Oil firms to cut production spending by $100 billion

International Energy Administration (IEA) has estimated that globally, companies would cut their 2015 spending on new oil and gas production projects by more than $100 billion, a decline of over 20 per cent compared with 2014.

IEA Executive Director, Fatih Birol, who made this disclosure on Wednesday to the Chinese Academy of Social Sciences in Beijing, stated that with the recent dip in oil prices, oil companies are preparing for further cuts as they revisit their spending plans. “It may take time for reduced investment to feed through into production levels. But the effect on oil production will not be delayed forever.

If investment cuts go too deep, we also face the risk of locking in another period of market tightening and higher prices down the road”, he added. Brent crude oil prices declined by a fraction of a per cent to $49.30 per barrel at the start of trading Wednesday in New York.

West Texas Intermediate, the U.S. benchmark, inched marginally below the close of the previous session to start the day at $45.72 per barrel. Already, many companies in Nigeria have either suspended production from oil wells or out right cancellation of projects.

Recently, Afren wrote-off its Barda Rash reserves in Kurdistan due to a $900m impairment charge against falling oil prices. Also, an indigenous oil company in Nigeria, Frontier Oil Limited suspended production in one of its oil wells due to the falling crude oil prices.

Birol noted that global supply remains impressively strong, even in the face of today’s crude oil prices: unconventional oil production in the United States remains quite resilient; output in Iraq remains strong; and Iran is on course to re-join international oil markets.

He said that although global consumers are responding to lower prices by picking up their consumption, it would take time for the markets to absorb the current excess in supply. “The road ahead for oil markets remains difficult.

We are also watching closely what is happening to investment, especially in key non-OPEC countries such as the United States, Canada and Brazil”.

He expects gas supply to be boosted over the next few years by the start of long-awaited LNG projects in Australia and then by gas exports from the United States. “But this rosy picture of ample supply and lower prices also needs to be considered alongside the recent announcements from LNG project developers about postponements, delays and cancellations.

There is a risk here too of a cycle of tighter markets and higher prices as we move into the 2020s. “Against this backdrop, consider geopolitical risks in key producing countries as well as in key transit countries.

These risks are especially high in the Middle East and North Africa, a region that is and will remain at the heart of the global oil outlook. Just look at what is happening in parts of Iraq, Syria, Yemen and Libya.

Some of these risks are being reinforced by the collapse in oil export revenues of certain producing countries, jeopardising their economic and social prospects.

When I look at this whole picture, I am convinced that energy security will move much higher on the international agenda in the years to come”, he added.