Saudi Aramco Says Oil Price Falls May Curb Investment

By Wang Ying

Nov. 8 (Bloomberg) -- Saudi Aramco, the world's biggest state-owned oil company, said a further drop in crude oil prices may curtail investments needed to offset declining output in aging fields.

Investment is also needed to expand production capacity to meet long-term demand growth, Chief Executive Officer Abdallah Jum'ah said in a handout distributed today at an industry summit in Beijing.

Benchmark crude prices in New York have declined 58 percent since reaching a record $147.27 a barrel in July, because of concerns a slowing world economy will erode demand. The world will need to invest more than $26 trillion, almost twice the annual domestic product of the U.S., by 2030 to ensure energy supply, the International Energy Agency said on Nov. 6.

``It is clear that collapsing oil prices are not only detrimental to the economies of oil-producing states but also to future upstream investments to sustain future oil demand consumption,'' Vienna-based consultant JBC Energy said in its weekly market report issued today.

Saudi Arabia, which has the world's largest proved reserves of oil, is implementing large-scale energy projects to boost production and refining capacity. The country has pledged to spend some $250 billion on energy by 2012, including raising oil output to 12.5 million barrels a day by next year, and increasing refining capacity by 50 percent.

Risks of Underinvestment

``Notwithstanding the current dip in consumption and the widespread uncertainty we see in the global economy, global energy demand will be on the rise due to the further development of developing countries' economy,'' Jum'ah said in the handout at the fifth National Oil Companies summit.

The impact of the current global financial crisis on demand won't be sufficient to offset rising consumption in developing countries, led by China and India, the IEA said in an executive summary of its annual World Energy Outlook on Nov. 6.

``There remains a real risk that underinvestment will cause an oil supply crunch'' by 2015, the Paris-based adviser to 28 oil-consuming nations said. ``The current financial crisis is not expected to affect long-term investment, but could lead to delays in bringing current projects to completion.''

Aramco and ConocoPhillips will halt the bidding process for a planned 400,000 barrel-a-day export refinery in Saudi Arabia because of market ``uncertainties,'' the companies said on Nov. 6.

Current oil supplies, Jum'ah said, are adequate as demand growth slows.

Global energy demand to 2030, including oil, natural gas and coal, is set to grow 1.6 percent a year to 17.01 billion metric tons of oil equivalent, the IEA said.

Takeover Opportunities

The credit crisis has created acquisition opportunities for companies such as PetroChina Co. and India's Oil & Natural Gas Corp., the chairmen of both companies said at the Beijing summit.

Jiang Jiemin, chairman of PetroChina, said today that Asia's biggest oil producer is studying the possibility of buying companies affected by the credit crunch. PetroChina is the Hong Kong-listed unit of China National Petroleum Corp.

Capital expenditure in 2009 ``won't decrease or increase,'' Jiang said. Spending for this year will be unchanged at 207.9 billion yuan ($30.5 billion), Jiang said on Oct. 21.

Oil & Natural Gas, India's state oil explorer, said it may seek to acquire energy assets in Africa and Latin America to secure supplies.

``Now is a good time to buy,'' ONGC Chairman R.S. Sharma said today. The world financial crisis and slumping oil prices have made energy assets more attractive, Sharma said.

Crude for December delivery rose 0.4 percent to settle at $61.04 a barrel on the New York Mercantile Exchange yesterday. Prices are down 37 percent from a year ago.

To contact the reporter on this story: Wang Ying in Beijing at ywang30@bloomberg.net;