En­ergy projects need high oil price to stay prof­itable

CityPress - - Business -

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.

– Bloomberg

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