Hardly a day goes by without a report that investment in new oil production projects is being delayed, postponed or cancelled. A combination of falling oil prices, declining demand, the unavailability of loans, and fears of a global economic meltdown are more than enough to stop many projects.
Most at risk are those projects with high capital costs per barrel of production such as upgraders for the Alberta oil-sands and deep-water oil fields. Last week two major oil-sand producers announced or hinted at postponements of multi-billion dollar projects. Even Brazil, which had been talking about starting projects from new deep-water discoveries in the next one to four years, is now talking delays of a decade or more.
In the US, plans for an $800 million coal-to-liquids plant have been delayed by capital shortages as has a carbon capture project. In addition to the major projects, hundreds of small producers have been forced to the sidelines for lack of financing.
Even the ultra-conservative Saudis seem to be running into financial troubles as oil prices plummet. Last week King Abdullah was reassuring his people by saying, “Citizens should be sure that the country is moving calmly and all the coming days will be happiness and prosperity.”
The slowdown in new oil production projects will obviously have a profound effect on rates of oil production in coming years. The world is still producing about 85 million b/d which will drop by 3-4 million b/d each year unless an equivalent amount of new production offsets the decline.
It will be several years before cancelled or delayed projects fully impact the world’s capacity to produce oil. Unless demand for oil is devastated by severe and lengthy economic setbacks, these delays are almost certain to have a major impact on the availability and price of oil with the next five years.