Half of oil production from future developments is uneconomic at US$60/bbl Brent – this is the conclusion from our comprehensive breakeven analysis of future global oil developments. These comprise of conventional projects which have yet to receive final investment decision (pre-FID) and future drilling in US onshore Lower 48 plays; which are critical for future oil supply.
Using individual asset data and our suite of proprietary tools, including our Oil Supply Tool and Upstream Data Tool, we have produced a granular picture of the cost of new supply. By 2025, production from pre-FID projects and US Lower 48 future drilling could be nearly 15 million b/d. Only 7.6 million b/d comes from projects which achieve commerciality at US$60/bbl, a likely screening criteria.
Production from most future developments is required to fill the supply gap between declining commercial fields and projected growth in demand.
Under our Macro Oils supply-demand outlook over 22 million b/d is needed from new developments by 2025 to meet demand. We expect the pre-FID pipeline to contribute around half of this. However, the number of deferred pre-FID projects is growing as the oil price remains low. Without significant structural cost deflation, the majority of these projects, are at risk of further delay or a major overhaul of development plans.
Prices need to support the development of the next tranche of supply. This breakeven analysis provides support for an oil price floor in the longer term of above US$70/bbl.
Deepwater at greatest risk
Deepwater and ultra-deepwater projects sit high on the cost curve and are at greatest risk of delay. Production from Angola, Nigeria, US Gulf of Mexico and Brazil is at risk due to weak project economics. Over 80%, or around 16 billion barrels, of deepwater and ultra-deepwater reserves are uneconomic at $60/bbl.
The economics are relatively robust within onshore, tight oil and shallow water projects. In fact US Lower 48 is now the key low cost area and by 2025 contributes 70% of volumes produced under $60/bbl.