OPEC Delays 35 Drilling Projects due to Falling Prices
Source: Oil & Gas Journal, Eric Watkins (2/9/09)
"Current prices threaten the very sustainability of planned investment."
"Current prices threaten the very sustainability of planned investment," said OPEC Sec. Gen. Abdalla Salem El-Badri in a speech at London's Royal Institute for International Affairs (RIIA).
"These projects are on hold. . .and will continue to be until the [oil] price recovers," El-Badri said, adding that of the 150 projects due to come on line in the next few years, 35 had been set back to after 2013.
"The start-up dates of many other projects are still expected to slip," said El-Badri, who noted that that oil has fallen to $40/bbl from a record near $150/bbl in July, resulting in a loss to OPEC of some $356 billion. "This year our income will be cut by 50%," he said.
UAE Oil Minister Mohammed al-Hamli, underlining El-Badri's view, said at $40/bbl, the price of crude now is about half that required to attract enough investment in new supply. "It is clear that if oil prices remain low for much longer, the negative investment trend will increase to such an extent that large supply shortages will develop when the present economic woes are over," al-Hamli told listeners at RIIA.
The UAE oil minister expressed OPEC's worry that low prices could lead to lower future supplies, potentially causing prices to surge when demand eventually does recover.
OPEC's view was met with skepticism from industry analysts.
"They're only hurting themselves," said Phil Flynn, an analyst at Alaron Trading Corp., one of several who warned that taking production projects off line represented short-term thinking on the part of OPEC members.
According to Flynn, any spike in crude prices because of production declines from OPEC members will make it harder for economies to recover and for demand to pick up naturally. Then, he said, when demand does pick up, OPEC members won't have the production capacity to meet it.