Oil and gas projects worth $380 billion have been postponed or cancelled since 2014 as firms slash costs to survive the oil price crash, including $170 billion of projects planned between 2016 and 2020, energy consultancy Wood Mackenzie said.
Crude oil prices have fallen by 70 percent since mid-2014 to just over $30 per barrel as soaring global production leaves hundreds of thousands of barrels a day without a buyer, while demand – especially in once-booming Asia – is slowing markedly.
Oil and gas firms were being forced into survival mode as oil prices fell to levels last seen in 2004, Wood Mackenzie (WoodMac) said in a report on Thursday.
“The impact of lower oil prices on company plans has been brutal. What began in late-2014 as a haircut to discretionary spend on exploration and pre-development projects has become a full surgical operation to cut out all non-essential operational and capital expenditure,” said Angus Rodger, WoodMac’s principal upstream analyst.
The report comes the same week as Barclays bank said global oil and gas companies planned to cut spending on exploration and production by as much as 20 percent in 2016.
WoodMac said a total of 68 major projects with combined reserves of around 27 billion barrels of oil equivalent had been deferred since 2014, with $170 billion of cuts falling between 2016 and 2020.
In terms of production, a total 2.9 million barrels per day (bpd) of liquids production would be deferred into next decade, more than OPEC-member Venezuela produces, it said.
“Against a backdrop of overwhelming corporate pressure to free-up capital and reduce future spend – to the detriment of production growth – there is considerable scope for this wall of output to get pushed back further if prices do not recover and/or costs do not fall enough,” the report said.
The average break-even cost for delayed new projects was $62 per barrels of oil equivalent, WoodMac said, adding that deepwater projects had been hit hardest.
These accounted for over half of the total “as companies are forced to rework projects with high breakevens, large capital requirements and high costs.”