Global upstream investment hits $100 billion
GLOBAL investment in upstream oil production in 2015 has declined by almost 20 per cent to settle at $100 billion, according to International Energy Agency’s chief economist Fatih Birol.
He said that the biggest portion of this decline is in the US, Canada and Brazil.
Biro stated: “Especially for shale oil, the decline rates are very steep. Investment decisions have to be taken in a very short time, as they are much more price sensitive.
“At the price level seen at the beginning of this year [around $45 per barrel, there will not be many projects in North America that will be profitable.
This is despite declining supply chain costs which have made US shale producers significantly more efficient.
“There is still a huge gap between the cost of shale and the cost of crude oil production in the Middle East.”
In its latest monthly oil market report, the IEA raised its forecast for global oil demand growth in 2015 by 90,000 b/d, due to a steadily improving global economic landscape, but warned of continued uncertainty over how the market is responding to the lower price environment.
It also revised down its forecast for US oil production growth in 2015 by 50,000 b/d, with growth now expected at 710,000 bpd this year.
Output growth in Canada was also expected to slow in the second half of 2015 compared with the first half.
Birol expects upward pressure on prices over the course of the year, due to lower upstream investment, along with expectations of improved performance in European economies.
“The European economy may do better than expected. If China and Asia go back to growth as before, around seven per cent, we will see slightly better oil demand in the fourth quarter of 2015,” he said.
“It would be rather surprising to see $45/barrel again for a sustained period,” Birol added.
Geopolitics has so far remained out of the price equation despite supply disruptions in Libya, Syria and more recently Yemen.
“We have a lot of spare capacity, which has given a buffer zone. Those geo-political risks are not big enough to move prices,” he added.
However, Birol warned that at current prices there were even more risks to investments.
Iraq in particular is struggling to meet its obligations to international oil companies, which now form a major portion of its government spending.
The country boosted its exports to a record high of more than 3 million b/d in April, but with oil prices averaging $51.7 per barrel for the month, Iraq earned only $4.8 billion, Platts has reported.
In July last year, with oil prices at more than $100 per barrel, Iraq earned almost $8 billion.
At the same time, payments to oil companies have remained stable, and have taken an unsustainable share in the country’s budget, Platts has reported.
Sustained lower budgets and spending on oil could be a broader problem for the region. “It’s not just Iraq. I am concerned about spending in the whole Middle East,” Birol said.