International oil companies will probably cut investment spending about $370 billion this year and next, according to Wood MacKenzie.
(Bloomberg) -- International oil companies will probably cut investment spending about $370 billion this year and next, according to Wood MacKenzie Ltd., just as the United Arab Emirates warned about a “massive” number of projects being delayed because of the drop in crude prices.
The investment cuts will mean a 3 percent reduction this year in oil and natural gas production, equivalent to 5 million barrels of oil, and another 4 percent, or 6 million barrels, in 2017, Jessica Brewer, a Middle East analyst for WoodMac, said in an interview at the company’s Dubai office Thursday. The global oil industry has postponed a number of projects, raising the risk of a slump in output and a potential shortfall in supply, U.A.E. Energy Minister Suhail Al Mazrouei told reporters in Abu Dhabi Thursday.
Benchmark Brent crude plunged from more than $115 a barrel in June 2014 to less than $28 in January this year, and traded below $48 Thursday. The decline has forced explorers to delay projects, cancel billions of dollars of investments and eliminate thousands of jobs. Patrick Pouyanne, chief executive officer of Total SA, France’s largest oil company, said last month that investment cuts in the industry threaten to cause an oil shortage by 2020.
“This is what we are concerned about,” Al Mazrouei said. “The number of postponed projects is massive.” Decreased investment in oil production can crimp supply in the future, even as “the market is moving towards balancing,” he said.
The heads of Exxon Mobil Corp., BP Plc, Total and Italy’s Eni SpA are scheduled to join Al Mazrouei and the chief executive officer of Abu Dhabi National Oil Co. next week in Abu Dhabi for the largest oil conference in the U.A.E. capital to discuss global supply and demand and the industry’s future.
“Companies are going to be cautious” about deciding on new investments, Neil Beveridge, a Hong Kong-based analyst at Sanford C. Bernstein & Co., said by phone. “I don’t think anyone will be jumping back in with a significant increase in capital investment next year.” Prices will average about $60 a barrel next year, Bernstein forecasts.
The International Energy Agency estimates spending in exploration and production fell 25 percent in 2015 and will decline by the same amount this year, cutting more than $300 billion in investment. It sees no signs companies will resume spending in 2017.
Spending cuts in capital investment and deferred projects will amount to $1 trillion for the period from 2014 to 2020, according to WoodMac. By the end of the decade, those projects that didn’t go ahead will account for the equivalent of about 3 million barrels a day of supplies. Most Middle Eastern producers have moved ahead with projects, Brewer said.
“We in the U.A.E. are trying not to postpone projects in a major way,” Al Mazrouei said. “All projects around the world should be equal to the amount of demand.”
The Organization of Petroleum Exporting Countries is debating production cuts aimed at increasing prices. Investment is likely to resume in 2018 if prices stay at least at $50 a barrel as demand rises, Beveridge said. “There is a price that will bring back some investment but not too much to flood the market.’’
To contact the reporters on this story: Anthony DiPaola in Dubai at email@example.com; Mahmoud Habboush in Abu Dhabi at firstname.lastname@example.org. To contact the editors responsible for this story: Nayla Razzouk at email@example.com Claudia Carpenter, Amanda Jordan
Copyright 2016 Bloomberg News.
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