Petroleum Industry Investment; Ups and Downs
OPEC Secretary General Mohammad Sanusi Barkindo has said investments needed to ensure stability in the global oil industry are returning at a slow pace after a downturn Barkindo said recently: “A number of challenges are arising from the down cycle that we have seen, and at the top of that list, is an issue of investments. We have seen investments contract for couple of years and even at the moment the rebound is very, very minimal.” The International Energy Agency (IEA) had earlier said the low oil prices were to blame for oil divestment. Falling trend of investment in the petroleum industry would in the long term affect global markets and cut production. Such conditions would benefit neither oil producers nor oil consumers. That would not benefit oil companies either. Since 2014 onwards, oil prices have seen fluctuations. Consequently, investors and oil and gas companies have plunged into frustration, losing their sense of distinction about the future of investment in this sector. An 80% slump in oil prices from June 2014 to January 2016 led oil companies to think that investment in this sector would be loss-producing rather than being profitable. Such mindset influenced international investment in the petroleum industry and prevented significant losses from being incurred by oil firms. Many of these companies had no option but to cut jobs and halt their projects across the globe. The pace of return of investment is slow because oil companies see no bright perspective about the price of oil in the future. What adds to ambiguities in the global energy markets is the change in economic equations and the interference of political issues with oil pricing mechanisms.Over recent years, the US has ramped up exerting pressure on oil producing nations to lift their output in a bid to help drive down the prices. In parallel, Saudi Arabia has made efforts to politicize oil in order to exert pressure on its rivals including Iran. Politicization of oil is one of factors rendering oil price prospects vague. Add to this, the ongoing unrest in some oil producing nations, civil war, and political instability and fight on terrorist groups. For instance, political instability in Venezuela has largely harmed investment in its petroleum industry. A significant portion of oil installations in Venezuela are decrepit, requiring renovation. Civil war in Libya and the existence of local and regional governments in this oil-rich nation has frustrated oil majors. IOCs do not know who they should negotiate with. Meanwhile, fighting for control of oil resources in Libya has had the support of foreign players and their conflicting interests. Iraq has experienced similar conditions to Venezuela and Libya in recent years. War on terrorism and ISIS infiltration into Iraq had stymied any new investment there.In addition to aforesaid nations which are struck by civil war, foreign pressure has also hindered investment by oil companies. For example, US sanctions imposed on Iran have forced many companies to reluctantly pull out of Iran’s oil projects.The US’s destructive policies are not limited to Iran or nations disliked by the White House. These policies have targeted even American oil industry, too. The US’s support for low oil prices has infuriated shale oil producers. The shale producers are unhappy with President Donald Trump’s policies because they would be able to raise output and win bigger market shares only if prices go up. For them, any decline in oil prices would threaten their margins. Furthermore, when prices remain below $50 a barrel on the long term, the value of shale oil would fall. Under such circumstances, investment in shale oil production would fall sharply and even come to a halt.Investment OutlookDespite numerous challenges in the way of oil companies for investment, they have to continue their activities in order to survive. For this reason they try to invest in regions and countries where security is high and profitability is significant. Therefore, oil producing nations are faced with a heavy responsibility with regard to attracting investment. First and foremost, these nations need to steer clear of politicization of oil production and pricing. In the second phase, they have to collectively resist any political pressure exerted by consumers particularly the US to keep oil prices artificially low.Another important issue with regard to attracting investment into infrastructure is to guarantee oil price stability. In this regard, oil producers can make efforts to strike a balance between supply and demand and subsequently help stabilize prices. Undoubtedly, the more nations and oil prices are stable the more willing oil companies would be for investmen