OPEC and the IMF said lower oil prices are cutting investment in new fields, risking a supply crunch when the global economy recovers.
“I don’t think that with a $40 price, or $45 a barrel, as we see it now, we can invest in any additional capacity,” the Organization of Petroleum Exporting Countries’ secretary- general, Abdalla El-Badri, said today at a seminar in Vienna hosted by the group. Lower prices have forced OPEC nations to delay 35 of 150 planned production projects, he said.
Oil prices have collapsed as the global slump cuts demand and remain about 70 percent below July’s records near $150 a barrel. Developing deep wells off Brazil, Canadian oil sands, ethanol plants and other new sources of oil requires prices of least $60 a barrel, according to Saudi Arabia.
“Today’s low prices could be setting the stage for another price run-up in the future,” the International Monetary Fund’s first deputy managing director, John Lipsky, told the seminar attended by executives including Royal Dutch Shell Plc’s Jeroen van der Veer and Nobuo Tanaka, the executive director of the International Energy Agency.
While current prices help the world economy recover from the worst recession since World War II, they undermine projects to bring on stream new oilfields and produce fuel from tar sand deposits, said Lipsky.
Crude oil for April delivery traded at $47.28 a barrel in New York today.
Global crude oil production capacity needs to increase by 64 million barrels a day between 2007 and 2030, to meet growing demand for fuels, the IEA’s Tanaka told the seminar. That represents eight times the current output of Saudi Arabia, the world’s biggest oil exporter.
Saudi Arabia’s View
Saudi Arabia said higher-cost oil projects like ethanol production, tar sands and heavy oils development require a price of at least $60 a barrel to be viable.
Falling investment in the oil industry as a result of the oil price crash is “my biggest concern,” Saudi Oil Minister Ali al-Naimi said in an interview with Bloomberg television today in Vienna.
Prices of “$40 are not going to do it,” he said. “You can see that a number of marginal producers have either shut in wells or eliminated programs of expansion for the future.”
OPEC will meet on May 28 to decide whether a reduction in production is needed to push prices up. At a March 15 meeting in Vienna, it maintained current production quotas amid concern that a fourth cut since September risked increasing energy costs while the global economy deteriorates.
Global Contraction
The contraction in global oil consumption this year will be the first since the early 1980s and the steepest since the mid- 1970s, Tanaka said. The IEA, the Paris-based adviser to 28 nations, on March 13 said it expects demand to fall 1.25 million barrels a day, or 1.5 percent, from 2008.
“We’ve had to regularly downgrade our demand forecast,” Tanaka said. Another downgrade “can’t be ruled out if the economy weakens further.”
Lipsky said oil producers should not expect oil prices to rebound to last year’s record level “soon” as the pace of global economic growth will not match the one seen between 2003 and 2007.
“Oil demand today appears likely to grow at a more modest rate over the next five years or so compared to the path projected only 9 to 12 months ago,” he said. “We still expect prices to rise as the global economy recovers, although not at the dramatic pace recorded in 2007 and first half of 2008.”