On Monday, an independent consultancy agency said that as regional crude prices hit the lowest levels in twenty years, some projects to develop up to 16 bbl in Latin America are at risk of delay or cancellation.
As crude prices have been hit by the falling demand as the result of the coronavirus pandemic and Saudi Arabia-Russia’s oil price war, the global oil market is struggling to overcome a crisis.
Some oil-reliance countries in Latin America are damaged by the low prices, as sales no longer cover production costs in many oil fields and storing spaces are being filled up quickly. Some producers have to cut output or delay investment.
Countries heavily impacted are Brazil, Mexico, and Guyana. These countries possess reserves at risk of not being developed as their breakeven prices are USD20-30/barrel.
Out of 26 bbl estimated to be developed in the region, almost 16 million barrels have a breakeven price of USD40/barrel or above, but the current oil prices of USD30/barrel do not make money, said the agency.
Nearly USD65 billion in oil investment could risk disappearance in the short term if projects got delayed as companies assessed major metrics such as net present value, breakeven prices needed. and internal rates of return for a group of important oil projects expected to make their final investment decisions through 2022.
The region’s most important benchmark, Mexico’s Maya heavy crude, was averaged USD12.75/barrel last week but in February it hit USD55/barrel.
The agency forecast with oil prices averaging at USD20/barrel, it would require almost a decade for these Latin American oil projects to provide positive cash flows.
