A Staggering $1.5 Trillion of Energy Projects Might Not Get Built in Time

Well-respected energy-industry consultancy Wood Mackenzie recently issued a startling report. It concluded that low oil prices could lead to a delay in a staggering $1.5 trillion worth of oil and gas projects in the near term. It’s a rather dire warning not only because of the economic implications, but also because of the potential for a massive disruption in oil supplies down the road that in theory could lead to a super-spike in oil prices.

Holding out and holding back
Investments in oil and gas projects are already down $220 billion over the past two years versus Wood Mackenzie’s projections before the oil-price plunge. That’s because 46 major projects have been deferred. Among the many projects is BP’s (NYSE:BP) Mad Dog 2 project in the Gulf of Mexico, which is also co-owned by BHP Billiton (NYSE:BHP) and Chevron (NYSE:CVX), as the long-delayed project was put on hold again earlier this year. While BP has said that it still hopes to make a final investment decision on the project this year, given the continued weakness in the oil price, further delays are very likely.

It wouldn’t be the only project to face a delay, as Wood Mackenzie estimates that “as much as $1.5 trillion of investment spend destined for new (pre-sanctioned) and tight oil projects is now out of the money, or in starker terms, uneconomic at a $50 oil price.” As a result, it only expects the industry to sanction six major projects this year and 10 next year. This is for an industry that can accommodate 40 to 50 new projects each year. That’s a significant under investment that could have big consequences in the years ahead.