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Operators cut $300b spending in two years

By Roseline Okere
13 July 2016   |   3:50 am
The global oil and gas industry has in the last two years cut about $300 billion investment, or 42 per cent of the total due to the low crude oil prices.
Oil production facility

Oil production facility

The global oil and gas industry has in the last two years cut about $300 billion investment, or 42 per cent of the total due to the low crude oil prices.
The International Energy Administration (IEA), which made this disclosure in a media statement at the weekend, said that investments in the oil sector declined in 2015, and then again in 2016, describing it as the first consecutive two-year drop in three decades.

IEA noted, however, that if lower prices prevail for a prolonged period, they could discourage $800 billion of energy efficiency investments through to 2040. “Without additional policy efforts, low oil prices could lock in a less efficient and less climate-friendly capital stock that leads to higher long-term emissions”, it said.

According to IEA, North America accounted for about half the drop. If prices remain at current levels, a significant rebound appears unlikely in 2017.
The latest data also points out that Middle East oil supply has reached historically high levels, exceeding 31 million barrels per day. “The region now accounts for 35 percent of global oil supplies, the highest level since 1975.

This growth in production, from Saudi Arabia, Iraq and Iran, highlights the fact that low-cost producers in the Middle East remain central to oil markets. Production from the Middle East is expected to account for most of the world’s demand growth this year”, it added.

IEA said that the lower oil and gasoline prices are also hurting energy efficiency trends in some countries, particularly in the transportation sector where they have given a boost to the sale of sport utility vehicles.

It said that consumers have moved away from energy-efficient vehicles that they favored when oil prices were higher. In the United States, SUV sales are now 2.5 times higher than light duty vehicles. In China, SUV sales are 4 times higher than light duty vehicle sales.

IEA said that the prospect of oil prices remaining low for an extended period cannot be ruled out. “In the Low Oil Price Scenario, a new oil market equilibrium emerges at prices in a $50 to 60 per barrel range that last until well into the 2020s before edging higher to $85 per barrel in 2040. Key assumptions to bring this scenario about are: sluggish near-term economic growth; a stable Middle East in which key producers look to increase their share of the market; and resilient performance from key non-OPEC producers, particularly US tight oil”, it added.

The international energy watchdog believed that lower prices stimulate oil use and diminish the case for efficiency investments and switching to alternative fuels.

It stated: “In the Low Oil Price Scenario, demand is pushed up to over 107 mbpd by 2040, nearly 4 mbpd higher than in the New Policies Scenario, with most of the incremental demand coming from transport. While oil consumers and importers benefit economically, the consequent rise in dependence on supply from the Middle East may raise concerns over oil security. Oil producers and exporters are worse off, as the volume gains from higher output are more than offset by the effect of lower prices.

Some $800 billion in energy efficiency investments from the New Policies Scenario fail to materialise over the period to 2040. Without additional policy efforts, low oil prices could lock in a less efficient and less climate-friendly capital stock that leads to higher long-term emissions”, it said.

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