Manama and London, Asharq Al-Awsat—Up to 1 trillion US dollars in slated investments and projects in the global oil industry could be canceled or postponed during the next two years due to the current drop in oil prices, a senior executive from Saudi Arabia’s state-owned oil company said on Monday.
Speaking at the 19th Middle East Oil & Gas Show in the Bahraini capital Manama, Amin Nasser, Saudi Aramco’s senior vice president for upstream operations, said: “The challenges caused by oil-price troughs today are much more complex than before . . . and we have received reports from the sector that there are several scheduled projects worth around 1 trillion dollars in total that will either be canceled or postponed during the next two years due to what is currently happening”—though he did not specify the source of the reports.
This comes as global oil prices have fallen to their lowest levels since the aftermath of the global financial crisis in 2008–2009, plummeting around 60 percent since last June, when prices were as high as 115 dollars a barrel. On Wednesday global benchmark Brent crude rallied slightly to 57 dollars a barrel by 12:48 pm GMT, after reaching a one-month low of 55.92 dollars at the close of Tuesday’s trading session.
An oversupplied market largely caused by the shale oil production boom in the US, lukewarm demand from key markets like Europe and Asia, and the rising dollar—which has hit record highs against a number other currencies, making it difficult for holders of those currencies to purchase commodities on global markets—have all contributed to the recent slump.
A number of small oil producers have been left reeling on the back of the slump and some oil companies have been forced to slash investment budgets as a result.
Sources told Reuters on Monday Aramco itself was freezing a number of oil and gas Red-Sea drilling and exploration projects and has postponed a plan to build a 2-billion-dollar clean energy plant at one of its refineries in Ras Tanura off the Persian Gulf.
In January, the company’s Chief Executive Khalid Al-Falih said Aramco would be reconsidering a number of contracts and deferring a number of planned projects due to the oil-price drop.
The head of OPEC Abdallah Al-Badri said on Sunday during the Manama conference that the organization’s biggest challenge remained the slow growth of the global economy—expected to grow 3.4 percent in 2015, having only expanded by 3.2 percent in 2014.
Badri cited as yet unresolved issues in the euro zone coupled with a slowdown in growth from global economic powerhouse China as a cause for concern in the long term.
He said the industry needed around 10 trillion dollars in investments during the next 25 years in order to meet demand over the period, which is slated to grow by around 21 million barrels per day (bpd) to 111 million bpd by 2040, according to OPEC’s World Oil Outlook 2014.
Despite his concerns over the growth of the global economy, however, Badri remained bullish on the long-term prospects of producers from the Middle East, whom he said were well-positioned to capitalize on the growth in demand over the next decades, the bulk of which will be driven by Asia, considered the key market for regional oil producers such as Saudi Arabia.