High costs threaten oil projects: Opec ministers

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Paris, April 7: High oil prices have helped to spur investment needed to calm world markets, but soaring project development costs could stifle production activity, Opec ministers warned on Friday. “Cost is a problem,” said Qatari energy minister Abdullah al-Attiyah.

“Costs can sometimes kill the project.” “I am concerned about that. You see the contractors trying to increase the cost very dramatically. Costs may triple from estimate costs,” Attiyah told a conference in Paris. While US crude is trading at around $67, within sight of the record of $70.85 a barrel hit in August last year, other raw materials, including metals have also soared, driving up the price of projects in the oil industry.

United Arab Emirates’ oil minister Mohammed bin Dhaen al-Hamli shared Attiyah’s concern. “Now there is an inherent risk,” he said. “Projects that used to cost $1 billion are costing $3 billion. “Now companies are not interested in bidding. You have to negotiate. You have to share the risk.” “People say Opec is a cartel but contracting companies have also turned into a cartel,” acting Opec Secretary-General Mohammed Sanusi Barkindo told the conference. Reuters

Meanwhile, Opec’s acting secretary-general said that global oil markets are ‘very well-supplied’ and the Organisation of Petroleum Exporting Countries has about 2 million barrels of spare production capacity,

Global demand is expected to increase by about 1.5 million barrels a day this year, with US demand rising by 300,000 barrels a day, the secretary general, Mohammed Barkindo, said on Friday in Paris, where he’s attending the seventh International Oil Summit. Opec produces about 40% of the world’s oil.

‘‘We are doing our best to keep production steady,’’ Mohamed bin Dhaen al-Hamli, the United Arab Emirates’ oil minister, said in Paris at the oil conference. The UAE is Opec’s fourth-largest oil producer.

Oil’s high prices are not caused by lack of supply, Barkindo said. Nor are they curbing economic growth, he said. The price of oil in New York has closed above $67 a barrel for the past two days amid concern about supplies of gasoline in the US and tension over Iran’s nuclear research programme.

Iran is unlikely to cut oil exports with prices at current levels, said Claude Mandil, the International Energy Agency’s executive director. Strategic stockpiles of oil and products would be released if supplies were disrupted, he said.