Posted on 12/01/2015 12:34:08 PM PST by thackney
Blindsided by a brutal downturn, oil companies have scuttled plans for scores of costly energy projects in an industry-wide retreat that could wipe out 19 million barrels from the world's daily regimen of hydrocarbons over the next few years, a new report says.
Oil companies have canceled or delayed final investment decisions on about 150 projects that are tied to 125 billion barrels of oil equivalent, which could stay underground for several years longer than expected amid a steep drop in crude prices, energy investment bank Tudor, Pickering, Holt & Co. said Tuesday.
"By not sanctioning projects today, you're putting a hole in production in 2017, 2018 and 2019 -- potentially a big hole," said David Pursell, head of macro research at Houston energy investment bank Tudor, Pickering, Holt & Co.
Analysts had expected U.S. oil production, which is down by 500,000 barrels from its peak in April, to drop more rapidly than it has this year and help crude prices recover quickly from multi-year lows.
But one of the lessons of the year-long price slump has been that if crude prices stay low long enough, other sources of crude will have to share in the global output decline that's expected to eventually put oil supply and demand back into balance. Outside of the 13-member Organization of Petroleum Exporting Countries, all kinds of crude production are at risk when Big Oil is forced to weigh investment returns against scenarios in which crude prices remain depressed for years.
The U.S. Energy Information Administration believes the harvest of liquid fuels in non-OPEC countries like Russia and the United States is going to sink in the fourth quarter of 2015, the first absolute decline since mid-2011. Non-OPEC production growth is expected to sink by 520,000 barrels a day -- its lowest point next year -- in the first quarter of 2016.
"It's really about how long are we down at these (oil price) levels, because the longer you're down here, every month or two it just puts more stress on the balance sheets," said Pearce Hammond, an analyst at Simmons & Company International.
Tudor Pickering projects about 3 million barrels of the industry's deferred daily production will come from Canadian oil sands projects, among the industry's most expensive prospects, because the viscous crude is too thick to move easily underground. Another 5 million barrels will likely be delayed in war-torn Iraq and Kurdistan, where the regional government has previously failed to make payments to the western oil companies that drill into reservoirs there.
Elsewhere, in Mozambique, Australia and Canada, progress on liquefied natural gas plants has been slow. Tudor Pickering expects 20 billion cubic feet a day of LNG production capacity will be deferred as Big Oil delays plans on 20 projects. "Virtually all (LNG) project sanction decisions outside of the U.S. have been pushed back," the investment bank said.
Canada and Norway topped the investment bank's list of deferred projects by country. A "surprisingly" few deep-water projects have been deferred in the Gulf of Mexico and Brazil, Tudor Pickering said, but the industry has shelved plans for more deep-water ventures in Angola and Nigeria, which were in trouble even before oil prices fell, because of unattractive terms offered by the Angolan government and fiscal issues in Nigeria. In terms of daily production, about 6 million barrels buried in the earth's deepest depths will remain there for longer than oil companies intended.
The International Energy Agency estimates it costs $95 to $114 a barrel to pull up a barrel of Canadian oil sands and $59 to $90 a barrel in the U.S. shale plays. Deep-water projects cost $60 to $75 a barrel in West Africa and $38 to $65 a barrel in Brazil. Meanwhile, Saudi Arabia and Iraq can pump oil for $9 to $14 a barrel. Both OPEC countries have pumped record amounts of crude this year.
All told, the industry has scrapped about $125 billion in annual capital spending plans over the next five years, assuming just half of the projects would have been sanctioned if the oil market hadn't crashed over the last 18 months. That leaves oil companies several years to catch up on building the production equipment and infrastructure they need to bring their buried oil to market.
"Even when prices come back, U.S. production will certainly rebound after a period of time, but it's the rest of non-OPEC that could be structurally impaired for a while," Pursell said.
For the world's biggest publicly traded oil companies, the huge scale of the delays "suggests that companies will have real growth issues toward the end of the decade," and some will have to buy smaller rivals to make up for it, the investment bank said. Big Oil companies account for a third of the 150 projects Tudor Pickering says have been delayed or canceled.
BP and Chevron have deferred the largest number of projects while Exxon Mobil Corp. could delay the most oil barrels, about 2.5 million barrels a day of production capacity from 25 projects. That's about two thirds the amount the Irving oil giant currently produces. Royal Dutch Shell is next, deferring 1.7 million barrels of oil a day, but its deal to buy BG Group this year has alleviated many of the growth issues it might face in coming years. BG Group has a big stake in Brazil's deep-water fields.
This is exactly WHY the price is so low... wait until they go out of business, the price will go back up
Even staying in business, this is will boost prices in the future.
Well and fields decline in production over time. Without new investment for additional production, total production declines.
Looks like Saudi Arabia’s strategy is working as intended. Only problem for them is Iraq and Iran are poised to pick up any drop-off from US and Canadian production.
Maybe this next year I can get in on the ground floor.
Iran offering flexible contracts to woo billions in foreign investment
http://www.freerepublic.com/focus/f-news/3366699/posts
Supply and demand at work.
Yes, but both are not immediately elastic.
The point is the supply growth could get far enough behind the demand growth and result in very high prices. It could take years to catch back up.
This is normal behavior. When the price is low, some projects get deferred.
When the price firms up, the project money opens back up.
I’ve been lucky most of my life that when the price was low, there would be projects to increase efficiency that would keep at least some of us busy. But the big expansions get put on hold, thats par for the course.
Yes it is a classic example of a very small rudder turning a very big ship. Look how long it took $80 to $100 dollar oil to produce this glut. So now the ship is headed due south and the tiny rudder wants it to head north again. Who knows how long it will take. Speculation could eventually do part of it when there aren't a fleet of oil filled ships just waiting around.
I remember one of Limbaugh's more enjoyable monologues about how the "wizards of smart" in the oil price world had no clue that the price of oil was going to fall through the floor.
classic example of a very small rudder turning a very big ship
Good analogy
I am convinced that 0bama is intimately involved in the Saudi-OPEC decision to flood the market. It has a twofold benefit for 0. First his disastrous economy is softened by low energy prices, so that no one can really see the systemic damage being done to manufacturing and extraction industries. Second, he is killing the domestic upstream industry and accomplishing through depressed prices what he politically could not accomplish with regulation and legislation. That suits his climate agenda to a T. What inducement he has promised to the OPEC countries whose economies are tanking, time will tell.
The price dropped started by the US producing far more oil while Saudi was producing less than previous years.
Now that our production has dropped off, Saudi production has increased. They didn't start this, but their actions have prolonged it and driven it lower.
Everyone is predicting the Saudis won’t cut production. “Everyone” is often wrong.
I hate making predictions, but I suspect Saudi will not agree to a production cut at the OPEC meeting this week.
Russian oil output close to record level ahead of OPEC meeting
http://fuelfix.com/blog/2015/12/02/russian-oil-output-close-to-record-level-ahead-of-opec-meeting/#30267101=0
Russian oil output in November hovered near a post-Soviet record set the previous month, shrugging off a crude-price slump before OPEC gathers for its biannual meeting in Vienna.
Production of crude and gas condensate averaged 10.779 million barrels a day during the month, according to data from the Energy Ministry’s CDU-TEK unit. That’s an increase of 1.3 percent from a year earlier. While output was slightly down from October’s record of 10.782 million barrels a day, that mark could be exceeded in December as a new field starts, Alexander Nazarov, an oil and gas analyst at Gazprombank, said by e-mail.
LOL...good one. I've paid a ton of "tuition" on trying to get in on the ground floor.
I think, this was the only way Saudi would be willing to cut production at this time.
Iran, Russia reject idea of joint oil output cuts with Saudi Arabia
http://www.freerepublic.com/focus/f-news/3367740/posts
Dec 3, 2015
They have made several statements over the past year of an unwillingness to go it alone. Without more cuts by others, I don’t think Saudi will make the cuts already.
OPEC Meeting Ends With No Production Cuts
http://www.freerepublic.com/focus/f-news/3368267/posts
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