Alarms continued to sound around the world last week bemoaning the sudden drop in oil exploration and production. Active drilling rigs in the US have fallen to 1,790 – down 12 percent from September. Industry analysts expect that hundreds more rigs will be idled by summer and that there could be a total drop of as many as 1000 rigs or a 50 percent decline during 2009 from the September 2008 peak.

In Alberta, Connacher Oil and Gas announced that it was cutting production from its oil sands project nearly in half because current prices for bitumen could not cover the costs of existing production. Other oil sands producers are expected to follow if prices do not revive. Shell, however, expressed the hope that production and engineering costs for oil sands projects will drop soon and that it is waiting for the opportune time to revive new projects that were put on hold last month.

At the LNG summit in Barcelona, speakers grappled with the issue of whether very expensive investments in LNG terminals continue to make sense in face of the economic downturn. There will be a 50 percent growth in world LNG production capacity during the next three years, but after that there could be a supply crunch as investment is scaled back.

Saudi Oil Minister Naimi warned on Friday that plunging crude prices coupled with the world’s financial problems will harm the long term health of the industry. “Today’s price levels are wreaking havoc on the industry and threatening current and planned investments,” Naimi told the London conference of producers and consumers that was a follow-up to the one held in Jeddah during the height of the oil price spike last summer. The oil industry’s change in focus over the last six months is striking.