IEA Chief Warns on Low Oil, Gas Investment
November 23 2015 - 10:40AM
Dow Jones News
OSLO—The International Energy Agency's executive director said
Monday that global oil and gas investments were expected to drop in
2015 and 2016, marking the first two-year spending decline in
decades, and he warned of the long-term impact on supply.
"We have never seen this in the last 30 years, two consecutive
years of investment decline," the IEA's executive director, Dr.
Fatih Birol, told The Wall Street Journal on the sidelines of a
Statoil conference. "This will have implications for the oil
markets, if not tomorrow then the day after tomorrow."
The IEA, the energy watchdog of the Organization for Economic
Cooperation and Development, has forecast oil prices will pick up
slowly toward $80 per barrel by around 2020, as demand keeps
growing and the current oversupply is gradually reduced.
Plunging oil prices have led global oil producers to delay
projects and cut spending by more than 20% on the year in 2015, and
the drop is set to continue next year, Dr. Birol said. The Brent
crude oil benchmark price started dropping last summer, after
staying north of $100 per barrel for much of the time since 2011,
and was trading Monday at around $45 per barrel.
"The decline in investment means the growth in production will
be negatively affected in the next years to come," Dr. Birol
said.
Huge investments are needed to maintain the global supply of
crude. Even if global oil demand doesn't grow at all, the world
would need to add more than four million barrels a day of new oil
production each year, just to compensate for the natural production
decline in existing fields, Dr. Birol said.
If global economic growth continues in an orderly fashion, and
oil demand grows by about one million barrels a day each year, the
oil market would likely tighten in the coming years, which could
push prices higher, Dr. Birol said.
"The longer this [period of lower spending] lasts, the more
supply capacity you'll lose, because of the annual decline," said
Statoil ASA's Chief Executive Eldar Sæ tre, who also expects global
oil companies to keep cutting spending next year.
Statoil has delayed several projects due to weak prices. A
longer period of low prices and weak spending by major oil
companies would hurt global output in the long term, Mr. Sæ tre
said. When a company gives the go-ahead to a new oil project, it
generally takes several years to start production.
"It takes time to replace capacity, we all know the lead time in
our business," Mr. Sæ tre said. "Prices may increase, and the
longer the downturn lasts, the bigger is the risk of a more
powerful and quicker price hike."
Write to Kjetil Malkenes Hovland at
kjetilmalkenes.hovland@wsj.com
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(END) Dow Jones Newswires
November 23, 2015 10:25 ET (15:25 GMT)
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