New upstream oil and gas projects worth about $15 billion will be sanctioned in Australasia this year, according to Rystad Energy’s forecast, marking a huge boost compared to the $1.2 billion committed to new projects in 2020.
This jump in activity, however, is almost entirely dependent on expected final investment decisions (FIDs) being taken for the Scarborough and Barossa liquefied natural gas projects in Australia. “Without these major FIDs, we anticipate new commitments this year of only $526 million in the region, representing a 57% drop from 2020 for major E&P companies. Virtually all sanctioning activity expected this year in the region will be in Australia,” said the energy consultancy in a note.
“The Scarborough/Pluto Train 2 project on the north coast of Western Australia, which operator Woodside is expected to formally sanction this year, dominates the list of FID candidates. Our estimate for Scarborough capital expenditure is $11.1 billion, which would represent 72% of all the potential investment commitments in the region for the full year. Meanwhile, the estimated capex associated with the other large Australian project likely to reach FID – Santos’ Barossa gas field development – is $3.7 billion,” added Rystad.
Meanwhile, capital expenditures excluding exploration fell to $6.5 billion in 2020, down 34% from $9.9 billion in 2019. Before the pandemic struck, Rystad Energy had expected $11.5 billion in non-exploration capital expenditures, which means the actual capital spend was 43% below their initial estimates. The decline was largely driven by spending cuts implemented by companies to weather the crash in benchmark commodity prices, added Rystad.
On the exploration side, spending fell to a historic low of close to $930 million, a 53% decline compared to 2019, and the lowest level of exploration spending since 1994.
“Post-tax impairments in Australasia are estimated to be more than $15 billion, with Shell taking the biggest impairment at $8.2 billion for the QCLNG and Prelude FLNG projects. Woodside announced $4.37 billion in post-tax impairments on its portfolio, followed by Total at $800 million for its Australian gas assets, Santos with $560 million, Origin Energy at $530 million, and Oil Search announcing $300 million in impairments relating to its assets in Papua New Guinea,” reported Rystad.
Upstream capital and operating expenditures have been sharply cut alongside exploration budgets. Woodside, one of the largest producers in Australia, halved its total expenditure to about $2.4 billion in 2020, and other companies with a strong presence in Australia like Santos, Beach Energy and Origin Energy also slashed their 2020 spending plans, added the consultancy.
Projects that were to be sanctioned over the 2020–2022 period have been deferred due to the prevailing environment. Rystad Energy expects these delays will reduce Australasia’s capital expenditure between 2020 and 2022 by about $5 billion.