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Report finds U.S. energy squeezed by prices

U.S. onshore activity uneconomic at current oil price, report finds.

By
Daniel J. Graeber
Some oil operations in the United States are cost prohibitive with crude oil prices at their current levels, a market analysis finds. File Photo by Gary C. Caskey/UPI
Some oil operations in the United States are cost prohibitive with crude oil prices at their current levels, a market analysis finds. File Photo by Gary C. Caskey/UPI | License Photo

HOUSTON, Sept. 21 (UPI) -- Low oil prices mean $1.5 trillion in potential investments in the global energy sector, including in North American shale, are in jeopardy, a report finds.

James Webb, director of exploration and production research at Wood Mackenzie, said low oil prices mean forecasts for investment projects through 2016 are down $220 billion from when crude oil was valued at around $100 per barrel. For the United States, that translates to more than 40 projects on hold until the market recovers.

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"We estimate that as much as $1.5 trillion of investment spend destined for new and U.S. tight oil projects is now out of the money, or in starker terms, uneconomic at a $50 oil price," he said in a statement.

Oil services company Baker Hughes reported the number of rigs deployed across the United States was 842 for the week ending Sept. 18. That's down six from the previous week and more than 1,000 less than the same week in 2014.

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Wood Mackenzie expects spending on new projects will decline by as much as 30 percent as crude oil prices continue their decline. Brent crude oil at $48.27 per barrel is 2.6 percent lower than the start of the month and more than 50 percent below mid-2014 levels.

Webb said operators and service companies like Baker Hughes need to work together to address challenges emerging in the weak oil economy. With a rebound in prices expected before the end of the decade, however, this may be unlikely.

"A prolonged period of low oil prices over a number of years is likely needed to bring about profound, structural changes to industry costs," he said. "This is unlikely -- in our view oil prices will begin to recover from 2017, and there is a real risk that cost inflation pressures then return."

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The U.S. Energy Information Administration reported total crude oil production will decline 4.3 percent from expected full-year 2015 levels to 8.8 million barrels per day by 2016. In its latest market report, the Organization of Petroleum Exporting Countries said "all eyes" are on how quickly U.S. crude oil production declines.

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