Rystad explains global upstream changes, breakeven oil prices

By Rystad Energy | December 16, 2019

Rystad Energy is forecasting that overall global upstream investments in 2020 will decrease by around 4 percent. Investments in shale/tight oil are expected to contract the most next year by almost 12 percent. Rystad Energy believes that the lower oil price and weaker cash flows will force shale companies to reduce activity. Deepwater is the only segment expected to grow above 5 percent next year, spelling a boom for the industry.

On a regional level, only Africa, Russia and South America are expected to see growth or flat development in investments next year, with key players like Mozambique, Libya and Mauritania pushing the largest continent’s growth to the highest worldwide at 11 percent. Unsurprisingly Brazil, thanks to the Marlim and Mero projects, will likely prop South America up to a predicted almost 6 percent of growth next year. Investments in the Middle East and Australia are also expected to grow on the back of new LNG projects and the redevelopment of old oil fields.

On meeting global demand and breakeven oil prices

Energy projects that need oil prices above $60 per barrel in order to break even risk being uncommercial going forward, according to Rystad. However, massive investments in exploration and sanctioning are still needed to meet growing global demand.

As the world transitions to a less carbon intensive future, Rystad Energy forecasts that the global inventory of already discovered oil fields with a breakeven oil price of below $60 Brent (real) is sufficient to meet demand growth and offset declines from maturing fields until around 2027. From that point on, however, additional volumes from not-yet-discovered fields will be needed in order to meet total liquids demand.

Global exploration efforts must therefore continue in order to discover those resources in the first place, even under a scenario whereby oil demand peaks in the late 2020s. In addition, operators will need to empty their portfolio of unsanctioned commercial discoveries over the coming years.

“This means that although we need to discover additional resources, only fields with breakeven prices below $60 Brent are likely to be commercial through 2030 and likely towards 2040,” says Audun Martinsen, head of oilfield services research at Rystad Energy. “If the global E&P industry were to fail to discover sufficient resources at such breakeven prices, global demand would need to be satisfied by utilizing otherwise uncommercial fields, or transition more quickly to a different power mix”