BETWEEN October, 2008, and mid-April, 2009, more than 20 planned large-scale upstream oil&gas projects involving about 2million bpd of peak oil capacity and close to 1billion cu ft per day of peak gas capacity were deferred indefinitely or cancelled, according to the IEA.
The total value of these delayed investments, mainly involving oil, is more than $170billion.
Oil-sands projects, which are among the most expensive of all upstream developments on a per-barrel basis, account for the bulk of the postponed oil capacity.
In addition, 35 projects involving 4.2million bpd of peak oil capacity and 2.3billion cu ft of gas capacity (involving more than $70billion of investment) were delayed by at least 18 months.
The largest of these projects is the 900,000bpd Manifa oilfield in Saudi Arabia, which was originally due to be brought onstream by 2011.
The IEA says that Saudi Aramco is now looking to push first oil back by as much as 18 months and switch from a lump-sum to an open-book contract basis in order to reap the benefit of falling costs.
Many other projects have been delayed for a year or more – in many cases, at least in part, due to efforts to negotiate lower costs with contractors (or because the project developer is short of cash to cover development costs).
Opec announced in February this year that the collapse of oil prices had led its members to delay completion of 35 out of a total of 150 upstream projects, leading to 5million barrels per day of additional gross capacity being delayed from 2012 until some time after 2013.
It turns out that upstream oil projects have been affected much more than gas projects so far.
As yet, only major gas projects – Manifa in Saudi Arabia (oil&gas), Karachaganak Phase 3 in Kazakhstan, Shah Deniz in Azerbaijan and the smaller Reindeer field in Australia – have been suspended or delayed.
The Middle East and North Africa look less prone to spending cuts, notwithstanding the decision by the Saudi government to delay work on the Manifa and Karan fields.
However, the IEA warns that there are signs that Saudi Aramco may scale back its investment programme for the five-year period to 2014 – but the company has not confirmed press reports that spending may be halved compared with what was budgeted last year.
West Africa is characterised by large-scale projects with long lead times, so spending there is likely to hold up better in the near term.
But investment may fall in the longer term if prices remain low.
Investment in deepwater developments is expected to be less affected than onshore drilling, largely because such projects tend to be much larger in scale and undertaken by the largest international and national companies, which rely to only a limited degree on corporate borrowing.
“These projects are mostly based on hurdle prices of $40-50 per barrel, yielding an internal rate of return of 8-9%,” said the IEA.
“Most companies are unlikely to cancel such projects if prices were to remain below that range for several months on the assumption that they would eventually rebound.”
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