The world’s biggest oil companies this year have cut back investment far less than had been expected even though oil prices have fallen by more than half because of the global recession, a new study shows.
Ernst and Young says that the main state-controlled national oil companies (NOCs) had kept investment largely steady compared with last year. Meanwhile, improving terms for equipment and services could mean big international oil companies, which cut investments, get more for their 2009 budgets even though they are smaller than 2008.
In total in 2009 the largest NOCs plan to invest more than $275bn, while big international oil companies have cut their expenditures to $100bn, from the $122bn they invested last year. The national oil companies’ investments were boosted by the $28bn from Brazil this year, to develop its huge offshore reserves, and the the $42bn that China’s CNPC will spend as it continues to rapidly build up its capacity and access to future reserves.
Andy Brogan, the author of the report, said: “Our optimism is driven by the fact that oil demand may be running into headwinds in developed nations, but the emerging economies are going to suck in a lot of oil.”
“Those people have the same issues as before; they are still going to need a lot of oil.”
The report differs starkly in tone to the warnings made by the International Energy Agency, the developed countries’ watchdog, at this months’ gathering of the energy ministers in Rome. “Energy investment is plunging in the face of a tougher financing environment, weakening final demand for energy and falling cash flows – the result, primarily, of the global financial crisis and the worst recession since the second world war,” the IEA warned in its background paper for the meeting, noting that investments in 2009 were already 21 per cent lower than in 2008.
But Ernst and Young believes investment levels have been buoyed by the expectations that oil prices will rise in the long term as demand in Asia returns, but supply constraints caused by the messy geopolitics oil, reduces investment opportunities and therefore also supply.