Blindsided by a brutal downturn, oil companies have scuttled plans for scores of costly energy projects in an industrywide 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.
As FuelFix.com reports, the report by energy investment bank Tudor, Pickering, Holt & Co. 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.
“By not sanctioning projects today, you’re putting a hole in production in 2017, 2018 and 2019—potentially a big hole,” says David Pursell, head of macro research at the Houston-based energy investment bank.
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 last quarter of this year, 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 next year.
“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,” says Pearce Hammond, an analyst at Simmons & Company International.
On Wednesday, U.S. crude fell to $39.94 per barrel. It marked the first time since August oil has settled below $40. The price of West Texas Intermediate, the U.S. benchmark crude, fell after an Energy Department report showed oil inventories on the rise once again. As of this morning, WTI was trading for about $40.50 per barrel.
