Reversing huge energy investment cutbacks a must–Petronas CEO

07 June 2010 06:52  [Source: ICIS news]

KUALA LUMPUR (ICIS news)--Malaysia's Petronas president Shamsul Azhar Abbas said on Monday that the oil and gas industry must reverse the energy investment cutbacks totalling $170bn (€143bn) quickly to prevent future oil supply shortfall.

The amount involves some 2m bbl/day of peak oil capacity and about 1bn cubic feet/day of peak gas capacity, representing the shut-in or delayed investment in the upstream sector, he said at the 15th Asia Oil & Gas Conference (AOGC) held in Kuala Lumpur, Malaysia, from 6-8 June.

Threats of excess capacity, as well as unfavourable financing conditions, caused these huge investment cutbacks, he added.

“With these threats now largely blown over, the key question for us is how quickly we can reverse these cutbacks to avert a potential supply shortfall several years hence,” Shamsul said.

Meanwhile, the top executive of the Malaysian oil and gas major added that the firm industry costs pose another challenge to oil producers as this shaves their margins, even as oil prices strengthen.

“There should not be the presumption that higher prices necessarily and automatically translate into higher profits for us,” he said.

A more optimistic outlook on the global economy allowed oil prices to stabilize at a higher range of $70-80/bbl so far this year, he noted.

“This is not to say that we are well past the danger zone,” he said, adding that sustainability of recovery largely hinges on policy supports.

But excessive reliance on fiscal stimulus to propel economic growth also has its downside, as illustrated by the debt problems of Greece.

“As Greece’s recent sovereign debt woes remind us, we may be fast approaching the limits of prudence in relying on these policy tools to sustain economic demand,” Shamsul said.

With the expected withdrawal of fiscal stimulus across the world this year, “the resilience of our economies will no doubt be severely tested,” he said.

($1 = €0.84)

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By: Pearl Bantillo
+65 6780 4359



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