Low Oil Prices Makes $1.5 Trillion in Oil, Gas Invesments Obsolete
As slump in oil prices continues forward, the investments in global energy sector are under pressure. A report from energy research company Wood Mackenzie, which published today, said that oil and natural gas projects worth $1.5 trillion are uneonomic under this circumstances.
According to Wood Mackenzie, spending is down by $220 billion for 2015-2016, compared with the Edinburgh-based consultancy's pre-oil-price-crash projections. Much of the drop in spending has been focused on projects onshore North America, but nearly 50 projects have been delayed globally, it estimates.
"We estimate that as much as $1.5 trillion of investment spend destined for new (pre-sanctioned) and US tight oil projects is now out of the money, or in starker terms, uneconomic at a $50 oil price. This spend is very much at risk," said James Webb, Wood Mackenzie's upstream research manager.
"The implications of this level of reduced investment is huge for the industry's service sector which is of a size to comfortably accommodate an average of 40-50 new projects globally a year. We expect just six new projects to go ahead in 2015 and around ten in 2016," said Obo Idornigie, principal upstream research analyst said.
Among the hardest hit companies will be oilfield service suppliers, the report said. "This will have a massive impact on the service sector. Pushing the service sector too hard now is only likely to shore up problems once more attractive fundamentals return: Increasingly severe job cuts means that the industry is losing skilled resources that will take time to attract back when prices recover," Idornigie said.
"A prolonged period of low oil prices over a number of years is likely needed to bring about profound, structural changes to industry costs. This is unlikely--in our view oil prices will begin to recover from 2017, and there is a real risk that cost inflation pressures then return," Wood Mackenzie's Webb added.
Spending will fall globally
Separetly, investment bank JPMorgan has forecasted 2015 oil-and-gas capital spending falling 26% globally, versus 22% in the bank's survey published in April and the 15% decline logged amid the 2008 oil-price crash, excluding the Middle East and North Africa. The investment bank also darkened its 2016 global capex view and now has a 10-15% drop as its base case.