Upstream oil & gas sector to increase automation spend

London -Despite the economic downturn, automation expenditures by the upstream oil and gas sector, which includes exploration, production, and pipelines, are set to grow at a compounded annual growth rate (CAGR) of 9% over the next five years, according to a new ARC Advisory Group study. It forecasts the market to be worth $10.4 billion by 2012, compared to $6.9 billion in 2007.

While oil and gas companies have responded to the downturn, they still plan to make major investments in coming years to build capacity for an inevitable increase in demand over the long term, according to ARC analyst Allen Avery, the principal author of the study 'Automation Expenditures for Upstream Oil & Gas Industry Worldwide Outlook'.

“With the global economic downturn as a backdrop, it would be understandable if oil companies were to dial back their capital investments as a response to reduced demand and falling oil prices. However, many of the major oil companies are maintaining their capital spending plans into 2009 and beyond,” said Avery.

With access to only a minority percentage of proven reserves, integrated oil companies must attempt to replace their reserves in remote areas that are much less hospitable and more dangerous — both environmentally and politically, the report noted. This, it said is driving huge expenditures in large, complex, and difficult capital projects in the production segment.

Demand for petroleum products are estimated to increase substantially as the economies in developing regions improve and per capita energy consumption increases. Today’s production and processing capacities struggle to keep ahead of the demand curve and both upstream and midstream facilities will need to be expanded.

New sources, such as tar sands, shale oil, and coal-to-liquid gas, will require new midstream and production facilities to be developed, increasing demand for automation systems and field devices, the report added.

Regionally, Asia’s share of sales will reach 25%, and while expenditures in Latin America will nearly double over the next five years. Despite the strong growth in developing regions, the Middle East, home to the world’s largest conventional oil and gas deposits, will grow at average rates, said ARC. North America’s upstream business, because it relies on non-conventional projects such as the Canadian Tar Sands, is expected to trail the market.