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Written by Tony Rogers
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Tuesday, 09 June 2009 10:40 |
Current low oil prices threatening future production
Energy investment worldwide is plunging in the face of a tougher global financial environment, weakening final demand (albeit temporarily) and falling industry cash flows – the result, primarily, of the deepest world recession since the Second World War.
Both supply and demand side investments are being effected. Oil and gas companies are drilling fewer wells and there have been sharp cut-backs on spending on refineries, pipelines and power stations. Many ongoing projects are being slowed, postponed or cancelled – for a lack of finance and/or because of plunging cash flows.
The International Energy Agency (IEA) estimates that global upstream oil and gas investment budgets for 2009 have been cut by around 21% compared with 2008 – a reduction in spending of almost US$100 billion.
Further, between October 2008 and the end-April 2009 (6 months) over 200 planned large-scale upstream oil and gas projects, valued at a total of more than $170 billion and involving around 2million barrels per day of oil and 1 billion cubic feet per day of gas capacity, were deferred indefinitely or cancelled.
The drop in spending is most pronounced in the regions with the highest development costs where the industry is dominated by small players and smaller projects, the bulk of which are found in the non-OPEC countries.
This in turn means that, as the proportion of energy sourced from non-OPEC countries continues its ongoing decline, the world will become even more reliant on OPEC sources for energy with all the associated risks that that entails.
In addition, once the demand for energy returns (as it will driven from the developing world, particularly China and India), the reduction in future oil production raises the likelihood for another spike in energy prices with potentially a repeat of the price extremes seen throughout late 2007 and early 2008.
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The low price problem
