The oil industry could face significant supply challenges as investment for exploration projects take a hit from the global financial crisis, the chairman of Spanish oil giant Repsol YPF SA (REP) said Wednesday.
Antonio Brufau told the Euro-Mediterranean Energy Forum that the cancellation of exploration projects may result in challenges to meet long-term demand.
Lower crude demand and a drop in average crude prices from $147 a barrel to about $45 a barrel in less than a year prompted a "reassessment of risk and profitability" for some exploration ventures, delaying or halting non-conventional or ultra-deep exploration projects. In Canada alone, production of 600,000 barrels a day from oil sands has been delayed, Brufau said.
Lower investments may also fail to counter output declines in mature fields. "Even if oil demand doesn't grow, it would be needed to find and produce close to 4 million barrels a day annually to maintain current output," he said.
State-owned oil companies are also canceling investments as governments reallocate resources to other sectors affected by the global crisis.
When the global economy returns to growth, the oil market could experience "bottlenecks which could be more dramatic than those seen recently, leading to upward price pressures over the medium and long term," Brufau said.