The Americas will take the brunt of any cuts in oil production as Iran increases output once international sanctions are lifted, according to a report by A.T. Kearney Inc.’s oil and gas consulting practice in Dubai.
All kinds of oil production in the USA could fall 1.1 million barrels a day by 2020 because of higher costs as Iran’s output climbs, starting with an increase of 800,000 barrels a day next year, Chicago-based A.T. Kearney said in a report to be issued this week. Brent crude prices are seen trading at $45 to $65 a barrel next year, according to the report. The international benchmark was trading at $52.85 a barrel on Tuesday.
“With Iran coming back on, there’s the prospect this is going to be a longer-term lower price than we’ve seen before,” Richard Forrest, A.T. Kearney’s lead partner for energy, said in an interview in Dubai on Sunday.
Iran and six global powers reached an agreement in July in after-sanction period that would limit the Persian Gulf country’s nuclear program in return for removing sanctions on its energy and financial industries. The restrictions cut its oil output from 3.1 million barrels a day in July 2012 to as low as 2.5 million barrels in May of 2013.
The projected drop in production in the Americas is equivalent to a 4 percent decline from 27.5 million barrels a day now, according to A.T. Kearney, which estimates Middle East production at 26.3 million barrels a day. Prices by the end of the decade will allow fields with production costs of $60 to $80 a barrel to produce at profitable levels, according to the study.
“While any oversupply has some impact on price, it’s not going to be as dramatic as what we saw in the previous shifts,” Forrest said, referring to the period when Brent fell from over $100 a barrel in July last year to less than half that six months later. That drop was due to concern about slowing global demand, he said.
Iran may also increase petrochemical output, creating a potential for increased exports and lower prices, said Oil Minister of Iran. This country has the world’s biggest natural gas reserves. “Petrochemicals is a way to get their gas exported in the form of another product,” Minister said.