High-Cost Projects to Struggle at $80-$85 Crude, Oil Search Says

2014-10-23 07:05:49.786 GMT

By James Paton

     Oct. 23 (Bloomberg) -- High-cost energy projects globally

will struggle to stay profitable if crude oil prices stay around

$80 a barrel to $85 a barrel and some proposed developments may

be shelved, according to Oil Search Ltd.

     “The bottom line is that much of the industry around the

world needs $80, $85 consistently to provide returns,” Managing

Director Peter Botten said today in an interview in Sydney. “If

it stays at that level, marginal projects will struggle, and

eventually production will adjust.”

     Weakening global demand and a supply glut in the U.S. drove

Brent crude down to as low as $82.60 a barrel last week, the

cheapest since 2010. Oil Search, Exxon Mobil Corp.’s partner in

a $19 billion liquefied natural gas project in Papua New Guinea,

is considering adding capacity in the country.

     “We’re well-situated to compete in a $80-to-$85 oil price

environment,” Botten said. “There would be a range of other

LNG projects, and LNG expansion projects, that would stop

before” Oil Search’s plans to expand, he said.

     Brent was at $84.86 a barrel as of 5:04 p.m. Sydney time,

and has fallen 23 percent this year.

     A price around “$85 a barrel is something that’s going to

be pretty realistic over the next few years,” Botten said.

“Marginal projects, high-cost projects, will be progressively

shelved.”

     Four out of 11 unnamed LNG plants in Australasia that have

been approved or are under development need an LNG price of at

least $12 per million British thermal units to break even,

according to an Oil Search presentation earlier today, citing

estimates from energy consultants Wood Mackenzie Ltd. The PNG

LNG project needs a price of less than $8, the figures show.

     Asian LNG prices may “settle” at $12 to $14 per million

British thermal units for supply between 2020 and 2025, the

company said.