IEA: Nearly 3% Of Output Vulnerable If Oil Falls To $US80

Oil productionEssam Al-Sudani/ReutersA worker checks the valves at the West Qurna oilfield in southern Basra October 13, 2014.

Nearly 3 per cent of global oil production is vulnerable to cuts if prices fall to $US80 per barrel, making some projects in Canada, Angola,BrazilandNorwayunprofitable,the International Energy Agencysaid.

The estimate was included in a monthly report in which the IEA also cut its forecasts for oil demand and said prices may drop further.

A tumble in the price from the year’s high above $US115 per barrel to below $US90 has focused investors and oil companies once again on the breakeven level – the point at which net return on a project turns positive.

“All told, roughly 2.6 million barrels per day of world crude oil production comes from projects with a breakeven price in excess of $US80 per barrel,” the report said on Tuesday.

This represents 2.8 per cent of the 93.2 million bpd of production in the third quarter of 2014.

Some Canadian production has among the highest breakeven rates, the IEA said.

“Canadian synthetics (oil sands) projects have the highest percentage of production of the types examined here (about 25 per cent) that would fall into a negative net present value if there were to be an extended period of prices below that level,” the report said.

Projects with high breakeven rates are scattered around the world, however.

“Places as diverse as onshore China, offshore shallow-water Malaysia, Nigeria, conventional onshore U.S., shallow-water UK and onshore conventional Russia have significant amounts of high breakeven production,” the report said.

It noted that some planned, high-cost projects had already been canceled.

In the United States, slightly more than 4 per cent of shale oil production requires a breakeven price of more than $US80 per barrel, the IEA said.

Oil reutersReutersCharts Brent crude prize since 2010, with charts of oil production and supply by OPEC and non-OPEC member countries.

A large proportion of deepwater exploration operations have high breakeven rates, the report noted, though the picture is mixed.

“Some 8 per cent of deepwater crude oil production is adjudged to require a breakeven of $US80 per barrel or higher … totaling some 1.05 million bpd or 1.1 per cent of liquid production,” the report said.

“For ultra-deepwater alone (more than 1,500 meters), the results are, perhaps surprisingly, that very little of current output from those depths, less than 1 per cent, requires such a breakeven price.”

More than 80 per cent of deep-water production is based in Brazil and the U.S. Gulf of Mexico, where cost discipline ensures projects tend to be less exposed to higher breakeven levels than in Angola, Brazil, Norway and the United Kingdom.

(editing by Jane Baird)

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This article originally appeared at Reuters. Copyright 2014. Follow Reuters on Twitter.

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