In Oil & Companies News 14/07/2016
Most of the oil projects planned over the next decade are economically viable with prices below $60 a barrel as explorers succeed in squeezing costs, consultant Wood Mackenzie Ltd. said.
Oil explorers will be able to add 9 million barrels a day to global supply by 2025 with Brent crude under $60, mostly U.S. shale oil, the Edinburgh-based company said in a study Wednesday. That’s about 70 percent of new projects under consideration, an increase from 50 percent a year ago. Still, the remaining 4 million barrels a day of production needed to meet demand by the middle of the decade may require prices as high as $85 a barrel, it said.
“It’s evidence of how the industry is adjusting to the lower price environment by cutting costs and making production gains,” Simon Flowers, the company’s chief analyst, said in an interview in London. Still, “the industry needs to get to grips with how to develop fields” at a lower cost “or prices need to go up.”
The Organization of Petroleum Exporting Countries, led by Saudi Arabia, is succeeding in pushing the most expensive producers out of the market as U.S. output slumps to its lowest in two years. The shale oil industry has nonetheless surprised many with its resilience in the face of lower prices, Wood Mackenzie said. After falling an estimated 900,000 barrels a day this year, non-OPEC output will drop just 100,000 next year, OPEC said in its monthly report.
The average price needed globally to finance new supply has been reduced to $51 a barrel, down from $70 in 2014, according to the Wood Mackenzie study.
The $60 a barrel required for the majority of new global projects is roughly in line with the price of Brent crude futures for the end of the decade. Contracts for September 2016 settlement are significantly lower, trading on Tuesday near $48 a barrel. Major projects may be delayed or canceled if Brent stays below $50, Wood Mackenzie estimated.
The world will need all 13 million daily barrels of planned capacity by 2025, plus an additional 10 million, to meet rising consumption and make up for declining production at oilfields currently in use, according to the consultant. That additional output could be provided by new capacity in OPEC, or discoveries elsewhere in the world.
Source: Bloomberg
