Upstream capital investment will reach historic peak in 2012, says Wood Mac study

While the rest of the economy is still recovering sluggishly, expected investment in upstream capital spending is at a record high of $550 billion for 2012 but is likely to slow down in the coming years, according to a recent report by Wood Mackenzie.

Confidence in high oil prices and new opportunities worldwide have pushed capital development spending $55 billion higher than in 2011 and $120 billion higher than pre-recession investment in 2008, the report said. This growth, however, has  been driven largely by North American investment in unconventional reservoirs, with investment in other markets slowing.

“We do not expect another year-on-year increase of 12 percent or more,” Wood Mackenzie said in the report. “A number of major provinces are at or close to their historical peak levels of investment and the pace of growth is being constrained by practical issues, such as local shortages of construction capacity (Brazil, Australia), limited infrastructure (Iraq, Brazil, U.S. tight oil) and political issues (Nigeria, Mexico, Libya, Iran, Syria).”

Upstream investment in North America makes up about 30 percent of the capital spending, mostly in unconventional reservoirs, where Wood Mackenzie expects to see the bulk of future investment growth. Investment in tight oil projects, for example, has quadrupled since 2010 in North America and is expected to reach $80 billion by 2015.

Offshore U.S. spending in the Gulf of Mexico also is expected to continue to grow at historic rates, Wood Mackenzie said, with investment levels exceeding their pre-Macondo peak in large developments such as Atlantis and Bigfoot, and in new exploration.

The U.S., Canada, Russia and China rank the highest in terms of upstream investment now, but Australia is expected to receive $50 billion in capital investment in 2013, making it the highest growing investment target after the U.S.

The rate of growth for 2012 reflects expectations that oil prices will continue at around $90 per barrel, confidence in the unconventional resource plays and tight oil opportunities, and high levels of oil and gas cost inflation in high activity areas, including the U.S.