Following ‘very promising 2023’, energy services sector anticipated to grow to $1 trillion

The global market for oil and gas contractors is expected to rise to a peak of $1 trillion in 2025 and remain at high levels for several years, according to a report by energy intelligence group Rystad Energy.

For the 2022-2028 period, overall oil and gas spending is anticipated to stay above $920 billion annually on average, supported by strong growth in the midstream part of the industry to liquefy, transport, and re-gasify natural gas, Rystad Energy said.

The report states that oilfield service suppliers should be able to balance out the downturn by branching out into other parts of the wider energy market, expanding the overall target market for contractors, despite the risk that another downturn cycle in oil and gas may occur after 2025.

The key for suppliers is said to lay in continuing to chase opportunities within geothermal energy, hydrogen, offshore wind, and carbon capture, utilization and storage (CCUS).

Together with oilfield services, expansion into other areas could provide a $1 trillion market for suppliers by 2025. Rystad Energy believes that all service segments among the oil and gas suppliers will grow in nominal terms, led by them targeting equipment and materials and those providing operations and maintenance services.

Even though the next seven years are expected to provide a strong market for energy services, companies still have to improve their economics to make it a feast, however, the good thing is that overall utilization is improving rapidly as suppliers are careful not to overinvest in more capacity as rigs, vessels, plants, and other units in the supply chain are affected by natural wear and tear.

The result is better pricing for suppliers as the past 12 months have driven up prices for offshore and land rigs, frac fleets, proppant, OCTG, vessels, and subsea infrastructure to levels not seen in the last ten years.

“Global oil and gas suppliers look set to echo the biblical story about the Egyptian pharaoh’s dream of seven years of feast and seven years of famine – only in the opposite order. All signs point towards 2022 being the start of another super cycle for the energy services sector,” said Audun Martinsen, partner and Head of energy service research at Rystad Energy.

After the rebound in 2022, which was a turning point with the post-pandemic recovery and record high gas prices and strong oil prices, Rystad claims the industry is entering a very promising 2023, with potential for 13 per cent growth both for oil and gas investments and 10 per cent for low-carbon investments.

The oilfield service industry has had a rocky ride since 2014, Rystad said, explaining that this resulted in oil and gas suppliers not getting the several subsequent years of growth they needed to convert operations into a profitable healthy business in the new market environment.

From its peak in 2014 to the trough in 2021, revenue fell almost 60 per cent for the biggest contractors. Despite some optimism in 2017-19, the market did not really take off as oil and gas producers maintained strict cash discipline and some segments in the supply chain struggled with continued overcapacity.

In the mentioned period, some regions and segments saw pockets of lucrative markets, but overall, on a corporate level, global players have not been able to turn the tide. Rystad’s analysis of the largest publicly listed service players shows that overall earnings, operational cash flow, margins, and stock performance have also been challenging, and it was not only revenues that were depressed for seven years.

The energy intelligence firm concludes that suppliers have not been able to cut costs, adjust capacity, and cope with their debt to a degree that would allow them to turn lower market activity into a profitable business and companies have been clinging on to assets, hoping to boost their market share quickly in a future market recovery – a recovery which has been delayed – until now.