Low oil prices, credit crunch dampens Petroleum meet

Oil companies are putting up a brave front despite a sharp fall in oil prices

Noor Mohammad, New Delhi, Hardnews

The gloom over the falling crude oil prices and credit squeeze was palpable in the petroleum industry's biennial jamboree Petrotech-2009, even though industry honchos and experts talked of stepping up investment without being distracted by the current market scenario. The underlying argument was that increased investment was required to insulate the world economy against a possible ‘oil shock'. Another consensual view emerging from the conference was that what matters to the petroleum industry is not high or low oil prices but price stability and predictability. 

Richard H Jones, Deputy Executive Director of the International Energy Agency (IEA), the developed countries' energy watchdog, in his speech warned of a sharp slowdown in the pace of upstream investment due to the tight credit markets that could cause a supply crunch once the global economy recovers.

While sharing the IEA's latest updates on the global crude oil demand-supply scenario, Hones said all of the growth in oil demand will be coming from Non-OECD countries, with China accounting for 43 per cent, and the Middle East and India accounting for 20 per cent each. The other emerging Asian countries will share the bulk of the rest demand. 

According to IEA's latest projections, crude oil production will rise to 104 million barrels per day (mb/day) in 2030, with Middle East OPEC taking the lion`s share of oil market growth as conventional non-OPEC production declines."This entails investments of $26 trillion, at the rate of over $1 trillion a year, but the credit squeeze could delay spending, potentially setting up a supply-crunch once the economy recovers," Hones warned.

Even if oil demand were to remain flat to 2030, gross capacity 45 mb/day of would be needed just to offset decline in existing fields.ONGC Chairman R.S. Sharma, for one, underlined the grim challenges being faced by upstream oil companies in the current market scenario. "The twin threat of falling crude prices and the global credit squeeze is poised to deal a severe blow to upstream investments, especially in the new exploration frontiers like deepwater or ultra-deepwater," Sharma told the conference.

He warned that globally, investments in development projects had started slowing down as developers turned cautious and controlling cost has become a prime concern for project developers.Small oil exploration companies with a relatively high dependence on credit are vulnerable to collapse or takeover.

"At this critical time, consolidation of strategic partners, cost effective exploration and innovative acquisition strategies seems to be the effective solutions," Sharma said.