Energy projects need high oil price to stay profitable
High-cost energy projects globally will struggle to stay profitable if crude oil prices stay at $80 (R874) to $85 a barrel and some proposed developments may be shelved, according to Oil Search.
“The bottom line is that much of the industry around the world needs $80, $85 consistently to provide returns,” said managing director Peter Botten.
“If it stays at that level, marginal projects will struggle and eventually, production will adjust.”
Weakening global demand and a supply glut in the US drove Brent crude down to as low as $82.60 a barrel last week, the cheapest since 2010.
Oil Search, Exxon Mobil’s partner in a $19 billion liquefied natural gas (LNG) project in Papua New Guinea, is considering adding capacity in the country.
“We’re well situated to compete in an $80 to $85 oil price environment,” said Botten.
“There would be a range of other LNG projects and LNG expansion projects that would stop before” Oil Search’s plans to expand, he said.
A price of about “$85 a barrel is something that’s going to be pretty realistic over the next few years. Marginal projects, high-cost projects, will be progressively shelved,” added Botten.
Four out of 11 unnamed LNG plants in Australasia that have been approved or are under development need an LNG price of at least $12 per million British thermal units to break even, according to an Oil Search presentation.