The recent announcement that a permit will not be granted for the Dakota Access Pipeline to drill under the Missouri river, following strong opposition on environmental grounds, is a clear example of the challenges facing the onshore pipeline industry. Sustained low oil prices have also curtailed investment in early feasibility studies and front-end engineering and design (FEED) work, with the impact of the downturn on capital expenditure and installation activity most likely to be seen towards the end of the decade.
However, Douglas-Westwood's (DW) World Onshore Pipelines Market Forecast 2017-2021 expects the onshore pipelines market to be sheltered in the near-term from the impact of low oil prices, as projects sanctioned prior to the downturn are expected to contribute to an increase in installation activity in 2017. Notably, the global number of additional kilometres installed is forecast to rise by 5% from 59,769km to 63,025km, with projects such as the 4th West-East pipeline in China and the Gwadar to Kashgar oil pipeline in Pakistan expected to contribute to capital expenditure. Post-2017, Douglas-Westwood expects global capital expenditure to decline by 23% over the 2018-2021 period, reaching $34.8bn in 2021, as the industry experiences the delayed impact of the downturn.
Despite the impact of the downturn, changing energy mixes, and increased demand for gas in regions such as Asia, are expected to remain stable long-term drivers for the industry. Subsequently, Douglas-Westwood expects gas pipelines to account for an increased proportion of additional kilometres installed over the next five years, with a share of 64%, compared with 57% over the 2012-2016 period.
The outlook for the operations and maintenance (O&M) sector for onshore pipelines is also positive, with the fundamental drivers for expenditure – including more stringent regulation, and an aging population of pipelines – being less impacted by the downturn. Larger projects have typically been more impacted in terms of delays to decisions relating to replacement schedules and costs. However, the underlying need to perform essential repair and remediation works remains. This is particularly the case in regions such as North America and Western Europe, where there is a strong regulatory environment, providing opportunities for contractors across the O&M supply chain.
Katy Smith, Douglas-Westwood London
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