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Oil investment cuts will curtail supplies soon: reports

An oil derrick near Edmonton. “The impact of lower oil prices on company plans has been brutal,” one analyst said.

CALGARY — The bill for today’s low oil prices could come soon enough: With scores of projects cancelled and investment cuts expected to continue through 2016, industry’s ability to meet future demand is looking bleak.

Even as the market continues to focus on bearish short-term indicators, like high North American inventories and expectations of more supplies from Iran in the next few months, separate reports this week by Wood Mackenzie, the energy research consultancy, and Barclays Capital Inc., the investment bank, suggest the collapse in investment has been so severe that a “wall of output” won’t be flowing as expected by the end of the decade.

Capital spending worth US$380 billion, on 68 major projects, has been deferred since oil prices started crashing in late 2014, and an additional US$170 billion is at risk from 2016 to 2020, particularly in deep water projects, Wood Mackenzie said Thursday.

“With oil prices recently falling to their lowest level since 2004, oil and gas companies will be forced to go into survival mode in 2016,” said Tom Ellacott, vice-president of corporate analysis at Wood Mackenzie. “Further project delays and cuts to discretionary investment are highly likely.”

The cancellations so far correspond to 2.9 million barrels a day of oil production deferred until early in the next decade. To put it in context, today’s world oil production is about 92 million barrels a day, and the estimated supply surplus that pushed down prices by two-thirds is 1.5 million barrels a day.

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