BAKU, Azerbaijan, Dec.19
By Leman Zeynalova – Trend:
The average rate of decline in production at existing oil fields for the period 2018-2035 will be 3.5 percent, Trend reports citing Russia’s Lukoil company.
The natural decline in production at mature fields creates a need for investment in new production projects, the company said in its report on Major Trends in the Global Liquid Hydrocarbon Market to 2035.
“The difference between oil demand and production at mature fields will determine the need for new production projects. According to our estimates, by 2035 the required new project production will be between 36 and 54 mb/d. Thus, regardless of the demand scenario, the requirement for investment in new production projects will be consistent until 2035,” reads the report.
The composition of future production projects is important to determine the equilibrium oil price.
“In the Evolution scenario, it is expected that the need for new production projects will be 46 mb/d by 2035. By 2035, about ¼ of new production projects will be those involving onshore and offshore production of conventional oil in the countries that are parties to OPEC+ agreement. Projects in this group will have the lowest cost of production. By 2035, about of 8 mb/d will be added by projects with low production costs in countries outside OPEC. The remaining demand for new projects, some 50 percent of the total demand, will be satisfied through technologically complex projects for deepwater offshore oil production, the development of shale formations and the production of heavy oil. These projects, on average, are characterized by higher production costs compared to traditional onshore and offshore oil production projects,” said Lukoil.
In the Evolution scenario, in accordance with the balance model the company used, the equilibrium price of oil in the period from 2025 to 2035 will be 70 $/ barrel at 2018 prices.
“At this price, oil demand will be fully satisfied through new oil production projects. In addition, this price level is quite comfortable for parties to the OPEC + Agreement. Oil prices in the range of 60- 80 $/barrel meets the budgetary requirements of the majority of the OPEC+ members, and they are sure to seek to maintain the price of oil within this price band,” reads the report.
In the Climate scenario, the equilibrium price of oil drops to 50 $/barrel at 2018 prices due to lower demand for new production projects than in the Evolution scenario.
“We also assume that in the market situation modeled in the Climate scenario, the OPEC+ members will be unlikely to keep the oil price above 60 $/barrel for a long period of time. The Equal Opportunities scenario assumes an increased forecast for oil demand. Such assumption results in a higher price of the marginal producer on the new oil production project supply curve. In the Equal Opportunities scenario, we assume an equilibrium oil price of 90 $/barrel at constant prices,” said the company.
---
Follow the author on Twitter:@Lyaman_Zeyn