The world’s oil supply may fall by over 6% come the end of the decade on account of investment delays initiated by energy companies in the wake of the global coronavirus or Covid-19 pandemic, according to fresh industry research.
Recent weeks have brought negative oil prices in step with industry capital and operating expenditure cuts. Oil benchmarks West Texas Intermediate and Brent are trading 80% and 60% lower respectively since the start of 2020 on forecasts of dire near-term crude oil demand with several countries in coronavirus lockdowns.
As a result of the market commotion, Oslo, Norway-based Rystad Energy says delayed final investment decisions (FIDs) on oil and gas projects are expected to shrink global supply of both natural resources by 5.6% by 2025. Unsurprisingly, majority of the shrinkage of long-term project decisions will likely come from U.S. shale oil plays.
The research outfit also estimates that $195 billion worth of non-shale projects could be left facing delays over the corresponding period, most of which happen to be greenfield investments in gas and gas condensate field development (see chart below).
The market malaise would by no means be limited to any one oil and gas segment but will likely be spread across the board with liquefied natural gas (LNG) projects also taking a hit from a dip in global demand. “The price crash and dip in global LNG demand delays FIDs of 7 LNG plants globally,” Rystad analysts say.
Geographically, the biggest regional slump is likely to be seen in the oil rich Middle Eastern plays. Overall initial estimate of the global oil and gas project market slump suggests, production is likely to drop off by 6.3% by 2030, compared to what was expected before the price crash triggered by the coronavirus demand downturn.
The projection comes as OPEC member national oil companies (NOCs), many of whom are putting their investment plans on ice, prepare to carry out a historic cut in oil production to the tune of 9.7 million barrels per day (bpd) in a bid to balance the market.
International Oil Companies (IOCs) ranging from ExxonMobil
to Royal Dutch Shell have put also projects on hold, drastically cut production in U.S. shale plays and stunted operations at downstream facilities to cope with the market downturn.
Spending cuts announced, and currently being undertaken, by the five biggest oil majors by market capitalization – a pack led by ExxonMobil and Shell – average 23% in terms of reductions on capital outlined in financials published prior to global spread of the coronavirus pandemic. Expect more cuts and more pain as the market enters the earnings season next week.