Big Oil Projects Put in Jeopardy by Fall in Prices

From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and gas projects have been suspended or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.

It would be foolhardy to depend on today’s lower energy prices – in this stalled economy – to determine whether or not we should develop alternatives to oil – as within two years we are going to be faced with the same climbing energy prices and the same scarcity of oil.

In the short run, falling oil prices are leading to welcome relief at the pump for American families ahead of the holidays, with gasoline down from its summer record of just over $4 to an average of $1.66 a gallon, and still falling.

But the project delays are likely to reduce future energy supplies — and analysts believe they may set the stage for another surge in oil prices once the global economy recovers.

Oil markets have had their sharpest-ever spikes and their steepest drops this year, all within a few months. Now, with a global recession at hand and oil consumption falling, the market’s extreme volatility is making it harder for energy executives to plan ahead. As a result, exploration spending, which had risen to a record this year, is being slashed.

The precipitous drop in oil prices since the summer, coming on the heels of a dizzying seven-year rise, was a reminder that the oil business, like those of most commodities, is cyclical. When demand drops and prices fall, companies curb their investments, leading to lower supplies. When demand recovers, prices rise again and companies start to invest in new production, starting another cycle.

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