OPEC supply expansion said at risk if oil falls below $50

From Agence France-Presse
via Yahoo News
Saturday, March 3, 2007

http://news.yahoo.com/s/afp/20070303/ts_afp/commoditiesopecoilpriceinves...

NICOSIA, Cyprus -- OPEC's $254-billion upstream expansion plan to raise production capacity risks being delayed if oil prices drop below 50 dollars a barrel, the cartel's secretary general has warned.

"My concern now is the price, because we are undertaking a lot of investment. If we don't have a reasonable price then that investment will not be finished," Abdalla el-Badri told the Middle East Economic Survey in an interview to appear on Monday.

Asked what price capacity expansion is relying on, he said: "It's about $50" a barrel for the OPEC basket.

The price of the OPEC basket, comprising 11 crudes, is currently hovering at around $58 a barrel, but it dipped slightly below $50 last month when world oil prices dived.

OPEC plans to invest $130 billion in upstream expansion by 2010 and a further $124 billion in the five years after that to sustain its buffer of spare capacity, Badri said.

He said that while each member country worked with different price floor assumptions, the cost of construction, drilling, field operations, well workovers and other oil services was still rising fast.

"If oil prices go down and if costs go up then, in the future people will think twice before they undertake any project. So maybe instead of finishing them in two or three years they will finish them in five or six years," Badri said.

Some oil producers have already been forced to delay or even cancel major projects because of high costs. Qatar canceled a major gas project while Kuwait is to re-tender a new refinery project because of increased cost.

Badri played down the possibility of OPEC re-establishing a target price band because of the increased levels of market volatility, but suggested that even in the low-demand periods of the year, oil prices were now unlikely to move far below the $50 mark.

He said that OPEC compliance with the oil output cuts agreed in late 2006 was improving, but the results of the 500,000 barrels per day cut decided at Abuja and which took effect on February 1 would not be seen until the second week of March.

"Compliance is really improving from month to month. It's not a secret. It's 66 percent, and there is also room for improvement. I hope in March we will improve the percentage higher than January," he said.

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