Global upstream spending seen rising 5% in 2010 as confidence grows

London (Platts)--11Nov2010/739 am EST/1239 GMT

Global upstream capital spending is likely to grow by 5% this year to exceed $380 billion, but global spending may require another three years to return to record 2008 levels, energy consultants Wood Mackenzie said Thursday. Total upstream spending will recover to around $380 billion in 2010, $19 billion higher than in 2009 but still 10% lower than the historical high of 2008, Wood Mackenzie's regional upstream research manager Iain Brown said in a statement. "It is clear from our understanding of operators' plans in the autumn of 2010, that confidence has returned to many regions and sectors of the industry, although this effect is far from consistent across the world," Brown said. He said, while confidence has returned to many regions and sectors of the upstream industry, the revival is set to continue over the next three years and global spending could recover to 2008 levels by 2012 or 2013. Brown said, following the financial and economic crisis of late-2008, many higher cost capital upstream projects were delayed, shelved or abandoned, and annual spending dropped by over $55 billion. "Now, just one year on, the industry has proven remarkably resilient. Many plans have been restored or expanded, in the expectation that demand and commodity prices will remain relatively robust over the longer-term," Brown said. One of the most "spectacular" regions of global upstream spending recovery is the US where investment in unconventional resources, particularly shale gas, has supported spending. As result, total upstream spend will likely return close to peak levels 2008 by 2011, Brown said. Leading growth areas include the northeastern US--where spending could exceed $11 billion in 2013, up from around $3 billion in 2009. Elsewhere, record growth in capital spending is already under way in Australia, where new project approvals and major gas developments will see capital expenditure grow threefold by 2013, Wood Mackenzie said. In Iraq, upstream investment is likely to climb rapidly to $10 billion in the next three years. In Canada and Russia, however, spending recovery will be slower as the regions were more deeply affected by the global crisis, with upstream spending reduced by around one-third through 2009. "Both countries have experienced a modest recovery, but current plans suggest that spending will not return to 2008 levels until towards the end of the decade," Brown said. More than half of future upstream investment will come from the multinational oil majors and a range of prominent national oil companies such as PetroChina which is pursing an international expansion strategy. --Robert Perkins, robert_perkins@platts.com