• Home
• Quien Soy
• RSS

Oil Price at US$200 per Barrel?

Interesting opinion of the Egyptian Minister of Oil (www.bostonherald.com).

Falling investments and increasing delays in energy sector projects because of the global meltdown could lead to oil spiking to over $200 per barrel, Egypt’s oil minister warned today, highlighting industry concerns that supply will fall short of demand once the world rebounds from its current recession.

Sameh Fahmy, in concerns echoed loudly by oil executives at a gas conference in the Egyptian capital, said that global investments and contract signings had fallen sharply over the second half of 2008 as crude collapsed from a record high of almost $150 per barrel and banks, struggling to remain solvent, sharply reigned in lending. But oil and gas production costs had only dropped by 5 to 10 percent.

“We are in a period of extreme slowness” on the global level, Fahmy said, adding that fears about last year’s price spike in crude would be quickly eclipsed if investments - key to generating new supply sources - are not sustained.

Crude could go to “over $200 (per barrel) in a period of two or three years if we don’t all act quickly now,” Fahmy said.

Oil officials and executives have repeatedly warned about another price spike as falling investments hamper efforts to tap new supply to meet a rebound in demand once the world economy picks up again. As companies are forced to go deeper offshore, or explore in difficult terrain to secure new resource reservoirs, production costs are also expected to remain high.

Industry executives, while echoing Fahmy’s concerns, were also eager to show how they are stepping up to meet future energy needs even as the slide in oil prices challenges the economic viability of a number of major oil projects worldwide.

Italian energy giant Eni and Egypt’s Petroleum Ministry announced new initiatives aimed at developing oil and gas reserves in the country. They included a 10-year extension of the license for the giant Belayim field in which Eni operates with a 100 percent stake and evaluating various alternatives for the defining of a commercial framework to allow the development of natural gas at high depths.

Eni said in a statement that the gas initiative was aimed at meeting growing Egyptian demand and “optimizing export opportunities.” It also said it was committed to spending $1.5 billion in 5 years in investments, operating costs and other efforts in Egypt.

Meanwhile, Tim Blackford, the head of BG Group in Egypt said the British gas firm intended to “get with our partners to sanction a further $1 billion investment this year and potentially a $2.5 billion project commencing next year.”

Blackford also said the company, which accounts for about 15 percent of Egypt’s total foreign direct investment, had been awarded an offshore block in the latest Egyptian Natural Gas Holding Company licensing round. He did not identify the block.

On the global scale, Shell’s Egypt country chairman and managing director, Ahmed Atallah, said that too often, officials forget the cyclical nature of the oil industry. The oil giant intends to “invest through the cycle and look to reap the benefits when the upturn comes again,” Atallah said, adding the company expects its investments this year to hit between $31 or $32 billion.

The decline in oil prices, however, has squeezed such spending plans for smaller companies and even some of the giant state-run companies which control the overwhelming majority of the Middle East’s vast oil wealth.

Officials from a number of Organization of the Petroleum Exporting Countries member states have indicated that they would like to see crude prices in the $75 per barrel range to spur spending while providing producers with a fair price to cover costs.

After months of seeing oil hover at around $40 to $50, OPEC appears to be witnessing the benefits of its earlier output cuts of 4.2 million barrels per day from September levels. The benchmark light sweet crude oil contract for June delivery pushed past $60 for the first time since early November before settling at $58.85 a barrel on the New York Mercantile Exchange on Tuesday.

But the volatility in the market remains the key factor as demand forecasts for oil in the first half of 2009 remain weak. The producer bloc is slated to meet later this month to weigh whether further production cuts are needed.

The Egyptian oil minister, whose country is not an OPEC member, stressed that the world today is “not like 1930,” at the time of the Great Depression. “The world can return quickly and … cope with challenges,” he said. “Some industries and sectors in the world can handle delays (in investments), but not the oil industry.”

“If we are late, the bill will be high for all,” Fahmy said.

Comments