Falling oil prices ‘threatening production’

The International Energy Agency (IEA) says crude oil prices could fall further, threatening global production that will impact negatively on several projects.

The US agency, in its monthly report released on Tuesday, said nearly 3% of global oil production is vulnerable to cuts.

It also warned that if prices fall to $80 per barrel, some projects in Canada, Angola, Brazil and Norway would become unprofitable.

Nigeria benchmarks its budget against oil prices, but with a benchmark of $77.5 for 2014, the fiscal position is not yet threatened.

Oil prices have tumbled from above $115 per barrel to below $90 this year.

“All told, roughly 2.6 million barrels per day of world crude oil production comes from projects with a breakeven price in excess of $80 per barrel,” the report said.

This represents 2.8% of the 93.2 million bpd of production in 2014 Q3.

“Canadian synthetics (oil sands) projects have the highest percentage of production of the types examined here (about 25 percent) that would fall into a negative net present value if there were to be an extended period of prices below that level,” the report said.

“Places as diverse as onshore China, offshore shallow-water Malaysia, Nigeria, conventional onshore U.S., shallow-water UK and onshore conventional Russia have significant amounts of high breakeven production,” it added.

Some planned, high-cost projects had already been cancelled, IEA said.

About 4% of shale oil production requires a breakeven price of more than $80 per barrel, the IEA said, noting that a large proportion of deepwater exploration operations have high breakeven rates.

“Some 8 percent of deepwater crude oil production is adjudged to require a breakeven of $80 per barrel or higher… totaling some 1.05 million bpd or 1.1 percent of liquid production,” it said.

“For ultra-deepwater alone (more than 1,500 meters), the results are, perhaps surprisingly, that very little of current output from those depths, less than 1 percent, requires such a breakeven price.”

More than 80 percent of ultra deep-water production is based in Brazil and the U.S. Gulf of Mexico, and cost discipline for these projects ensures they tend to have lower breakeven levels than do many deepwater projects.

PHOTO: Nigeria’s minister of petroleum resources, Diezani Alison-Madueke