Global Financial Credit Crunch: Will it lead to a Global Oil and Gas Supply Crunch?

Projects In The Upstream Sector Are The Most Affected In The Current Environment

The investments in the upstream oil and gas industry are the most affected due to the credit crisis and the current economic downturn. Most of the suspended or cancelled upstream projects are in the oil sands sector due to the high cost of development. More than 15 projects in the Canadian oil sands have been suspended since late 2008 amounting to more than 1.72 mb/d of oil production capacity. More than 3.5 mb/d of crude oil production capacity that was supposed to come online in the next three years have been postponed, delayed or cancelled due to the financial crisis and the global economic slowdown. Similarly, more than 3.5 mb/d of crude oil production that was expected to come online from 2013 to 2015 has been postponed, delayed or cancelled. Investments in the downstream sector have been relatively less affected than the upstream sector. Nonetheless, some of the refining projects have been delayed as a result of the financial crisis and the weaker outlook in oil product demand. 

Resource Nationalism And A Rapid Economic Recovery Will Drive The Market Towards A Supply Crunch 

The rise in resource nationalism will further lead to reduced access to more efficient extraction by IOC’s thereby leading to a decrease in production. IOC’s will be forced to produce from reserves in politically and technically challenging environments thereby increasing the crude oil prices. Also, the high spending among the governments has induced capital into the world economy thereby increasing consumer spending. The stimulus packages are expected to take effect by 2010.

Consequently, the global economy and therefore the demand for petroleum products are expected to rebound in 2010. This economic and petroleum product recovery in 2010 and a further increase in the demand is likely to strain the supply-demand equation in the following years. Also, a shortage in the refining capacity of the produced crude oil might lead to a shortage of supplies of the end products. Additionally, any outage in supply resulting from such security threats will accentuate the possibility of a supply crunch and could trigger a major price spike in the future.