OPEC seminar speakers call for continued investment

Uchenna Izundu
OGJ International Editor

VIENNA, Mar. 19 -- Too many oil and gas projects are being delayed or cancelled in light of low prices and weak demand, which will result in a shortage of future supplies and price spikes, warned speakers at the fourth OPEC International Seminar held in Vienna Mar. 17-19.

The industry must continue to invest in capacity and human resources to ensure that it will be able to address the upturn, said David O'Reilly, chairman and chief executive officer of Chevron Corp. "International oil companies need a stable investment environment, access to resources, and a commitment to invest in skilled people and assets."

The industry will need to invest $400-500 billion/year through 2030, according to O'Reilly, but this investment is being threatened by the credit crisis. About 30-45 million b/d of capacity is required by the middle of the next decade.

Nobuo Tanaka, executive director of the International Energy Agency, warned that OPEC's spare capacity could be reduced further if projects were deferred; it would stand at 3.5 million b/d in 2013.

According to John Lipsky, first deputy managing director at the International Monetary Fund, global economic recovery could start in the middle of next year provided that confidence returns to the markets and the financial system are restored. However, he stressed that the bottom of the recession has yet to be reached.

"This will mean rising unemployment, and it will be a difficult period. We are worried about the effects on poor countries; they need greater aid."

Despite the market's being well supplied, speculators drove oil prices to peak at $147/bbl last July, producing nations said, and prices have fallen by more than 70%. Other factors included a reduction of consumer demand and reduced spare capacity.

The speakers complained that current prices were too low to underpin new investment in supplies and capacity. Abdalla Salem El-Badri, secretary general of OPEC, said OPEC members in total have 150 ongoing projects but have delayed 35 projects until after 2013. "Companies are going to renegotiate terms as these were undertaken during high prices. This will delay their implementation for so many years and we'll have a shortage. There is no other viable source of energy now to take the burden of oil and gas."

Sadek Boussena, professor of economics at the University of Grenoble, described $70-80/bbl to be a price enough to encourage the multibillion-dollar investments required to meet demand.

Data transparency in the markets is also crucial and requires international attention, urged Noe van Hulst, secretary general of the International Energy Forum. This would help to reduce oil price volatility. "India and China need to submit data on oil stocks, and we want a list of investments in the upstream and downstream sectors."

Contact Uchenna Izundu at [email protected].