New research from Rystad Energy reveals that the cost of developing new upstream oil projects continues to climb amid persistent inflationary pressures and supply chain disruptions.
The average breakeven cost for non-OPEC oil projects has risen to US$47 per barrel of Brent crude, marking a 5 per cent increase over the past year.
Despite the rising costs, breakeven prices remain below current oil prices, ensuring the economic viability of many projects.
Offshore deepwater and tight oil projects continue to be the most cost-effective sources of new supply, while oil sands remain the most expensive.
The research suggests that more oil supply is likely by 2030, primarily driven by low-cost OPEC production.
Rystad Energy estimates that an equilibrium price of US$55 per barrel will be needed to meet the projected 2030 demand of 105 million barrels per day.
A detailed global cost-of-supply analysis reveals:
- Onshore Middle East production is the cheapest new oil source, with a breakeven of US$27 per barrel.
- Offshore shelf projects average US$37 per barrel.
- Offshore deepwater projects average US$43 per barrel.
- North American shale averages US$45 per barrel.
- Oil sands have the highest average breakeven at US$57 per barrel, with some projects reaching US$75.
Espen Erlingsen, head of upstream research at Rystad Energy, notes: “Rising breakeven prices reflect the increasing cost pressures on the upstream industry. This challenges the economic feasibility of some new projects, but certain segments, including offshore and tight oil, continue to offer competitive costs, ensuring supply can still be brought online to meet future demand.”
From 2014 to 2020, tight oil and OPEC saw reductions in breakeven prices and increases in potential volumes.
However, since 2020, the potential supply from tight oil has decreased, with expectations now at around 22 million bpd by 2030, including natural gas liquids.
Beyond breakeven prices, other key metrics for evaluating oil development economics include:
- Payback time: Tight oil leads with a two-year average at US$70 per barrel oil price.
- Internal Rate of Return (IRR): Tight oil again leads with an estimated 35 per cent IRR at US$70 per barrel.
- CO2 intensity: Tight oil and deepwater projects have the lowest emissions intensity, while oil sands have the highest.
As the industry navigates these changing dynamics, managing cost increases will be crucial for sustaining long-term production growth and meeting future global oil demand.