Oil exploration cuts may trigger fuel price surge when economies revive

The combination of the plunge in oil prices since July and the global credit crunch has dealt a one-two punch to energy investments, setting the stage for tight fuel supplies and a renewed surge in prices when energy demand recovers, industry specialists warn.

The investment slowdown “will most definitely” affect supplies because of the time needed to develop new sources, said Brian Puffer, a partner at PricewaterhouseCoopers who deals with the energy sector.
“In two or three years, if the economy comes on strong, you’ll have a huge shortage, and that would create a spike in prices,” he said.

Finding and exploiting oil and natural gas fields today requires more costly technology than in the past, and major projects often run into billions of dollars. They can take years to complete, and those that fall victim to investment cuts may not be ready when more oil and natural gas is needed.

Energy companies tend to accelerate their investments when higher oil prices make more money available and cut back when oil prices slump; but these changes are often peripheral to their core investment plans, according to the specialists.

International Herald Tribune