Sustained low oil prices could reduce upstream exploration and production investment for the oil and natural gas industry in the long-run, the U.S.' Energy Information Administration (EIA) said Thursday.
Stressing that lower oil prices reduce investment activity in the industry, the U.S. administration said upstream investment is highly sensitive to changes in oil prices.
'Given the fall in oil prices that began in mid-2014 and the relationship between oil prices and upstream investment, it is possible that investment levels over the next several years will be significantly lower than the previous 10-year annual average,' the EIA said.
Due to low oil prices, which fell around 60 percent in the last 15 months, many oil companies have already announced to trim their investment and capital expenditure.
The EIA noted that since production is a capital-intensive industry and requires managing existing assets for production, evaluating those assets often require years. During that time, investment needs to be made upfront for exploration, appraisal, and development before reserves begin to be produced.
The U.S. agency also provided previous investment-price relation cycles for the past decades in order to explain how investment responds to changes in oil prices.
When crude oil prices decreased in the early 2000s, investment averaged $30 to $40 billion a year, falling from $100 billion in the previous decade.
After crude oil prices rose from $34 to $87 per barrel from 2003 to 2014, investment spending increased from $56 billion to as high as $158 billion.
The EIA said one of the cases of its 2015 Annual Energy Outlook projects oil prices to average about $70 per barrel in 2020.
'This price level could result in substantially lower annual oil and natural gas investment over the 2015-2020 period than the annual average of $122 billion spent during the 2005-2014 investment cycle crest period,' the administration warned.
By Ovunc Kutlu
Anadolu Agency
ovunc.kutlu@aa.com.tr