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Slumping energy investment sets stage for future oil shortages
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The sun sets on oil facilities Saturday, Feb. 7, 2009,
in the desert oil fields of Sakhir, Bahrain. OPEC
members are expected to cut oil production when they
convene in March to try to push up prices to at least
$70 a barrel, Iraq's oil minister says. OPEC cuts so far
have failed to stop rapidly falling oil prices, affecting
budgets of Iraq and other producers in the region.
(AP Photo/Hasan Jamali)
Falling oil prices are bringing consumers relief from high fuel prices. This is good in the short run, but if oil prices go too low it could cause supply disruptions and higher prices when the economy rebounds.
A high level of investment is needed in the world-wide oil market to offset the decline in production from mature oil fields. The number of large oil fields being found has been decreasing for decades. The fields found now are smaller, in difficult to access locations, or contain oil that is more costly to extract. Smaller fields typically have shorter production life-times. This requires increasing investment just to maintain existing pumping capacity.
Long term the International Energy Agency (IEA) has raised in long term estimate of oil prices to $200 per barrel in 2030 while cutting long term demand from 116 MM barrels a day to 106 MM barrels a day. This assumes a projected energy investment of $26 Trillion over the next 21 years or more than $1 Trillion per year.
In the current pricing environment, OPEC Secretary General Abdalla el-Badri said Monday because of falling prices, member states have postponed 35 of 150 new oil and gas production projects. That likely will mean OPEC will not meet its goal of raising capacity by five million barrels a day by 2012, when most expect the recession to be a bad memory.
Brazil is an exception that is planning on increasing investment in oil development. Petrobras, the state-run oil company is increasing their investment to $174.4 billion through 2013. I think they are looking beyond the economic valley we are currently in and expecting much higher prices 4 years out. A lot of this money will go towards developing the large oil find off their coast in deep water (17,000 feet of water and 6,000 feet of salt down). With other companies cutting back, they should get better prices on the equipment they will need to develop these fields.
It would be good if other oil companies looked beyond the current economic slowdown, but that is not reality. It is good
that the United States is accelerating the development of alternative fuels (hopefully) to cut our dependence on foreign
oil in the future.
