Energy Projects Above $60 Breakeven Risk Being Unprofitable
Global energy projects that need a breakeven oil price of above $60 could become uncommercial in the next decade, according to Rystad Energy.
The Norwegian energy research firm predicts that world’s inventory of discovered oilfields with a breakeven oil price of less than $60 Brent is enough to meet demand growth and offset declines from maturing fields until 2027. After that, the global energy sector will need volumes from yet-to-be discovered fields to meet total liquids demand.
“This means that although we need to discover additional resources, only fields with breakeven prices below $60 Brent are likely to be commercial through 2030 and likely towards 2040,” said Audun Martinsen, Rystad’s head of oilfield services research. “If the global E&P industry were to fail to discover sufficient resources at such breakeven prices, global demand would need to be satisfied by utilizing otherwise uncommercial fields, or transition more quickly to a different power mix.”
While $200 billion of oil and gas investments were sanctioned in 2019, Rystad anticipates up to $225 billion worth of projects sanctioned in 2020. Next year’s investments will be driven primarily by gas projects, with $50 billion coming from onshore LNG facilities. The offshore sector is expected to surpass $100 billion in project sanctions for 2020.
“With Brent oil prices at $60 per barrel, E&P operators are able to sanction oil and gas projects worth about $200 billion per year, driving a lot of interesting contract awards and elevating optimism among oilfield service providers,” Martinsen said.
Offshore projects may be at risk sooner.
While most offshore projects sanctioned in 2019 have breakeven prices of less than $40 per barrel, Rystad foresees a breakeven risk from 2020-2023, during which offshore projects worth $25 billion will have a breakeven price above $60 per barrel.
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