40 billion in CapEx to be spent on new projects. Some of the estimates I've seen for rebuild projects in the Middle East is about 58 to $60 billion. So when you have another $50 billion dumped on top of what was already happening, and we all know that, you know, in Saudi and other places, they already had very ambitious plans, to begin with. But there's just going to be a lot of, probably really going to see a lot of inflation due to labor costs. A lot of the workers and expats that are, mainly labor, comes from other places, you know, India, Bangladesh, Pakistan, Nepal and a lot of those guys, they left, right? You don't want to you don't want to stay, in that region while there's, you know, what's not the safest place to be. So a lot of them have returned home and not quite sure when they when they will return back to the Middle East region. And that just means that that labor market is going to be a lot tighter and probably a lot more expensive when they when they do, when they do return. And not to mention, you know, the supply chain issues. You know, you can't get a ship in and out or in or out of the strait right now. You know, obviously we focus on crude and LNG, but just, you know, just general materials. If you can't get in there, you can't really build anything. So, there's a lot of uncertainty. In most times we've seen, you know, when there's uncertainty. Prices seem to escalate.
Shaheen Chohan (06:19):
Now with trade flow and exports obviously hemmed in. Should we expect to see, I guess, some near-term CapEx being channeled towards storage capacity in particular? I know you talked a lot about pipeline development, but is storage a big issue now?
Jesus Davis (06:33):
Oh, yes. Storage is definitely a big issue because storage is full, right? We have a lot of right now. We're using a lot of floating storage to, you know, store this excess capacity or it's not excess capacity, but capacity that cannot be loaded on the tankers and shipped out. So in the near term, we do expect to see additional storage built, whether it's at the ports themselves or potentially, you know, in the field or some potentially smaller shop fabricated tanks just installed to help alleviate some of the oversupply. In addition to that, we have seen some of these other ports, begin to export or try to export some of the crude or, you know, take some of the crude that was coming through the strait, but they are unable to load as quickly. So there will need to be some upgrades made to be able to hopefully load some of those vessels a little faster so it could, you know, return not necessarily to pre-war levels, but just increase that capacity somewhat.
Shaheen Chohan (07:24):
Now, obviously when we have market conditions like this, there are always winners and losers. Now, the Middle East producers, as we know, we've just said, you know, are clearly being negatively impacted. But on the other side of the coin, there are clearly going to be some winners. Which countries, and in particular, are there any particular sectors that you're seeing where we might actually see more upside in terms of spending based off this sort of supply-demand disruption?
Jesus Davis (07:58):
I'll start with the US. The US is definitely a, you know, a beneficiary of this, whether it's related to crude oil or LNG. We've seen exports of both go up. Just for example. You mentioned Qatar earlier in their LNG plant. They've purchased 33 spot cargoes just this year to supply Asian buyers. So those are, you know, additional volumes that, you know, I'm not really sure where they would have gone, but they definitely found a home, coming from some of the plants that have been coming online here in the US, and then also one that we thought was going to kind of taper off, and maybe not in terms of spending we're not going to see a lot, but in terms of just operational stability, Australia. Australia is going into this year, they're expecting to see, you know, a shortfall in revenue from LNG. But they're actually expecting to see a significant uptrend or significant profits from exports out of their primary plants. And then outside of that, places like Brazil. It's a slight increase. Brazil doesn't really have the capability to ramp up as quickly as places like the US, but what we're actually seeing out of Brazil, seeing from Brazil, is the destination of the crude. So they are targeting higher markets that are paying higher premiums, mainly India, parts of Asia, where they're actually going to pay more for those barrels. So seeing Brazil and Guyana and some of those other Latin American countries benefit from this quite significantly.
Shaheen Chohan (09:25):
Now, I guess with crude oil prices hovering around that $90 level and the potential for this to possibly go higher, although nobody really, really wants to see that. Has this created better economics for Canadian oil sands in particular? And I know they were always, they typically had some of the highest breakeven costs, but they've worked super, super hard to bring those costs down. Could we expect to see maybe more grassroot development coming out of Canadian oil sands, or will it just be produce more with what we've got?
Jesus Davis (10:03):
Overall, I think it's going to be a lot more, in the short term it's going to produce more with what we've got. Earlier this year, we saw IPC bringing online their Blackrod project and that's had, you know, maybe 30,000 barrels, will add once it ramps up 30,000 barrels a day of additional capacity. But really when you look at what's going on in Canadian oil sands, the economics are better. But the problem, and we'll address this again, and we've already addressed it once. The pipeline takeaway capacity. Keystone is running full like it is like it normally is. The Enbridge Lakehead system is running full. Trans Mountain is nearing full capacity. Bottom line there will need to be additional pipeline take away capacity to get that Canadian crude out before development. Oilsands developer really will move forward with that with their project. They will need be able to get that crude out one way or another, whether it's one of the two projects proposed to the West, or there's another project that's proposed to bring crude down to Cushing and ultimately down to the Gulf Coast. So before we see, you know, FIDs on some of those oil sands projects, we’ll need to see FIDs on a larger pipeline project to get that crude out of Canada.
Shaheen Chohan (11:12):
But we are seeing, I think, a much more positive stance by the Canadian government, not dissimilar to what's happening with the Trump administration in trying to fast track some of these takeaway pipeline projects, right? I mean, that's really big priority now for Canada.
Jesus Davis (11:25):
Definitely, the Canadian government is, you know, behind one of these projects, trying to push it forward, develop it, at least through permitting, and hopefully find someone that would, you know, carry forward, kind of like they do with the TransCanada or Trans Mountain came in and took over that project, but a similar process where they could carry it so far and then move it forward. But yes, the Canadian government is definitely behind, helping out the oil and gas industry in Canada right now.
Shaheen Chohan (11:49):
Now, I'd like to sort of switch across the Atlantic and get across to, you know, the North Sea. The offshore North Sea. It'd be fair to say that CapEx levels in the North Sea have been fairly moderate compared to sort of the growth that we've seen in other big oil and gas producing centers. Do you think possibly there's a new window of opportunity open for North Sea producers now that we are seeing this really quite chronic situation for supply and demand, that imbalance occurring and especially Europe's, you know, shortage of gas, right? Could we see more CapEx being channeled that direction?
Jesus Davis (12:23):
We could, we are seeing some. So just looking at what's supposed to begin construction in 2026, we're tracking about 170 projects, 170 projects in the North Sea. 93 of them are decommissioning projects. So when you look at project numbers, the bulk of it is related to the decommissioning. But when I looked at dollar value, we're tracking $43 billion in capital spending in just North Sea. So $34 billion of that is new construction. So there is a lot of capital allocated to it. There's a few new platforms, but a lot of subsidy activity as well. So we are seeing money being allocated to increase capacity. But when you just look at pure numbers it is a little discouraging at first, but when you kind of dig into it, there are some favorable trends.
Shaheen Chohan (13:09):
Okay. But in the North Sea it's less about new field development and more about developing existing operational assets. Right?
Jesus Davis (13:20):
Definitely.
Shaheen Chohan (13:20):
Now, would it be correct also to say we're kind of seeing a divergence, not only in the kind of the pattern and the location of where spending is, but a divergence now between the liquids market and the gas markets? And I think the optic is the gas market, you know, crude markets are still being treated relatively moderately, but what we're actually seeing is the gas markets, in particular LNG, starting to outshine.
Jesus Davis (13:49):
Correct. We are seeing an increase in, you know, crude exports out of the US, but we're not seeing a lot of money being allocated. Right? That's all coming out of existing assets. There are still a handful of really large VLCC loading projects that have been proposed and have been proposed for five, six, maybe more than that years. We've seen one of them actually go to FID. So that's been quite encouraging. But realistically, yes, all the money and talk is really focused on the gas markets as far as LNG. You know, every year we go in there, we say, oh, maybe 1 or 2 are going to get approved. And we've already seen, you know, three approved. And you know, we still have a few months to go. So wouldn't be surprised if we see another LNG project get approved out of North America. May not be out of the US. Definitely potential, but there's also potential for something out of Canada to get approved to get gas out of.
Shaheen Chohan (14:35):
Now with the loss of Qatari supply, as you kind of highlighted a little earlier, markets are clearly tight on the gas side. Right? And we're seeing, you know, hugely elevated gas prices around the world. Some of that must have eroded demand, right? And in particular, Asia for a long time has been the point of destination, right, for a lot of US gas and as you just said, Australian gas is now going to be channeled over to the Asian markets. But we've also seen because of these high levels of gas prices, we've seen a degree of gas to coal switching by Asian power plants. Do you think that could impact some of the upstream gas producers and certainly the LNG exporters, or do you think actually what they'll do is they will just try and move forward with projects, export more to flip it back to a coal-to-gas market?
Jesus Davis (15:26):
Honestly, I do see it flipping back. If you kind of look and see I think Mitsubishi just invested heavily in US shale, and I just think they'd rather have the flexibility or optionality to have access to everything. I think that's what it's always been is kind of an all-of-the-above approach, whether it's renewables, coal, gas, oil. Qatar been kind of sidelined right now; they are, you know, scrambling for or, you know, looking for additional supplies of LNG. But I definitely think that's going to be a long-term plan. I think we're going to continue to see more of that into the future. I don't expect to see them burning coal continuously.
Shaheen Chohan (16:09):
Now coming back to the US market in your backyard. Permian. Permian gas production is accelerating at quite a pace, right? I mean, it's outshining most other plays. Is storage and pipeline infrastructure managing to keep pace with the volume of gas production coming out of the Permian?
Jesus Davis (16:35):
The short answer is no. It's funny, when you were mentioning high prices around the world, there are high natural gas prices all around the world except for the Permian. Natural gas prices out of Permian are actually quite low compared to the rest of the world. And that's because of the lack of takeaway capacity out of the Permian. But with that, we are seeing, you know, I think we're tracking, you know, $60 billion of spending of natural gas pipelines, as well as natural gas storage facilities in the US. And I would say about $30 billion of that is really focused on the Gulf Coast area. And that's really either to get gas to LNG plants, which has been kind of a traditional thing that we've been doing. But then also with the growth in data center development, seeing a lot of pipelines being proposed that are taking gas from the Permian or even the Eagle Fort, but away from the Gulf Coast and to inland Texas and Oklahoma and even to the Rocky Mountains, to supply power plants that are being built to handle the increase in power demand that's driven by data centers. So we are seeing quite a bit of spending driven by.
Shaheen Chohan (17:35):
So have you actually seen any noticeable improvement in the FERC permitting process to help accelerate that takeaway capacity?
Jesus Davis (17:41):
So there has actually been some proposals made for adjustments to the process, but several states are pushing back on that. And not surprisingly, none of those states are Texas and Louisiana. But there are some; I think it's 13 states that are pushing back on some of the changes to regulations. So kind of like everything else, I think it's going to end up in a courtroom somewhere and kind of drag out a little longer. So I don't expect to see any immediate changes to the to the FERC process right now. But with that, we are seeing quite a few projects move forward, relatively quickly for FERC. And also, we've even seen some projects up in the northeast that were at one point canceled that have come back to life. The biggest concern is those projects are way more expensive than they were when they were canceled. So developers are dealing with that. But they obviously feel that they could get through the permitting process a little easier this time around.
Shaheen Chohan (18:35):
And when you say those projects are more expensive, that's to do with what, I guess, steel, aluminum tariffs, tight labor supply, would they? Was that what's driving cost escalation?
Jesus Davis (18:46):
Yes. All of the above. Yes. Definitely a steel cost. Tariffs are still having impact. You know, obviously the situation where the tariff is still not resolved. I think we started another 150 day, temporary, tariff process. So I think right now tariffs are between 12.5 to 15%, depending on what the product is. But we know that only lasts for 150 days. So that makes it quite difficult to propose a, you know, multi-billion dollar project when your costs can swing 10%, depending on what's going on at that time.
Shaheen Chohan (19:21):
Are we seeing LNG FIDs moving forward at pace? Obviously, we know that production levels, gas production levels are, I think, at a historical highs, right? And only projected to go higher. Are those FIDs and those decisions coming through certainly for the export side of the gas supply chain?
Jesus Davis (19:38):
Yeah. This year we've definitely seen a healthy market, a healthy activity in FIDs for LNG projects. And we still expect to see, you know, expect that to continue. So even though we are seeing, you know, price escalations and concerns there, we are seeing some of these projects still move forward.
Shaheen Chohan (20:00):
Now Jesus, I'd like to just actually step back a little bit, and just take a big broad brush view of the market. Are you seeing the big oil majors committing to higher levels of investment? I mean, in the past, you would see high prices, stimulates and incentivizes more CapEx. We are in a high price environment, but so are the big majors coming in and actually saying, yeah, we're going to build more.
Jesus Davis (20:19):
Actually they're not. I mean, we've seen Exxon and Chevron come in with record profits and, you know, record quarters, and = the name of the game is still, you know, just capital discipline. Everyone is just staying very focused and sticking to what the plans were that was that were proposed, you know, earlier this year or late last year, as far as the majors. Some of your larger independents, they have increased production and trying to, you know, benefit from the from these from this high-price environment. But overall, we're not seeing a massive increase in CapEx when it relates to, you know, oil and gas or a massive revision to CapEx. Everyone's really sticking with where they were.
Shaheen Chohan (21:00):
Over the last 24 months we've seen, I guess, a refocus, if that's the right way to look at this, on scaling up E&P activity in the Gulf of America. Clearly, with the supply-demand imbalance and still fairly generous and incentivized pricing, is capital expenditures in the offshore Gulf of America continuing?
Jesus Davis (21:20):
Was underway, continues to be underway, but we haven't seen a lot of new announcements or new FIDs in the Gulf of America. And it really just has to do with the length of time it takes to develop one of these projects. I mean, it's, you know, anywhere in a very, very quick, perfect world, you know, 4 years and some of these things drag out to, you know, 6 to 8 years. So what's going on right now, obviously, we all hope that it won't be continuing for the next, you know, several years. And if that's the case, you know, expect that oil prices will come back down. So again the majors aren't, you know, making any just knee jerk reactions and, you know, committing, you know, significant, you know, amounts of money to offshore projects to capitalize off of this. So we are seeing, you know, maybe some drilling projects here and there and some efficiency upgrades and things like that. But not seeing any major FIDs that are driven by what's going on right now.
Shaheen Chohan (22:13):
And I guess post the Biden administration moratorium on the leases in the offshore. You know, President Trump is very supportive of that part of the sector. Are these leases and these auctions, are they being well received?
Jesus Davis (22:27):
No, the auctions actually are not, not as well-received as one would expect with all of the good news, that kind of, comes before them. We're not seeing the record auctions or, I mean, I think, I don't know, for the last one or one before, but there were no bidders. So it's been, yeah, not as optimistic as we, as some of us would have thought.
Shaheen Chohan (23:00):
Sticking with the influence that geopolitics has on the oil and gas markets. Do we think we may see some additional production coming out of Venezuela? And do you think some of this actually, if it does occur, do you think some of this will actually head towards US refiners, giving them that additional optionality in terms of their crude slates?
Jesus Davis (23:20):
Yeah. It's funny that you ask. I mean, we just recently learned that Citgo Lake Charles has increased their refinery capacity from just 460,000 barrels a day to 500,000 barrels a day. And that's because they are receiving additional imports of Venezuelan crude. We have seen exports from Venezuela go up from, I think, about 800,000 barrels to maybe 1.2 million barrels and, you know, still expect to see incremental increases. But before we see any significant increases to really get them back to, you know, that big 3 million barrels that they're exporting at one point in time, estimates are, you know, there will be, you know, need to be at least 100 to $150 billion invested in a region to get production capacity back up to what it was. So we are trending the right way. But to actually get, you know, all the way back to full output, it is going to take a significant amount of money to get there.
Shaheen Chohan (24:17):
So, Jesus, in closure. Would it be safe to say that on the whole, the upstream markets specific to CapEx is below previous historical years? But I guess that statement we're seeing slightly divergent spending trends now, maybe more on gas, less on crude. I mean, what's your summary on what we're seeing?
Jesus Davis (24:42):
Yeah. Overall, if you just walked in and saw what was going on and just try to predict where CapEx would be, you would expect it to be higher than it is. Like we said, there's a lot of capital discipline that's in place right now. And even on the gas side, gas spending is definitely high. But gas spending has been high for the past 3, 4 or 5 years also. So it's not a bad thing that spending is not going up because we are at a relatively high level. But it's definitely not, you know, again, if you were just you know, had woken up from a coma and looked at what was going on, you would expect everything to be a little higher than it is. But we're holding steady, which is actually really good, because, you know, before all this started, we were starting to, you know, think about oversupply and LNG market and what was going to happen there. And, you know, this has definitely been a driver to continue spending in the natural gas side, whether it's LNG liquefaction, gas storage pipelines and even on the, on the on the crude side, we, you know, maybe not here domestically, but I think around the world, again, like I said, someplace like Latin America and other places, they are definitely trying to capitalize off of this high price environment right now.
Shaheen Chohan (25:51):
That brings us to the end of our discussion. I guess it is fair to say that the outlook across the oil and gas market is a pretty difficult one to predict right now. In normal conditions, high prices signals for more capital spending. But that relationship, I think, as we just heard, has decoupled due to the volatility that we are now seeing, certainly on the supply side. And increasingly, we are seeing a decoupling in the spending between crude oil and gas. What is assured is that we have not seen any major waves of new project cancellations, but more likely an environment where we see more project schedules possibly being pushed out, certainly into next year. I think that would probably be the most accurate summary of conditions right now. So with that, I'd just like to say a couple of thank yous. First, to the folks over at Hilco. Thank you very much for your support today. If you'd like to find out a little more about the products and services that they offer, then please do visit their website address that you can see here. And then also to you Jesus. A big thanks to you for sharing your insights and perspectives. You've really helped shed some light on what is now a very tricky market to try and get a handle on. And again, if anybody has any questions on any of the points that we discussed today, please do reach out to myself or Jesus on the contact details that you can see here. A big final thanks to all of you who've taken the time to join us. I hope we have helped you all better navigate some of the currents of change that we're seeing. Welcome to the answer age.
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*This episode is brought to you by Industrial Info's Latin American Office in Argentina.