Energy Snapshot: Industry themes - July 2018

As oil prices settle at above US$70, we address the question as to whether costs are sustainable at current levels. Offshore costs reached a nadir in 2017 but outlook suggests that over-capacity will remain which will constrain costs. There is a healthy level of projects being sanctioned, but still below the levels of 5-10 years ago. Costs also play a significant role in US tight oil as the service sector continues to be squeezed, particularly in the Permian. In our long-term outlook for oil, we increased oil demand which we forecast to peak in 2036 at 110 million b/d. Oil displaced by electric vehicles is also updated. In the shorter-term OPEC / non-OPEC are slated to bring 1 million b/d back to the market with Brent averaging US$73 in both 2018 and 2019. In LNG, a upwards shift in demand is driving intense competition between new LNG projects to fill the potential supply gap beyond 2022. It also means that our price outlook for gas, especially in Europe has been increased.