- Almost 5 million barrels a day of projects put off, cancelled
- Energy companies seen cutting 3-8% in investments next year
The scale of the global oil and gas industry’s spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.
Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday. Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.
Just like high oil prices can’t last, a prolonged period of low prices is “also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise,” the prince said in the remarks. “As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price.”
Oil prices have declined 42 percent in the past year as Saudi Arabia led the Organization of Petroleum Exporting Countries in maintaining production in the face of a global glut rather than make way for booming U.S. output. Supply from outside the 12-member group will start to decline next year and the drop will accelerate after that, according to his speech.
The impact of the current price instability is not just confined to the oil sector as “the spillovers are being strongly felt in other parts of the energy complex, such as renewables and natural gas,” Prince Abdulaziz said. Oil prices will probably rebound next year, United Arab Emirates Energy Minister Suhail Al Mazrouei told a conference in Abu Dhabi on Monday.
Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said in the prepared remarks. Growth in Asia’s demand may slow “by efforts to efficiency enhancement and oil substitution,” he said.
“But the petroleum industry should not lose sight of the fact that scale matters,” with billions of people moving up into the middle class, the prince said. The size of the world’s middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said.
“Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust.”