Investment in oil exploration falls short

 

 

However, an expert has warned that this number falls short of the $260bn necessary to keep pace with the world’s demand.

Global thirst for oil reached 85.74 million barrels per day in 2007 and Opec expects that the number will increase to 89.7mb/d in 2010, mostly driven by demand from China and India.

But recent reports have shown there has been a 10 per cent decline in the number of upstream projects in the GCC region, although there has been an increase in the value of investments.

“There is no decline in exploration investments in the region, but oil and gas demand is growing very fast and the current pace of new upstream projects is slow,” Hajaj Bu Khodour, a Kuwaiti oil expert based in Dubai, told Emirates Business.

“When oil producing countries increase their oil production by one million barrels, the world demand surges four million barrels.”

Bu Khodour said the investment cost of adding one barrel of oil to daily production is $10,000, compared to $3,000 in the late 1990s.

“There has been an increase in investments but the cost is escalating due to several reasons. Current oil fields are in the second stage of their lifetime and the production cost in this stage is very high.”

Other contributing factors include higher contractors’ margins and the systematic pricing of project risks.

Salaries for professional and skilled workers in oil exploration have also trebled in the last decade. “Due to the crisis in oil prices in late 1990s, the number of students studying oil engineering around the world declined sharply.

“Now oil companies are suffering from the lack of experienced professionals,” Bu Khodour said.

“The escalating cost of upstream technologies, new environmental laws and taxes add burdens on the upstream industry. The cost of midstream production, such as storage facilities and transportation, also trebled during the last 10 years,” he added. With the price of oil at a record high, Bu Khodour predicted that GCC countries would invest more in oil and gas exploration.

“I expect oil prices will hit $115 per barrel this year. More liquidities will flow into the Gulf and this will enhance exploration projects.”