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Supply Crunch To Lead To Oil Price Spike By 2020s, Expert Says

Barrels

Several years of underinvestment in large oil projects could lead to oil price spikes of $80-$100 per barrel by the 2020s unless mega projects are sanctioned very soon, Jonathan Chanis, Vice President of Policy at Securing America’s Future Energy (SAFE), told Platts in an interview on Monday.

“We’re at a very perilous point because we’ve had two years of a really, really marked decline in investment,” said Chanis, who was Senior Trader at Caxton Associates, a Vice President at Goldman Sachs’s commodities division, and a Managing Director at Tribeca Global Management.

Chanis is not undermining the rise in U.S. shale supply, but he thinks that shale production will not be enough to offset the future decline in supplies if big projects are not given final investment decisions soon.

“If we don’t start seeing some large-scale final investment decisions on mega-projects -- projects over $10 billion-$15 billion apiece -- if we don’t start seeing them now and next year or shortly thereafter, by the time we get around to the 2020s, we are going to be short oil,” Chanis told Platts.

According to a July 2017 report by the International Energy Agency (IEA), upstream oil and gas investment is expected to rebound modestly this year, following a 44-percent plunge between 2014 and 2016. “A 53% upswing in US shale investment and resilient spending in large producing regions like the Middle East and Russia looks to drive upstream investment to bounce back by 3% in 2017,” the IEA said.

The number of the big projects that will be approved over the next two years will determine if the oil supply shortage will arrive, Chanis told Platts.

Related: The “Amazon Effect” Is Coming To Oil Markets

OPEC’s policies since the 1970s have made oil prices “extremely volatile” because excessive investment cycles have been followed by underinvestment, leading to significant price swings, the expert noted.   

“I’ve seen this movie before, and the movie doesn’t really have a happy ending for the United States and for US consumers,” Chanis said.

Neil Atkinson, head of the IEA’s oil markets and industry division, also sees a possibility of much tighter oil market in the next five years due to years of underinvestment.

By Tsvetana Paraskova for Oilprice.com

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  • Citizen Oil on October 11 2017 said:
    The industry majors really don't know where this is going as the shale disruption is an ongoing story. They also don't know when peak demand is going to happen. so, why would anyone start a $ 15 billion project with all that uncertainty ? Once bitten, twice shy.
  • Jonathan Pulliam on October 10 2017 said:
    Chanis is wrong in his predictions.
    The oil glut is real. The production glut is real. The political "let's sell off the Trummpler SPR" is real. OPEC member non-compliance is real. This is not a disciplined cartel.

    There's a lot of fake news about ANWR. Fake news about Iran.

    Look at Libya. There's your OPEC discipline.

    Look at Qatar. Not enough ISIS support for the Saudi's taste.

    I called oil range-bound "for the forseeable future" a year ago at US$ 47.00 per bbl, and turns out I was right.

    The U.S. economy is moribund. Auto sales ex-Toyota are off last year's pace.

    Chanis needs to get a clue. World demand for crude is way way down for a reason and he's unduly fixated on the supply side, and he can't even get that right.

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