Fossil companies will cut more than $1 trillion from their exploration and development budgets between 2015 and 2020 due to low oil prices, analysts Wood Mackenzie Ltd. reported this week.
Global investment will fall 22%, or US$740 billion, in oil and gas development, and $300 billion in exploration, Bloomberg reports.
- Concise headlines. Original content. Timely news and views from a select group of opinion leaders. Special extras.
- Everything you need, nothing you don’t.
- The Weekender: The climate news you need.
“The impact of falling oil prices on global upstream development spend has been enormous,” said Principal Analyst Malcolm Dickson. In virtually every oil-producing country, “companies have responded to the fall by deferring or cancelling projects.”
While the United States has seen the deepest cuts, “the Middle East is the region least affected, with no drop in investment expected in Saudi Arabia — the world’s largest crude exporter — for this year and next,” Bloomberg notes. “That’s because several countries in the region are spending to maintain their market share.”
In Canada, meanwhile, a $50-per-barrel price for oil won’t be enough to bring new money to new fossil projects, and that means continuing risk for existing investors, Bank of Canada Governor Stephen Poloz told an audience in Whitehorse earlier this week.
The problem for the industry and its boosters is that the price recovery seems to be stalling, and “an extended period of oil prices at recent levels is unlikely to lead to greater investment spending in the Canadian oilpatch,” Poloz said. “Indeed, market intelligence suggests there is further downside risk to investment at these still-low prices.”
Oil prices won’t return to the previous level of $100 per barrel for “the foreseeable future,” he added. Wood Mackenzie’s Dickson echoed Poloz’ comments, noting that “kickstarting the next investment cycle will require more cost deflation” and confidence in higher prices.
Canadian oil and gas producers “have already cancelled or delayed several major oil sands projects, curtailed drilling and laid off thousands of workers in Alberta, Saskatchewan, and Newfoundland,” the Globe and Mail reports. “In the energy sector alone, investment this year is expected to be 60% below 2014 levels—representing billions of dollars worth of lost economic activity.”
Leave a Reply