Bloomberg

Investments in new oil projects worth $930 million are at risk due to a drop in prices to $60 per barrel, analysts at Goldman Sachs warned. The cancellation of such projects could lead to oil production being 7.5 million barrels per day below the possible level in the next decade, which currently corresponds to 8% of global demand. Today, Brent oil fell by 1.85% to $59.93 per barrel by 19.30 Moscow time.

Goldman Sachs experts studied 400 oil and gas projects around the world, many of which have not yet reached a final investment decision. They estimated that at $70 a barrel of oil, projects that have not yet been approved would be uneconomical, with the potential to produce 2.3 million barrels of oil per day by 2020. That would increase to 7.5 million barrels per day by 2025. The study does not include shale oil production in the United States.

For projects to become profitable at $70 a barrel, companies will need to cut costs by up to 30%. Therefore, the bank's experts conclude that the excess supply, which has led to Brent crude falling by more than 45% since mid-June, may soon disappear. This is explained by the fact that large oil companies will postpone expensive projects.

Already, executives at U.S. and European oil and gas companies are scrambling to reassess their spending plans. Some have signaled that they could cut billions of dollars in 2015 alone, including in capital spending. “There’s a lot of focus on this, and we’ll take every opportunity,” says one. That could lead to companies selling off assets, temporarily abandoning Canadian tar sands production and shelving high-cost projects in regions such as the North Sea.

Oilfield services companies that drill, construct subsea projects, and conduct seismic surveys could be particularly hard hit, says Goldman Sachs analyst Michele della Vigna. Energy companies work hard to consistently pay investors dividends, so they may try to negotiate better contracts with oilfield services companies or reduce their exploration drilling.

Research from consultancy Wood Mackenzie also suggests a sharp reduction in energy costs. It estimates that companies could cut capital spending by 25% over the next five years, or $250 billion annually through 2018. “They will all have to cut budgets because at current price levels it is difficult to justify the costs of projects that were planned at $80-90 [per barrel],” says Simon Flowers, head of corporate research at Wood Mackenzie.

Translated by Alexey Nevelsky

$1 trillion in oil investment at risk as prices fall