November 14, 2016

Declining crude oil price delays $200bn worth of projects globally – UAE Minister

Declining crude oil price delays $200bn worth of projects globally – UAE Minister


By Prince Okafor
AS the global demand for crude oil outstripped supply, the United Arab Emirates, UAE, Energy Minister, Suhail Al Mazrouei, has said that around USD 200 billion worth of oil and gas projects had been postponed worldwide due to the fall in prices.

The minister who made this known at the 19th edition of the Abu Dhabi International Petroleum Exhibition and Conference, ADIPEC, in Dubai, said the long-term demand for oil outstripped supply, and for companies with strong balance sheets and a long-term view, it is best to invest, not to withdraw from oil projects.

He stated: “The dramatic reaction in reducing investment will inevitably lead to demand coming back into equilibrium, and ultimately exceeding supply in the coming years.

“We can see the cyclical nature of the industry reinforced before our very eyes. For those companies that are strong enough to hold their nerve and make strategic long-term investments, this is a golden opportunity.”

He further noted: “With the industry needing between six and nine years to move from discovery of new deposits through to production, the dramatic fall in investment would leave companies making those cuts slow to respond when the market starts to rise.”

He explained that, companies that invest during the current downturn in oil prices stand to profit the most when supply and demand come back into balance.

“The oil industry is inherently cyclical, this is a basic point that often gets overlooked in the short-term noise and finding an equilibrium between supply and demand is almost impossible.

“However, demand has consistently increased, and the business cycle that drives an increase in demand moves much more quickly than the oil industry can expand its capacity for supply,”

“By contrast, those that invested while asset prices were low would be ideally positioned to meet increased demand with additional capacity, gaining a bigger share of a future rising market,” Al Mazrouei noted.

He said the very fact that oil had fallen so significantly in price could itself trigger a recovery.

Lower costs acted as an economic stimulus for countries that were net energy importers, supporting growth in the global economy, and ultimately increasing demand in the commodities market.