Oil may be the typical headline grabber, but natural gas is gaining more attention from major operators, which are increasing its share in their production mixes.

Analysts with Douglas-Westwood say the move, which has been evolving since 2006, is partly being driven by an increasing need for gas in power generation, especially in emerging markets.

Among the companies that are raising the share of natural gas are BP Plc (NYSE: BP), Chevron Corp. (NYSE: CVX), ConocoPhillips (NYSE: COP), Eni, ExxonMobil Corp. (NYSE: XOM), Petrobras, Statoil ASA (NYSE: STO) and Total.

But the largest shift in the production mix has been made by CNPC, which Douglas-Westwood analyst Matt Adams said increased the gas share of its production mix to 38% in 2015 compared with 27% in 2006.

“That’s driven by China’s appetite for gas, which has been one of the major sources of demand growth globally for the past 10 years,” Adams said Dec. 9 during the firm’s Upstream Investment Outlook webcast.

This comes as the global demand for natural gas also increases. The International Energy Agency (IEA) forecasts natural gas consumption will rise by 50% by 2040 as oil demand growth slows and coal consumption nears a halt. The IEA also forecasts that the natural gas share of the global energy mix will grow by 2% annually until 2020.

Adams pointed out that the increase of gas in production mixes by IOCs is the result of a combination of changing company strategies and declining oil output from historic resource basins.

“In the future we’re expecting investment in gas capture and transport to continue,” he added. “It’ll be an important trend through the next few years and an important growth area for the future of the oil and gas industry,” especially following the COP 21 Paris Agreement and efforts to curb emissions.

Douglas-Westwood called the outlook for LNG and floating LNG prosperous, with Adams saying “it’s an effective solution to the problems of gas export between remote resource bases and construction hubs.”

The gas trend was one of several areas covered in Douglas-Westwood’s investment outlook. The firm also forecasts:

  • A rebalanced market in 2017 with a 70,000 barrel per day (Mbbl/d) undersupply. Oil prices are expected to average about $57/bbl in 2017 and jump to $64/bbl in 2018.
  • A recovery in oilfield service spending, particularly for onshore in 2017. Onshore drilling activity in the U.S., for example, is expected to continue rebounding as it has in the last six months, Adams said. But not to levels seen in 2014. The number of oil rigs pumping in the U.S. jumped by 21 to end the week of Dec. 9 at 498, according to the latest Baker Hughes Inc. rig count report. Although the count marked the highest since July 2015, it was still below the 524 oil rigs that were operating around this time last year.
  • However, the story is quite not the same for oilfield equipment, spending for which Douglas-Westwood forecasts is “likely to be suppressed to 2020 due to a lack of offshore project sanctioning and oversupply in many equipment markets.” Such equipment includes floating platforms, drillbits, pumps, valves, artificial lifts, and onshore and offshore rig construction, Adams said.

“It’s important to bear in mind the trajectory for these markets are going to be heavily dependent on how the OPEC cuts comes into force next year, how the U.S. responds to that and how drilling activity responds,” Adams said. Earlier he noted the firm believes that OPEC will actually cut only 70% of the agreed-upon 1.2 MMbbl/d.

Douglas-Westwood anticipates the onshore projects will recover quicker than others, mainly because of their short lead times and relatively low capex requirements. “There is also a fairly significant spar capacity across most of the supply chains, particularly in the U.S., where the rig count is still in the low 500s compared to about 1,800 back in 2014,” he said.

Turning to offshore, Adams said subsea tiebacks and fixed platforms in shallow-water developments could follow onshore projects in the recovery due to factors similar to those onshore—short lead times, relatively low capex requirements and the availability of inexpensive rigs.

But a near-term rebound in the deepwater and newbuild FPSO markets didn’t appear on the cards. Such projects will not be implemented for several years after a financial investment decision is reached, according to the firm.

Velda Addison can be reached at vaddison@hartenergy.com.