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  • From: Tompkins County Relocalization Project <tcrp-news AT lists.ibiblio.org>
  • To: tcrp-news AT lists.ibiblio.org
  • Subject: [tcrp-news] Fw: Falling oil poses threat to supplies
  • Date: Wed, 22 Oct 2008 20:45:44 -0400

Thanks to Terry Moore of TCLocal for this.

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http://www.ft.com/cms/s/0/a632bf5a-a05b-11dd-80a0-000077b07658.html

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Falling oil poses threat to supplies
By Carola Hoyos in London

Published: October 22 2008 19:47 | Last updated: October 22 2008
19:47

Christophe de Margerie, Total’s chief executive, has been warning
for more than a year that political hurdles such as sanctions
meant the world would not be able to produce more than 95m barrels
a day of crude oil.

But as the credit crunch delays expensive projects and lower oil
prices dissuade oil-rich nations from investing in tapping more of
their riches, oil executives are privately warning that even 95m
barrels could prove optimistic.

That is a stark reassessment. The world consumes 87m barrels a day
of oil and will have to find a lot more energy if China, India and
other developing nations are to pull themselves out of poverty.

For now, all eyes are on falling demand and tumbling oil prices
but the International Energy Agency has warned that the glacial
pace at which supplies are being added will have far-reaching
economic consequences.

In its latest report, the IEA, said: "Most large international oil
companies and state producers should weather the financial
storm. However, investment is being affected at a number of highly
leveraged companies in locations such as Russia and the Caspian."

Russia’s two energy giants, Rosneft, the state oil company
partially listed in London, and Gazprom, the natural gas monopoly,
depend heavily on debt to finance operations and evidence is
mounting that they are scaling down their investments.

Gazprom admitted on Wednesday that the liquidity crisis could
affect its ability to refinance debts and might affect its cash
flow forecasts. It has told TNK-BP that it might not buy its stake
in the giant Kovykta gas field after agreeing in principle to a
$700m-$900m deal last year.

Meanwhile, TNK-BP is expected to cut its capital expenditure by as
much as $1bn next year, or almost a quarter.

Tim Summers, the company’s chief operating officer, said: "At $120
or $140 a barrel, you are trying to grow the company as fast as
you can but you take a different view at $70."

Oil prices, which in July peaked at nearly $150 a barrel, are
trading at about $70 a barrel, after having briefly slipped below
that mark.

In Iran, which holds the world’s second-largest oil and gas
reserves, Gholamhossein Nozari, oil minister, said: "I think the
low price is a real damage to the future of production."

Chief executives of some of the world’s biggest international
energy companies meeting in Venice this month privately voiced
concerns that the credit crunch-driven belt-tightening and new
spirit of government intervention in business were ominous for the
oil industry.

Mr de Margerie said: "All projects which are under way will be
completed." But he also warned that, if the oil price fell to $60
a barrel and stayed there, "a lot of [new] projects would be
delayed".

France’s Total has been one of the most forthright companies about
the cost of its newest and most expensive ventures, noting that
its Canada oil sands projects need an oil price just shy of $90 a
barrel to develop while reducing the environmental impact.

Its developments in the deep waters of Angola require prices of
about $70 a barrel to achieve a rate of return of 12.5 per cent.

Analysts said Nigerian deepwater projects, which together with
Angola make up the most important areas of growth in west Africa
and involve all the world’s biggest international energy groups,
demand similar oil prices because of their high cost.

Many of these projects have yet to receive final investment
decisions, making them more susceptible to delays in times of
economic uncertainty.

Expensive liquified natural gas projects, which are often financed
by banks, may also be delayed and capacity additions put on hold,
analysts said. BP has shelved plans for its $500m Delaware LNG
facility, arguing "market conditions do not support such a project
near term".

It is not just the big oil companies’ investments that count.

In the US, small oil and gas companies produce 82 per cent of the
country’s natural gas and 68 per cent of domestically extracted
oil. Struggling with a less solid balance sheet than their much
bigger peers, many are struggling to finance their operations.

Meanwhile, the willingness of refiners to add capacity is also
being tested, meaning that the bottleneck that helped drive oil
prices to $147 a barrel this summer will not be solved as quickly
as the industry had begun to believe before the credit crunch.

Eni, the Italian oil company, has announced that it has scrapped a
doubling of the capacity of its Taranto refinery after cutting
back its capital expenditure plans for refining and marketing.

But perhaps the most worrying area, at least in the long term, is
Brazil, where Petrobras, the national oil company, last year
discovered what could become the biggest new oil frontier to open
up in almost a decade.

The company has delayed its highly anticipated strategic review to
assess the impact of the credit crunch.

Petrobras is expected to need upwards of $500bn to finance the
development of its giant subsalt fields, which "may be further
delayed as share prices tumble and amid restrictions on the
availability of state development bank funding", the IEA has
warned.

Delays in developing the field and other projects in Russia,
Angola, Nigeria, Australia and elsewhere, mean there will not be
enough oil available once the world economy is ready to get back
on its feet, several energy executives said.




  • [tcrp-news] Fw: Falling oil poses threat to supplies, Tompkins County Relocalization Project, 10/22/2008

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