Shell, Aramco and Petrobras speed up project spending cuts

Nov 19, 2008 01:00 AM

The biggest oil companies including Saudi Aramco, Royal Dutch Shell and Petroleo Brasileiro are accelerating spending cuts and delaying projects as the world enters a recession, said Morgan Stanley & Co.
As many as 44 projects have been delayed and faced cuts in investments as of Nov. 18, compared with 19 in a Nov. 5 report, analysts Theepan Jothilingam and James Hubbard said.

Benchmark oil prices in New York have declined 63 % since reaching a record $ 147.27 a barrel in July because of concerns a slowing world economy will erode demand. The world will need to invest more than $ 26 tn, almost twice the annual domestic product of the US, by 2030 to ensure energy supply, the International Energy Agency said on Nov. 6.
"The oil industry continues to respond to the cash flow challenge of oil price falls by trimming capex plans,'' the analysts said in the report. "In our updated database we are now seeing delays to downstream investments, as well as the upstream.''

Shell has postponed plans for a pilot test on bitumen carbonates in northern Alberta while Brazil's Petrobras announced a delay in confirming a 5-year business plan and investment schedule, the report said. Gazprom is reassessing its spending plan by the middle of December.
Aramco may delay inviting bids for the Total-partnered Jubail and Yanbu refineries to gain from declines in steel and cement prices, the report said. The report cited Aramco as saying that "prior plans made in $ 80-$ 100 a barrel environment don't all work in a $ 65 a barrel world.''

Nine-month delays
Technip, Europe's second-largest oilfield-services provider, said that bids for oil-processing projects may face delays of three to nine months as customers seek to renegotiate contracts, the report said.
"This trend of managing cost budgets is consistent with the industry's 1998 response to oil price declines,'' the report said. "The risk is that 2009 cuts to investment plans increase these longer-term supply risks.''

The International Energy Agency said on Nov. 14 OPEC's slowing investment in new oil projects amid the global economic slowdown may cause an energy supply crunch in the next two decades.
Declining production rates from oil fields at 6.7 % were higher than previous forecasts.

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