A recent report by UK-based analysts Wood Mackenzie states that 70% of all production from pre-FID (final investment decision) developments can achieve commercial viability at $60 per barrel.
In contrast, most conventional pre-FID projects are not commercial at $60 per barrel, which means that, if prices are to remain at $50, many major conventional projects could be at risk of deferral or cancellation.
“Of the 13 million bpd (barrels per day) available, 9 million bpd is commercial at US$60/bbl. That’s more volume than we’ve seen since 2009 and 1.5 million bpd more than a year ago,” Wood Mackenzie Global Oil Supply Research Director, Patrick Gibson, said.
Major Conventional Oil Projects At Risk
This 70% share of pre-FID projects is expected to deliver a total of 9 million bpd worth of new production by 2025, mostly from new drilling in US tight oil plays.
According to Gibson, tight oil has become increasingly relevant due to productivity improvements and cost deflation, which have made it more economically viable.
Overall, only 20% of the volumes commercial at $60 will come from deep and ultra-deep water activities.
However, these are still required to meet demand growth, the report adds, although higher prices or more cost cuts will also be needed for them to become increasingly commercially viable.
More Production Needed To Offset Decline
Based on previous research, the analysts estimate that more than 20 million bpd will have to be developed by 2025 to offset the decline in production from existing fields as well as meet the future growth in demand.
In practical terms, the report adds, this means that the big winners will be incumbent operators in tight oil plays and oil major such as ExxonMobil and Chevron.
The countries that have suffered the most with the slump in oil prices include Angola and Nigeria, while projects in the US Gulf of Mexico remain high on the cost curve.
Brazil continues to have a favourable position due to the large scale of projects like Libra, but most deep water areas are struggling to compete with onshore projects.