Investment in U.S. energy projects to fall by 50%

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oil markets

Oil prices had effectively recovered from what was a historical moment when prices had plunged into negative territory back in April. Now that oil is trading back in the $30 per barrel price range, energy companies are breathing a sigh of relief, especially since it seems like prices aren’t going to go plunging back downwards again anytime soon. However, that’s not to say that prices seem likely to recover either. The U.S. energy sector has already seen oil and gas production dramatically slow down, with investment in U.S. shale projects alone projected to decline by 50% this year.

U.S. shale, particularly in the Texas Permian Basin, has been an extremely lucrative area for global energy companies to invest in. Many of the world’s largest oil and gas giants have sold their underperforming assets elsewhere in the world in order to buy up assets in this area. However, considering what happened with oil prices tumbling due to the short-lived Russian-Saudi price war as well as this coronavirus pandemic, companies now aren’t interested in getting involved in this area anymore.

The International Energy Agency went on to say that it expects U.S. shale investment to plunge by 50%. The organization has also gone on to warn that it expects global investment in oil and gas in general to plunge by around 33%.

“We see a historic fall in global energy investment, but the biggest hit is to the shale industry. It has always been under pressure, but now access to capital and investment confidence is drying up,” said IEA director Fatih Birol according to the Wall Street Journal.

Earlier this year before the coronavirus pandemic hit, shale producers in the U.S. were largely responsible for pushing the country’s oil output to over 13 million barrels per day. Following this pandemic and the resulting lock down, however, oil output in the U.S. has plummeted significantly. While some investors are hoping that prices will end up recovering sometime this summer, it is far to early to tell for sure either way.

Surprisingly enough, this wasn’t the first time in recent history that U.S. shale producers have seen a drastic reduction in investment. Between 2015 and 2016, shale companies ended up cutting spending by around 50%, while investment in the sector saw a major downturn following the low oil prices of around that time.

Arguably one of the only sectors to benefit from the oil market’s devastation is renewable energy. While the International Energy Agency has also stated that the renewable energy sector will suffer as well over the next year, it is expected to far better than traditional oil and gas due not being directly dependent on oil prices.

At the moment, prices for international benchmark Brent crude ended the day at around $35 per barrel, dipping around 4% over the course of the day. U.S. benchmark West Texas Intermediate fell by around 4.5% as well, sitting at around $33 per barrel. U.S. oil and gas companies spend just under $36 per barrel on average in extraction and production costs, meaning that companies can’t make a profit at current prices.

 

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