By Pumping At Will Saudi Arabia Hurts Oil Investment Everywhere - Bloomberg:
It’s just become a lot harder to make long-term investment decisions in the oil industry. And no, I’m not talking about the need to transition to a low-carbon economy, or the backlash from climate activists and investors. Any veneer of certainty about the future path of oil prices has evaporated.
This is the second time in six years that Saudi Arabia has embarked on a pump-at-will oil production policy that has hammered prices. Whether it’s aimed at Russia or the U.S. shale sector, producers everywhere — from OPEC members such as Angola to corporate behemoths like Exxon Mobil Corp. — have been warned that they can no longer count on the kingdom to keep a floor under oil prices. And that will impact decisions on future investments around the world.
Even if the de facto leader of OPEC steps back from its threat to boost oil supply by more than 2.5 million barrels a day next month, which seems unlikely, Saudi Arabia has shown that it is willing to use its production capacity as a weapon — not to restrict supply and raise prices, but to boost it and crash them. That introduces a whole new challenge for would-be investors in oil projects that might have a lifespan of decades and even for those in the U.S. shale patch, where initial investments can be recouped much more quickly.
 |
There will be long-term consequences.
Photographer: Dado Galdieri via Getty Images
|
It’s just become a lot harder to make long-term investment decisions in the oil industry. And no, I’m not talking about the need to transition to a low-carbon economy, or the backlash from climate activists and investors. Any veneer of certainty about the future path of oil prices has evaporated.
This is the second time in six years that Saudi Arabia has embarked on a pump-at-will oil production policy that has hammered prices. Whether it’s aimed at Russia or the U.S. shale sector, producers everywhere — from OPEC members such as Angola to corporate behemoths like Exxon Mobil Corp. — have been warned that they can no longer count on the kingdom to keep a floor under oil prices. And that will impact decisions on future investments around the world.
Even if the de facto leader of OPEC steps back from its threat to boost oil supply by more than 2.5 million barrels a day next month, which seems unlikely, Saudi Arabia has shown that it is willing to use its production capacity as a weapon — not to restrict supply and raise prices, but to boost it and crash them. That introduces a whole new challenge for would-be investors in oil projects that might have a lifespan of decades and even for those in the U.S. shale patch, where initial investments can be recouped much more quickly.
Oil at $30 a barrel, or even at $20, won’t stop most fields that are already in production from pumping, no matter where they are. Some will certainly be in peril, but they are not the huge high-cost deep-water projects beneath the waters of the Atlantic Ocean or in the Arctic. The most vulnerable will be the so-called “stripper wells” in the U.S. that pump less than 15 barrels of crude a day. They accounted for 10% of all U.S. production in 2015, but their importance has diminished as production from shale deposits has boomed.
No comments:
Post a Comment