A high-ranking Saudi Aramco executive says the plunge in energy prices already has caused many in the industry to cut spending on oil and gas projects, and the trend probably will continue for a few years, perhaps reaching a cut of $1 trillion in investments.
"Challenges during down cycles are more complicated today than before," Amin Nasser, a senior vice president for exploration and development at Saudi Aramco,told the Middle East Oil and Gas Show on March 9 in Manama, Bahrain.
"At this moment the global industry is poised to potentially cancel about $1 trillion in capital funding," Nasser said.
Later Nasser told reporters on the sidelines of the conference that the $1 trillion amount included initiatives that might be delayed, not merely those that would be canceled altogether. "What we've heard from the industry is that there is $1 trillion of planned projects that will be dropped or deferred over the next couple of years because of what's happening," he said, without identifying his source.
The price of oil has plunged since late June from around $115 per barrel to around $60 today because of an oversupply caused by increased US production of shale oil and weaker demand for oil, especially in China and Europe.
This has eaten into the profits of both big and small energy companies, leading them to cut costs in many ways, including employee layoffs. But the largest hits are being felt in capital expenditures in companies ranging fromExxonMobil Corp. of the United States, Norway's Statoil and Britain's BP.
Even the wealthy Aramco is feeling the pinch. The Arab Petroleum Investment Corp. in Riyadhsaid in a December reportthat it expects Saudi investments to drop to $127 billion during 2015-2019 from its previous estimate of nearly $180 billion during 2014-2018. A month later, Aramco's CEO, Khalid al-Falih, said the company would renegotiate some existing contracts and postpone some projects.
For example, Aramco is working to renegotiate its contract with the Italian engineering company Saipem to reduce the $2 billion costs of building processing facilities at the Khurais oil field in east-central Saudi Arabia. It is expected to add 300,000 barrels of oil per day of production capacity at Khurais, which already produces 1.2 million barrels per day.
Platt's quotes anonymous sources as saying there's been no decision on the Khurais project, but that it could be extended in an effort to cut costs, or it could be canceled altogether.
And Reuters, also citing anonymous sources, reports that Aramco has delayed exploration for oil and gas in the Red Sea as well as plans to build a clean-fuels plant for $2 billion at its largest oil refinery at Ras Tanura on the Saudi east coast.
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