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Oil demand is rising globally, and it is anticipated to continue for many years to come. With COVID-19 vaccines being carried out globally, economies began to expand, demand for oil and gas is recovering.
Oil prices will remain below USD70/bbl from 2022 to 2023, averaging about USD66/bbl. In 2022, the rig count will be approximately 90% of the pre-crash annual average.
The North American rig count is gradually increasing as activity has begun to recover sooner than expected. There should be plenty of adequate rigs available for contract. However, many of those rigs would have been inactive for more than a year, and consumers will be responsible for the expenses of reactivation.
Capacity, capability, and utilization trends: Regional supply capacity—North America
Chart 1: Onshore drilling rig fleet by region
USD58 billion is expected to be allocated by firms to US drilling and completion capital spending this year, about 7% more compared with USD54 billion last year. Conservative optimism describes the nature of upstream investments as producers attempt to satiate the US economy’s ballooning appetite for energy while moderating long-term growth.
According to the first-quarter 2021 forecast, US rig activity will average 540 this year and almost 725 in 2022. However, as WTI prices have increased, US independent operators have resisted the desire to expand operations, with the overall lower 48 onshore rig count barely hitting 450 in April of this year. Private operators have been more active, but given the typically lower productivity acreage, output cannot be anticipated to rise at the previously planned rate. According to this forecast, US rig activity will be just under 500 in 2021 and about 700 the following year.
The call for the closure of the Enbridge Line 5 cross-border pipeline, which is a 70-year old structure and risks serious leaks, led the United States and Canada to a bitter conflict. The closure would put a significant restriction on Alberta export capacity that is already hampered by the cancelation of the Keystone XL project.
The democratic Governor Gavin Newsom of California instructed state agencies in April 2021 to start regulatory measures to phase down fracking permits by 2024. He also instructed the state regulators to explore ways of phasing out the production of hydrocarbons by 2045.
Chart 2: Rig counts for North America
Chart 3: Rig fleet for top North American companies
Despite low rig counts, retirements were well below 2019 retirements of 179, US and 43, Canada. This suggests that most of the low productive rigs had already left the market in the past five years.
Extensive new building will not happen in the next two years with the present rig count forecast. New rigs will be built to push the technology further and replace rigs reaching the end of their life span, but not to fill a hole in the North America market.
In addition, the energy transition, company, and national level net zero-emission pledges will influence rig demand, but most of this influence will occur beyond our forecast window. However, there has already been moratoriums and bans on restricting drilling. The political and regulatory shift toward green energy will make building pipelines, especially in North America, increasingly difficult. Lack of pipeline takeaway will slow rig demand.
Learn more about the drilling industry in our webinar, Unboxing the Black Box: New Techniques for Understanding Drivers of Basin Performance.
