Major Fossil Projects Affected by 2020 Oil Price Collapse
|This article is part of Global Energy Monitor's coverage of the COVID-19 pandemic.|
This page lists fossil fuel projects such as power plants, pipelines, mines, terminals, and other major parts of the fossil fuel economy which have been delayed, cancelled and impacted by the collapse in the global oil price under way since early March 2020. Significant cutbacks to capital expenditure budgets announced by fossil fuel companies are also listed.
A notable drop in demand for oil in early 2020 owing to the initial impacts of the coronavirus outbreak in Asia was compounded on March 6 by the breakdown of a three year co-operation agreement between OPEC countries and Russia to co-ordinate oil production levels, resulting in the instigation of a price war between Russia and Saudi Arabia. Three days later, oil prices entered freefall, dropping by more than 20 percent to the low US$30s per barrel. On March 11, the World Health Organisation declared the COVID-19 outbreak to be a pandemic. This sharp decline in the price of oil has negative consequences for the capital expenditure budgets of fossil fuel companies, many of which were highly leveraged and financially vulnerable prior to the global coronavirus outbreak and the Russia-Saudi Arabia price war.
Analysis published at the end of March by the global energy consultancy Wood Mackenzie into the implications of the dramatic slump in oil prices found that, at a price of US$35 per barrel, 75% of oil companies' investment projects previously planned for 2020 are not financially viable. WoodMac also found that the rates of return projected for oil and gas projects have decreased sharply from 20% to 6%. The energy research agency Rystad Energy, in an April 3 report, estimated that approximately 42% of gas resources in Australia, the world's largest gas exporter, would be rendered uneconomic if current low gas prices — which are linked to oil prices — persist.
Oil and gas pipelines
In April 2020, amidst heavy turbulence in global oil and gas markets, the Financial Times reported that NAmerico Energy, a private equity-backed logistics company, was putting on hold its proposed Pecos Trail Pipeline project. The paper quoted the company's president Jeff Welch responding to the marked downturn in Permian Basin drilling activity: “We’re just being responsive to what’s going on, recognising that the upstream sector is not going to see the growth that people had expected.”
In April 2020 Shell delayed a final decision on its proposed Crux Project, which would develop gas fields in Browse Basin, approximately 160km offshore north-west Australia, and produce an estimated 2.9 mtpa. The front-end engineering design (FEED) studies for the project have commenced and foundation development drilling for the project is expected to start in 2021.
Amidst major upheaval in the commodities markets and record low LNG prices caused in part by the COVID-19 pandemic and the resultant collapse in oil prices, it was reported in March 2020 that, having already failed to finalise a deal with a major Indian customer for the Driftwood project in February, Tellurian's deteriorating economic position may lead to a further delay of 12 to 18 months for its FID on building the Driftwood LNG export terminal. Driftwood LNG Terminal is a five-train 27.6 mtpa export terminal that was scheduled to begin operations in 2023.
Floating Production Storage and Offloading facilities (FPSO's)
On March 30, 2020, Aker Energy announced that it was indefinitely postponing its Pecan offshore oil project in Ghana due to financial losses incurred as a result of the COVID-19 pandemic. Aker Energy had originally submitted a plan to Ghanian authorities in March 2019 that estimated the field would produce 450-550 million barrels of oil and begin production in 2022.
On March 30, 2020, India's state-owned Oil & Natural Gas Corporation (ONGC) announced that it was cancelling plans to build platforms in the Ratna and R-Series fields offshore western India due to plummeting demand caused by the COVID-19 pandemic. ONGC had let a contract to National Petroleum Construction Co. of Abu Dhabi in January 2018 to develop the field, and estimated it would begin production in 2020 and produce 61.2 million barrels of oil over the life of the project.
On April 30, 2020, BP announced that it was delaying FID on the third phase of the Clair South project in the Shetland Islands from 2021 to 2022 as a result of the global oil price collapse.
Capital expenditure cutbacks announced by major fossil fuel companies
Resources and articles
- OPEC's pact with Russia falls apart, sending oil into tailspin, Reuters, Mar. 6, 2020
- Russia’s Defiance Sets the Stage for Oil Price ‘Bloodbath’, Foreign Policy, Mar. 6, 2020
- WHO declares novel coronavirus outbreak a pandemic, CNN, Mar. 11, 2020
- Will the coronavirus kill the oil industry and help save the climate?, The Guardian, Apr. 1, 2020
- Nearly half Oz gas resources 'Out of the money': Rystad, Natural Gas World, Apr. 7, 2020
- Clark Williams-Derry, IEEFA update: Financial prospects falter for LNG projects, IEEFA, Apr. 24, 2020
- Sempra confirms decision on Mexico LNG project, may delay decision on Texas plant, Reuters, Mar. 24, 2020
- Gregory Meyer, Natural gas drillers get share price boost as oil price falls, Financial Times, April 2, 2020
- Financial prospects falter for LNG projects, IEEFA, Apr. 24, 2020
- Crux Project, Offshore Technology, accessed April 2020
- Tellurian Slashes Headcount in Effort to Save LNG Project Bloomberg, Mar 9, 2020
- Kristen Mosbrucker, Tellurian laid off 40% of workers, mulls Louisiana's Driftwood LNG future, NOLA.com, Mar. 10, 2020
- Steve Marshall, Aker Energy puts Pecan on hold as Covid-19 hits Ghana field project, Upstream Online, Mar. 31, 2020
- Nerijus Adomaitis, Ghana expects Aker Energy decision on Pecan oilfield within 1-2 months, Feb. 24, 2020
- Nishant Ugal, India's ONGC cancels major west coast offshore project amid dire market conditions, Upstream Online, Mar. 31, 2020
- ONGC lets contract for Ratna field platforms, development, Oil & Gas Journal, Jan. 24, 2018
- BP takes 'difficult decision' to pause Clair South development off UK, Upstream Online, May 1, 2020