Paris, Dec 16, IRNA - Declining production from aging oilfields poses a much greater threat to world oil supply than rising demand, according to the International Energy Agency.
The IEA says "a sea change is underway as international oil companies are facing dwindling opportunities to increase their reserves and production."
The Paris-based intergovernmental group calculates that as much as 45 million barrels/day of gross capacity will need to be built by 2030 "just to offset the effect of expected oilfield decline."
One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices.
Many companies are waiting for those costs to come down before deciding whether to go forward with new projects.
"The global market has been turned upside down since the summer," the IEA said in a report.
In today's uncertain environment, a slowdown in spending is inevitable, according to energy executives who are devising their budgets for next year.
Last year, spending on exploration and production amounted to $329 billion, according to PFC Energy, a consulting firm. That figure is certain to fall.
"We're in remission right now," said Marvin E. Odum, the vice president for exploration and production for Royal Dutch Shell in the Americas. But once the economy picks up, he said, "the energy challenge will come back with a vengeance."
Oil demand growth has weakened throughout the industrial world.
The IEA projects that worldwide demand will actually fall this year, for the first time since 1983.
So much surplus oil is sloshing around the world right now that some companies, including Shell, are using oil tankers for storage.
Oil prices have declined by more than $100 a barrel since July, returning to levels last seen more than four years ago.
They settled at $44.51 a barrel, down $1.77, on Monday in New York, as concerns about the economy outweighed efforts by oil producers to stem the slide in prices.
Different companies have different price thresholds for going forward with drilling projects. But across the industry, a price drop this big has "a dampening effect," according to Mr. Odum of Shell.
"The big uncertainty is how long this economic environment is going to last."
The biggest cutbacks so far have been in heavy oil projects in Canada, where some of the world's highest-cost production is concentrated.
Some operators there need oil prices above $90 a barrel to turn a profit.
StatoilHydro, a large Norwegian company, recently pulled out of a $12 billion project in Canada because of falling prices.
Similarly, Shell, Nexen and Petro-Canada have all canceled or postponed new ventures in the province of Alberta in recent weeks.
Producers are bracing for a painful contraction, and the drop in prices could crimp investments even in places where production costs are low.
The Saudi King Abdullah recently said he considered $75 a barrel to be a "fair price."
The kingdom, which has invested tens of billions of dollars in recent years to increase production, recently announced that two new refineries, with ConocoPhillips and Total of France, were being frozen until costs go down.
In neighboring Kuwait, the government recently shelved a $15 billion project to build the country's fourth refinery because of concerns about slowing growth in oil demand.
The list goes on: South Africa's national oil company, PetroSA, on Thursday dropped plans to build a plant that would have converted coal to liquid fuel.
The British-Russian giant TNK-BP slashed its capital expenditure budget for next year by $1 billion, for a 25 percent reduction from this year.
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