According to the Financial Times, the recent decline in oil prices has put a question mark over potential future investments in energy projects with a total value of $1.5 trillion.
Economists explain that these investments including shale projects in the United States may become unviable in economic terms in view of the current prices, as the amounts of money to be invested are too small.
The market expects capital spending on new energy projects to decrease by around 20-30%. By now it has already dropped by $220 billion, exceeding the forecast of a $20-billion contraction.
According to the Wood Mackenzie report, the prolonged decline in prices for “black gold”, caused by record production volumes in the US, lower demand from China, and Saudi Arabia’s refusal to cut its oil output, could lead to a dramatic downturn last witnessed in the 1980s. Experts at Wood Mackenzie predict that no more than six energy projects will be approved this year and around 10 in 2016.
Oilfield services companies that provide jobs to thousands of workers are expected to suffer the most, and the service industry will be severely hit by this slump.
Currently, market participants are attempting to minimize their spending, as wages have significantly increased over the years of strong oil prices.
Meanwhile, the Organization of the Petroleum Exporting Countries expects oil prices to climb to around $80 per barrel by early 2020.
