The oil price crash will have a dramatic impact on the industry’s upstream project pipeline as almost all pre-FID projects will be deferred, said Wood Mackenzie. Only 10 of the more than 50 projects identified as having the potential to go ahead this year have a chance of proceeding, WoodMac said, but all are at risk.
Rob Morris, part of WoodMac’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.”
“Corporate balance sheet strength and strategic drivers are much more important than project economics…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 below $50/bbl,” he said.
Projects which have clear strategic drivers, robust economics, and operators with strong balance sheets are advantaged. Deepwater oil and LNG dominate the list.
Advantaged deepwater oil in places like Guyana and Brazil, along with niche LNG—including low-cost greenfield and feed gas backfill at legacy liquefaction projects—will progress.
“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 break-evens, and/or financially distressed operators.
“Africa, the North Sea, south-east 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.
“Project deferrals now will mean huge volumes of pre-FID production at risk from the mid-2020s. Projects previously targeting a 2020 FID would have contributed 1.8 million b/d of liquids and nearly 20 bcfd of production,” he said.
