Wood Mackenzie believes almost all pre-final investment decision (FID) upstream oil and gas projects globally will have to be deferred following the sudden oil price collapse.
Of the 50-plus projects the consultancy had identified as potentially going ahead this year, only 10 now look to have a chance of proceeding.
Rob Morris of Wood Mackenzie’s upstream research team said: “$110 billion of investment will almost certainly be deferred, with another $100 billion at risk. New committed investment could be as low as $22 billion if only the most advantaged projects progress.”
At this stage, the strength of corporate balance sheets and strategic drivers outweigh project economics, he said, adding that “only those with the strongest balance sheets will even contemplate major project FIDs.
“The majors and certain NOCs will take the lead, while projects with financially stretched partners and at the higher end of the cost curve will struggle.
“Five years of cost-cutting and optimization means more than half of 2020’s pre-FID projects generate 15% returns at $50/bbl. In 2015, less than half of pre-FID projects generated 15% at $85/bbl and almost none were economic.”
Those projects least at risk of deferrals are thought to include large deepwater oilfield developments off Guyana and Brazil, and ‘niche LNG’, including low-cost greenfield and feedgas backfill at legacy liquefaction projects.
“Two-thirds of all greenfield projects, representing $110 billion of total future investment, face almost certain deferral,” Morris said.
“Some project sanctions will be delayed to 2021 and beyond. Some will be completely reworked or even put on hold permanently. These include projects with weaker strategic drivers, high breakevens, and/or financially distressed operators.
“Africa, the North Sea, Southeast Asia, and Australian LNG face mass project deferrals. Australian LNG is perhaps the most high-profile casualty. As we predicted, both Woodside Petroleum and Santos have already announced delays at Scarborough and Barossa until market conditions improve.”
If the consultancy’s predictions prove to be correct, high volumes of presumed production from the mid-2020s onward could now be at risk.
Source: Offshore
