Potential oil output deal
prompts another worry: a shortage
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[October 12, 2016]
By Ron Bousso
(Reuters) - While OPEC and other big crude producers work toward a deal
to cap production to erode a glut, industry executives are concerned the
sharp drop in investment that followed the oil price crash could lead to
another crisis - a supply shortage.
Over $1 trillion worth of oil projects have been canceled or delayed,
Saudi Energy Minister Khalid al-Falih said on Monday at the World Energy
Congress in Istanbul, after companies slashed budgets due to oil prices
more than halving to around $50 a barrel since mid-2014.
Oil fields take years to develop. In many cases, a decision taken in
2016 to develop a field means oil production will start in around 2020.
OPEC, which produces around a third of the world's oil, will hold talks
with non-member oil producers on Wednesday to work out details of a
global agreement to cap production for at least six months. Non-OPEC
member Russia, the world's largest producer, has lent its support.
And as OPEC revives its role as an oil "central banker", French oil and
gas company Total Chief Executive Patrick Pouyanne urged the industry to
start investing again.
"By 2020 we will have a lack of supplies," Pouyanne told the conference.
"Volatility has been huge. The stress on everybody, the balance sheets
of companies and countries is huge," he added.
BP Chief Executive Bob Dudley echoed his concerns.
"As much as a $1 trillion of big projects have been canceled or deferred
around the world and that could catch up with the world," Dudley said at
the same event.
So far this year, eight new oil and gas projects have been approved,
which will add around 1 million of barrels of oil equivalent when they
come on stream, Bernstein analysts said. They are expected to take an
average of 38 months to come onstream, at a combined cost of around
The International Energy Agency forecast in its 2016 medium-term report
that oil demand will outstrip supplies starting in 2018.
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A worker checks a valve of an oil pipe at the Lukoil company owned
Imilorskoye oil field outside the West Siberian city of Kogalym,
Russia, in this January 25, 2016 file photo. REUTERS/Sergei
Dudley expects supply and demand to be relatively balanced until the end of the
decade due to new fields that are coming on line in the coming years and the
abundance of U.S. shale oil, which can be extracted within a few months.
result, he expects oil prices to remain within a band of $55 to $70 a barrel
until the end of the decade, well below the $114 a barrel it hit in mid-2014.
"I do see the price of oil setting itself a band. Shale oil in the US… will
attenuate the price a bit."
But unlike previous supply shortages, new technological breakthroughs that
improve field production and reduce downtime will lead to shorter cycles, said
Lorenzo Simonelli, CEO of oil services company GE Oil & Gas.
"The industry will continue to be volatile. However, it has also changed with
the advent of shale and technology we are going to see smaller cycles of
volatility," Simonelli said.
(Reporting by Ron Bousso; editing by Susan Thomas)
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