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Editorial comment

The onshore pipeline industry has weakened due to the oil price downturn. While the current lack of investment in the development of new projects will likely impact the market towards the end of the decade, CAPEX and installation activities are expected to be sheltered in the near term by prior sanctioned projects.

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The onshore pipeline market has been affected by sustained low commodity prices, as operators look to reduce budgets and maximise cost efficiencies. Investment in early feasibility studies and front-end engineering and design work for new projects has been curtailed, meaning that the market is likely to experience a degree of downturn towards the end of the decade, even if the oil price recovers.

The global number of kilometres installed will rise by 5%, from 59 769 - 63 025 km. Projects expected to contribute to this rise include the 5200 km West-East IV gas pipeline (China) and the 2500 km Gwadar-Kashgar oil pipeline (Pakistan). Subsequently, global CAPEX in 2017 is forecast to increase by 12%, from US$40.6 billion to US$45.6 billion.

Post-2017, Douglas-Westwood expects a decline in both additional kilometres installed and CAPEX towards the end of the decade, as the market experiences the delayed impact of the oil price downturn. Global CAPEX is forecast to decline by 24% in 2017 - 2021, reaching US$34.8 billion in 2021. While installation activity is expected to fall by 21% over the same period, total CAPEX in 2017 - 2021 is forecast to increase by 5%, amounting to US$202.8 billion.

As per the previous five years, North America is expected to contribute the largest proportion of additional kilometres installed over the forecast period, albeit with a reduced market share of 36% compared with 44% over 2012 - 2016. Key projects expected to contribute to installation activity within the region over the forecast period include the Alaska Stand Alone gas pipeline and the Canada’s Prince Rupert gas transmission project. North America will also dominate OPEX, accounting for 37% of the market.

Eastern Europe and the Former Soviet Union is forecast to be more resilient to the downturn with regards to CAPEX and installation activity. Installation activity in the region is predicted to rise by 17% over the 2017 - 2019 period, driven by projects such as Russia’s Power of Siberia 1, Power of Siberia 2 and Murmansk-Volkhov pipelines.

Yet, changing energy mixes and increased demand for gas, particularly in China and India, will remain long term drivers for pipeline installations. According to BP, 30% of the increase in gas demand to 2035 is expected to come from China and India alone. Douglas-Westwood expects gas pipelines to continue to gain market share over the forecast period, accounting for 64% of additional kilometres installed over 2017 - 2021.

The operations and maintenance (O&M) sector is looking more positive due to the need to undertake repair and remedial work for ageing pipelines. In North America and Western Europe, a regulatory environment requires operators to align with specific regulations and legislations. Typically, larger projects have been more impacted by delayed decisions regarding replacement schedules. Global OPEX is expected to rise at a CAGR of 4% over the 2017 - 2021 period, reaching US$28.3 billion in 2021.

As per the previous five years, routine operations are expected to account for the largest proportion of OPEX in 2017 - 2021, with a share of 56%.

The integrity management sector is becoming an area of increased focus, given the increasing installed base of pipelines. Douglas-Westwood expects this sector to account for 14% of the next five year’s total OPEX.

O&M expenditure for pipeline stations and expenditure allocated to technical and land management support are expected to account for 21% and 8% respectively of total OPEX in 2017 - 2021.

Public opposition will continue to act as a key barrier to installation activity over the forecasted period. Notably, both the Keystone XL and Dakota Access pipelines have experienced delays due to fierce opposition on environmental grounds.

Security also remains a prominent obstacle. Route surveillance is an ongoing concern for the TAPI pipeline, which will pass through Afghanistan’s southern Helmand province and Pakistan’s Balochistan province.

Geopolitical issues also have the potential to delay interregional pipeline projects. For example, the signature of an agreement for Gazprom’s TurkStream was suspended until October 2016 following political tensions relating to the conflict in Syria.

Conversely, lifting international nuclear-related sanctions against Iran in January 2016 could be a potentially significant opportunity for contractors within the global supply chain.