Megaprojects A Megaheadache For Oil Bosses

It remains to be seen how the government might penalise the consortium for new delays. In the meantime, political risk is not the only headache.

"The increasing scale, costs and risks of oil and gas projects have taken complexity to a new level," the materials prepared for the CEOs' meeting say.

"As companies across the spectrum frequently face cost overruns and delays in delivery, successful execution of mega projects calls for new strategies to manage capital and operational costs," it says.

It also adds that "mega complexity" will likely call for new forms of collaboration, although in the case of Kashagan, having almost all the biggest majors on board early didn't help. Indeed it has turned the project into a bureaucratic nightmare.

There are financing constraints, too.

All of the top five are promising investors that capital spending has peaked or is peaking, and are moving to sell assets and abandon some of the most expensive, high-risk projects to take the heat of the rampant cost inflation that occurred in Australia in recent years.

Shell's GTL project in the United States is one of the latest casualties. BP last year scaled back an ambitious and innovative extension plan for its Mad Dog structure in the Gulf of Mexico.

But company bosses know that while investors look little more than a year or two ahead, the industry's survival depends on their ability to invest for production that will not come on line for another 10 or 15 years.

"The industry needs to find a solution to get the right supply balance," says Birol.


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