• 5 minutes 'No - Deal Brexit' vs 'Operation Fear' Globalist Pushback ... Impact to World Economies and Oil
  • 8 minutes China has *Already* Lost the Trade War. Meantime, the U.S. Might Sanction China’s Largest Oil Company
  • 12 minutes Will Uncle Sam Step Up and Cut Production
  • 2 hours Iran Is Winning Big In The Middle East
  • 48 mins China has invested btw $30 - $40 Billon in Canadian Oil Sands. Trump should put 10% tariffs on all Chinese oil exported into or thru U.S. in which Chinese companies have invested .
  • 6 hours Tit For Tat: China Strikes Back In Trade Dispute With U.S. With New Tariffs
  • 13 hours Trump cancels Denmark visit amid spat over sale of Greenland
  • 26 mins Wonders of US Shale: US Shale Benefits: The U.S. leads global petroleum and natural gas production with record growth in 2018
  • 17 mins Strong, the Strongest: Audi To Join Mercedes, BMW Development Alliance
  • 22 hours US to Drown the World in Oil
  • 4 hours Not The Onion: Vivienne Westwood Says Greta Thunberg Should Run the World
  • 3 hours IS ANOTHER MIDDLE EAST WAR REQUIRED TO BOLSTER THE OIL PRICE
  • 12 hours OPEC will consider all options. What options do they have ?
  • 1 day Nor Chicago, nor Detroit: Killings By Police Divide Rio De Janeiro Weary Of Crime
  • 1 day Gretta Thunbergs zero carbon voyage carbon foot print of carbon fibre manufacture
  • 20 hours Long Range Attack On Saudi Oil Field Ends War On Yemen
Alt Text

Oil Rises As Market Awaits Saudi Move Counter Glut

Despite another gloomy demand forecast…

Alt Text

Oil Crashes On New Trade War Escalation

Oil prices opened the week…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

More Info

Premium Content

Why Oil Prices Might Not Rebound Until 2019

It’s a safe bet that investors are getting increasingly tired of all the conflicting forecasts about oil and gas prices. Some argue that oil is heading back to $20 thanks to the continuing excess supply. Others claim that the excess is overestimated and crude is well on its way to reach $80 or more by the end of the year. The likely truth, as usual, is somewhere in the middle, at least for the time being.

But according to energy consultants Douglas-Westwood, prices will remain where they are now until about 2019, when offshore oil production will finally peak. The company’s analysts list 15 large-scale offshore projects that are to blame, including Iran’s South Pars field, Brazil’s Lula in the pre-salt layer of the Santos Basin, and Mexico’s Tsimin-Xux. These three alone are projected to yield a combined 1.617 million barrels per day in 2017.

To put this in perspective, global crude oil consumption next year is seen by the EIA to rise by 1.5 million bpd, to 96.78 million bpd, versus estimated total production of 96.79 million bpd.

Gas production is set for accelerated growth as well, thanks to projects such as Gorgon and Wheatstone off the Australian coast as well as supply expansion in the Middle East, most notably in Iran and Qatar, and a host of LNG projects springing up in the U.S and elsewhere. LNG in particular could lead to a prolonged price depression for the commodity, as virtually every country that has any gas reserves will be pushing for a piece of the pie.

At the same time, however, Douglas-Westwood analysts note that a lot of offshore projects have been canceled. It’s just that the effects of these cancellations on overall production will not be felt before 2019. After that, E&Ps will have another problem to deal with: ramping up falling production after axing more than 350,000 jobs and cutting investments to the core.

Add to this the production equipment that’s been idled for years, and the oil and gas industry may well be facing another crisis. Related: Algeria Plans To Boost Oil Output By 30%

There seems to be no way out of this vicious circle. E&Ps are currently prioritizing dividends and cash flow, which means they cannot afford to shelve too many projects, especially since they had already invested so much in them prior to the price downturn. As of March this year, Big Oil had already cancelled as much as $270 billion in projects, data from Rystad Energy shows.

What’s more, E&Ps need their offshore existing projects for two reasons: reserve replacement rates and new offshore drilling regulations. Thanks to the price downturn, the ratio of reserve replacement for the world’s biggest oil companies has fallen to multi-year lows. In fact, new oil discoveries last year were the lowest since 1952. This is a potentially big problem because oil and gas are, after all, non-renewable energy sources.

New regulations from the U.S. government, on the other hand, have made new offshore exploration more expensive. The new regulations, first released in April and supplemented recently with a set of specific rules concerning Arctic drilling, aim to reduce the environmental risks associated with offshore hydrocarbon exploration.

So, oil and gas producers are facing higher production costs for offshore drilling as well as a workforce shortage in a few years. In such a situation, their only reasonable course of action is getting the most out of what they have. The prolonged glut is an unavoidable side effect of this course of action.

By Irina Slav for Oilprice.com

More Top Reads From Oilprice.com:




Download The Free Oilprice App Today

Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News
Download on the App Store Get it on Google Play