Global oil and gas exploration projects worth more than $150 billion are likely to be put on hold next year as plunging oil prices render them uneconomic, potentially curbing supplies by the end of the decade.
As big oil fields that were discovered decades ago begin to deplete, oil companies are trying to access more complex and hard to reach fields located in some cases deep under sea level. But at the same time, the cost of production has risen sharply given the rising cost of raw materials and the need for expensive new technology to reach the oil, TradeArabia reported.
Now the outlook for onshore and offshore developments looks as uncertain as the price of oil, which has plunged by 40 percent in the last five months to around $70 a barrel.
Next year companies will make final investment decisions (FIDs) on a total of 800 oil and gas projects worth $500 billion and totaling nearly 60 billion barrels of oil equivalent, according to data from Norwegian consultancy Rystad Energy.
But with analysts forecasting oil to average $82.50 a barrel next year, around one third of the spending, or a fifth of the volume, is unlikely to be approved, head of analysis at Rystad Energy Per Magnus Nysveen said.
Around one third of the projects scheduled for FID in 2015 are so-called unconventional, where oil and gas are extracted using horizontal drilling, in what is known as fracking, or mining.
Of those 20 billion barrels, around half are located in Canada's oil sands andVenezuela's tar sands, according to Nysveen.
Even with oil at $120 a barrel, the economics of some projects around the world were in doubt as development costs soared in recent years. New oil fields typically require four to five years to be developed and billions before the first drop of oil is produced.
Any cutbacks in oil production bodes ill for international oil companies that are already struggling to replace depleting reserves as exploration becomes harder and discoveries smaller.
Projects in Canada's oil sands, which require expensive and complex extraction techniques, are the most unlikely to go ahead given their high investment requirements and relatively slow returns. Total recently decided to postpone the FID on the Joslyn project in Alberta, the cost of which is estimated at $11 billion.
Shell's liquefied natural gas (LNG) project in Canada's British Columbia, already under pressure from a looming supply surge, faces further strain in the current price environment, analysts said. According to research by Citi, the project requires oil at $80 a barrel to break even.
Royal Dutch Shell's chief financial officer Henry Simon indicated in October that it was "less likely" to go ahead with unconventional projects in West Canada if oil falls below $80 a barrel.
Even in the Gulf of Mexico, one of the most attractive oil production areas in the world, projects are facing challenges. BP last year put on hold a decision on its Mad Dog Phase 2 deep water project in theGulf of Mexico after its development costs ballooned to $20 billion and the oil major is now expected to further delay an investment on the field's development.
Statoil's Johan Castberg field in the Barents Sea, which was expected to get its FID in 2015, seems unlikely to get the go-ahead at the moment given it has an estimated project cost of $16-$19 billion.
