The oil market collapse has put more pressure on energy producers than ever before, causing an unprecedented financial crisis, according to industry officials.
On average, an oil company earns only $26 for each barrel of oil sold at current oil prices, according to a report by the Houston Chronicle. In February, oil prices in the United States fell to a 13-year low of $26 per barrel. Drillers could not generate cash at those prices, but still had to pay off debts.
Margins had never been slimmer, one industry specialist said Wednesday at the Offshore Technology Conference in Houston.
“This is, in historical context, extraordinary,” a partner at Norway’s Rystad Energy, said. “When you compare this to history, it makes some of the setbacks that we’ve put behind us in 2009 and the early 2000s look like a walk in the park.”
Businesses have cut more spending – hundreds of billions of dollars – than in any previous downturn. Oil field production around the world has declined 10-12 percent. Still, global oil production hasn’t fallen enough to alleviate the world’s oil glut.
Although the industry has shelved or canceled oil projects worth billions of dollars, companies continue to pump oil from deepwater installations and other projects approved years earlier. For example, oil companies sanctioned projects with 18 billion barrels in reserves in 2013 alone.
Those projects added 1.7 million barrels a day to the world’s oil production last year and will add another 1.7 million this year. From 2017 until 2020, the projects will add another 5.8 million.
After two years of low oil prices, global oil production is expected to decline in 2016. Rystad believes oil demand will increase to 98 million barrels a day by 2020, potentially pushing oil prices up.
“Oil prices have never been as low as they were in February this year when you see it from the context of costs,” Nicolaisen said. “So something has to give. We are convinced oil prices have to give up quite a lot.”