HOUSTON – The collapse of oil has forced the energy industry to delay $1 trillion in projects aimed at pumping crude and searching for oil through the end of the decade, leaving 7 billion barrels of crude in the earth.
And though crude prices have risen above $45 a barrel, the industry is expected to continue dropping big projects as oil companies run out of cash, energy research firm Wood Mackenzie said in a report Wednesday.
Click through the gallery above to see how oil’s troubles affect the wider economy.
“Virtually every oil producing country has seen some form of capex cuts,” said Malcolm Dickson, principal analyst at Wood Mackenzie, in a statement. “The deepest are in the U.S. Lower 48, where forecast capital investment has halved,” falling by $125 billion over 2016 and 2017.
Analysts say U.S. companies have cut spending deeper than they did in the 1980s oil bust, which devastated the Texas economy. But the shale industry’s cuts have affected areas in North Dakota, South Texas and other remote regions the most. The once-booming shale plays account for 70 percent of the oil production expected to be lost in the cuts that are reducing global output by 3 percent this year and an estimated 4 percent next year.
The industry has scrapped projects on another frontier, as well. Spending on expensive deep-water production and ultra-deep projects, which are drilled in more than 7,000 feet of water, is projected to fall 40 percent over the next two years.
All told, the oil bust has pushed companies to defer $740 billion in production projects from oil sands facilities in Canada and offshore drilling rigs in the Gulf of Mexico. Oil companies have cut another $300 billion that would have gone toward exploration projects through 2020.
Wood Mackenzie noted one positive: project costs came down some 25 percent on average last year as energy service companies gave oil producers steep discounts on equipment and services. Costs are projected to fall another 10 percent this year.
“For now, the select few projects that are progressed will do so because costs have been cut substantially to hit economic hurdle rates,” Dickson said. “But kick-starting the next investment cycle will require more cost deflation and project scope optimization along with confidence in higher prices.”