The world’s big energy groups have shelved $200bn of spending on new projects in an urgent round of cost-cutting aimed at protecting investors’ dividends as the oil price slumps for a second time this year.
More than half the reserves put on hold lie thousands of feet under the sea, including in the Gulf of Mexico and off west Africa, where the technical demands of extracting crude and earlier inflation have pushed up the cost of projects.
Deepwater drilling rigs cost hundreds of thousands of dollars a day to hire and these projects could yet proceed if contractors’ costs fall far enough.
The sell-off in oil has been matched by a broader slump in copper, gold and other raw materials, pushing the Bloomberg commodities index to a six-year low over concerns of weaker Chinese growth and rising supplies across the board.
The plunge in crude prices since last summer has resulted in the deferral of 46 big oil and gas projects with 20bn barrels of oil equivalent in reserves — more than Mexico’s entire proven holdings — according to consultancy Wood Mackenzie.
Among companies postponing big production plans while they wait for costs to come down are UK-listed BP, Anglo-Dutch Royal Dutch Shell, US-based Chevron, Norway’s Statoil, and Australia’s Woodside Petroleum.
Research from Rystad Energy, a Norwegian consultancy, found in May that $118bn of projects had been put on hold, but the Wood Mackenzie study shows the toll is now much greater.
The decline in Brent crude, which has more than halved in the past year, was triggered by Opec’s decision not to cut output in the face of a US supply glut and weaker than expected demand. After stabilising in March, oil prices have faced renewed pressures, with Brent falling below $55 a barrel this month — a 20 per cent decline from a five-month high reached in early May.
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