As the global economy gradually recovers from the COVID-19 pandemic, the world price of crude oil is expected to surge by 42.9% in 2021 and remain stable in 2022.
Oil markets have experienced significant volatility over the past 18 months. According to the BP Statistical Review of World Energy, global oil consumption fell by 9.3% in 2020 to 88.5 million barrels per day, while Australian consumption fell by approximately 13.7%. Operators in the Oil and Gas Extraction industry have been hit hard by price volatility, with revenue falling by 32.6% in 2020-21. Travel restrictions continue to weigh on global oil demand. However, conditions have been improving, with oil consumption projected to return to pre-pandemic levels in 2022.
‘Oil prices remain volatile, with demand conditions still depressed due to the ongoing pandemic. However, recovering demand conditions and OPEC’s willingness to limit supply will likely support prices in the short term,’ said IBISWorld Senior Industry Analyst James Thomson.
Operators in the Petroleum Refining and Petroleum Fuel Manufacturing industry have also endured subdued demand throughout the pandemic. This, combined with declining profit margins due to import competition over the past decade, has led to two of Australia’s four major refineries ceasing production over the past year.
‘Government support is expected to assist with the ongoing operations and return to profitability of Australia’s two remaining refineries. Australia’s refinery output is anticipated to fall by approximately one-third in 2021-22,’ said Mr Thomson.
As domestic demand for crude oil declines, Australian producers are forecast to increasingly rely on export markets over the next five years. Exports are projected to account for over 90% of Australian production volume in 2021-22, up from around 80% five years ago. The Office of the Chief Economist expects Australia’s oil exports to grow by over 40% in 2021-22, to $10.9 billion.
Exploration expenditure
Expenditure on petroleum exploration rose by 7.3% in the March 2021 quarter, to total $283.4 million, signalling improved conditions for exploration companies. However, exploration expenditure remains near ten-year lows.
‘IBISWorld anticipates exploration expenditure to continue recovering, with revenue for the Oil and Mineral Exploration Drilling industry projected to rise by 9.7% in 2021-22,’ said Mr Thomson.
Onshore exploration has increased as a share of expenditure over the past five years, at the expense of offshore exploration. In June 2021, the Australian Government imposed a $0.48 per barrel levy on offshore oil producers to subsidise the decommissioning of the Northern Endeavour facility in the Timor Sea. This levy is expected to create uncertainty and may further constrain investment in the sector, weighing on Australia’s future oil production.
Outlook
Environmental, social and governance concerns have been an increasing focus for both institutional and retail investors in recent years, constraining investment in companies exposed to fossil fuels. This factor has compelled some diversified mining companies and major operators in the oil and gas sector to divest assets and commit to net zero targets. For example, BP and Shell have set targets to reach net zero emissions by 2050, and committed to divesting fossil fuel assets and boosting investment in renewable energy projects. Despite rising environmental concerns, global oil demand is projected to continue rising over the next five years, with the majority of growth expected to come from Asia. Public concern over environmental issues in Australia is expected to rise by 4.2% in 2021-22.
‘Australian oil producers are well placed to benefit from rising demand in Asia. With more firms committing to net zero targets, Australian producers have an opportunity to export oil and certify shipments as carbon neutral using offsets,’ said Mr Thomson.
Revenue in the Oil and Gas Extraction industry is forecast to increase at an annualised 4.0% over the five years through 2026-27, to $69.4 billion. Industry enterprise and employment numbers are projected to grow as rising prices and recovering demand conditions attract new entrants. Industry profit margins are forecast to increase over the next five years, as oil and gas prices recover and extraction efficiency improves.
IBISWorld reports used to develop this release:
- Oil and Gas Extraction in Australia
- Oil and Mineral Exploration Drilling in Australia
- Petroleum Refining and Petroleum Fuel Manufacturing in Australia
For more information, to obtain industry reports, or arrange an interview with an analyst, please contact:
Jason Aravanis
Strategic Media Advisor – IBISWorld Pty Ltd
Tel: 03 9906 3647
Email: mediarelations@ibisworld.com
