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$750bn of future capex at risk at $60/bl: Goldman

18 May 2015 17:31 (+01:00 GMT)
$750bn of future capex at risk at $60/bl: Goldman

London, 18 May (Argus) — More than half of key global pre-sanction oil and gas projects are uneconomic with oil prices at $60/bl, which puts over $750bn of future investment at risk, according to US investment bank Goldman Sachs' report.

Of the 61 projects that are uneconomic at $60/bl, the bulk "consist of high cost LNG, heavy oil and marginal deepwater, with regional concentration in Canada, the US, Angola and Nigeria", according to Goldman Sachs's equity research team. "Marginal LNG projects outside of US and without scale are unlikely to be sanctioned".

These 61 projects need to see a cost reduction of 24pc to become economic, which is likely to be achieved only with the additional help from currency fluctuations and changes to fiscal terms, the report said. With oil prices at $50/bl, about 100 pre-sanction projects — or some 90pc — would be uneconomic, putting at risk over $1.3 trillion of future investment.

The average breakeven price for US shale projects has now declined by $20/bl in a year to $60/bl, and could fall further to $50/bl by 2020 with efficiency and productivity improvements.

Benchmark Brent crude traded at about $66/bl today and WTI just below $60/bl. Goldman Sachs forecasts Brent crude to average $65/bl in 2016-2018 and $55/bl in 2020.

"We continue to see North American unconventional liquids, Iraq, Canada and Brazil as the key areas of supply growth over the next three years, similar to 2014," the bank said.

Goldman Sachs also sees Opec's spare capacity growing slowly between now and 2018 even without Libya or Iran, as "capacity additions in Iraq, Kuwait and the UAE offset declines in Angola, Nigeria, Venezuela and elsewhere".

The top 420 projects, from pre-sanctioned stage to already producing, analysed by Goldman Sachs represent 810bn bl of oil equivalent (boe) of oil and gas reserves and around 87mn boe/d of potential production by 2025. The bank noted that its breakeven price estimates exclude "the costs of acreage acquisition or exploration that, if included, would lead to higher breakeven commodity prices. This can be particularly material for North American onshore resource plays".

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