While the clear narrative forced upon the investing (and consuming) public is that lower oil prices are great for the economy - which is utter crap (as we have explained here and here) - the fact of the matter both primary and secondary effects are extremely significant... and already occurring. As Reuters reports, global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic as the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil. As one analyst notes, "at $70 a barrel, half of the overall volumes are at risk."
Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, data shows, potentially curbing supplies by the end of the decade.
As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil.
Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totalling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.
But with analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said.
“At $70 a barrel, half of the overall volumes are at risk,” he said.
Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.
Of those 20 billion barrels, around half are located in Canada’s oil sands and Venezuela’s tar sands, according to Nysveen.
Projects in Canada’s oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which Hodée estimated at $11 billion.
Chevron’s North Sea Rosebank project is among those with a shaky future and a decision on whether to go ahead with it will likely be pushed late into 2015 as the company assesses its economics, analysts said.
“This project was not deemed economic at $100 a barrel so at current levels it is clearly a no-go,” said Bertrand Hodée, research analyst at Paris-Based Raymond James.
* * *
Still "unequivocally good"?