The BP oil spill in the Gulf of Mexico could prove to be a "game changer" with lasting effects on global oil supply, pushing prices up over the long term.
Spill could be 'game changer'
The BP oil spill in the Gulf of Mexico could prove to be a "game changer" with lasting effects on global oil supply, pushing prices up over the long term. The International Energy Agency (IEA), which advises 28 industrialised nations on energy issues, yesterday warned that hundreds of thousands of barrels per day (bpd) of previously forecast deepwater production growth could be at risk.
In the medium term, the US government's six-month moratorium on drilling new deepwater wells could delay new oil and gas development projects, the IEA said. "Existing production might ultimately be affected as oilfields need regular workover to maintain production," the Paris-based IEA said in its latest monthly report. The US government might try to harness changing public sentiment following the spill to push through legislation aimed at weaning the nation from oil use while mitigating climate change, it said.
"The deepwater drilling moratorium for new developments put in place by President [Barack] Obama, were it extended for one to two years, would likely cause delays in bringing on stream new production and could potentially curb output by around 100,000 to 300,000 bpd by 2015," the IEA said. Canada, the UK, Norway, Brazil and China are also examining their regulatory procedures in the light of the disastrous spill, which is the largest ever in US waters.
"A further 550,000 bpd of expected 2009-2015 production growth from deepwater Brazil, Angola and Nigeria could be at risk," the agency warned. RS Sharma, the chairman and managing director of India's state-controlled Oil and Natural Gas Corporation, also called the spill a game changer yesterday. Insurance costs for offshore oil and gas drilling and production "are going to go up exponentially around the world", he predicted on the sidelines of an oil conference in New Delhi.
The US government, in its monthly short-term energy outlook released on Wednesday, cut 6.1 per cent from its previous forecast for Gulf of Mexico oil output next year. Oil output from the region would fall by 26,000 bpd from current levels in the fourth quarter of this year and by 70,000 bpd next year as a result of the moratorium, it forecast. The reduction could amount to 0.5 per cent of the crude processed in the US. The expected decline in domestic oil output during an economic rebound could push prices higher, analysts said.
"Unless consumption is reduced, US prices will be higher because we'll have to bid for oil from other parts of the world," said Edward Morse, a managing director of Credit Suisse in New York. The US energy department projected oil output from the Gulf of Mexico would average 1.55 million bpd next year, down from its previous forecast of 1.76 million bpd. It predicted that total US oil outuput would fall by 2 per cent next year.
In an introduction to the BP Statistical Review of World Energy 2010, which was released on Wednesday, Tony Hayward, the BP chief executive, said the world's largest increase "by far" in oil production last year came from the Gulf of Mexico. "This is not an excuse for anything, but a piece of the reality in which we all live," he said. The annual statistical review is regarded as an industry benchmark. In its introduction, Mr Hayward also said the latest data assembled by the BP economics team showed "changes in the pattern of global energy consumption that are likely to indicated long-term change".
Energy consumption in industrialised countries fell faster than GDP last year in "the sharpest decline in energy consumption on record", while it grew faster than GDP in most emerging economies, he said. Regarding the oil spill: "We are determined to set right what has gone wrong and to learn from the tragedy. "Eventually, we will succeed, and eventually, this disaster will lead to a safer and better energy world," Mr Hayward said.
BP's share price yesterday fell to its lowest in 13 years, touching 371.40 pence (Dh19.90) in early trading on the London Stock Exchange. The stock has fallen by more than 50 per cent since the damaged BP well started leaking oil on April 20. BP said it saw no justification for the collapse of it share price. Mr Hayward had previously said BP had financial resources to deal with the oil spill and its aftermath.
David Cameron, the UK prime minister, said yesterday his government stood ready to help BP with its clean-up efforts. "This is an environmental catastrophe. BP needs to do everything it can to deal with the situation and the UK government stands ready to help," he said. email@example.com