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A Staggering $1.5 Trillion of Energy Projects Might Not Get Built in Time

Source: Chevron Corporation

Now, to be clear, this is a longer-term concern, as most of the major projects being deferred are capital-intensive, long-lead-time projects such as offshore and oil sands projects. Just to put the timing in perspective, the Mad Dog Field was initially discovered in 1998, but first production from that field didn't begin until 2005, when Mad Dog 1 came online. Appraisal drilling for the Mad Dog 2 project didn't start until 2009, and initial development wasn't commissioned until 2012, with plans for first oil in 2017. That plan, however, was delayed in 2013, after skyrocketing costs caused BP, BHP Billiton, and Chevron to go back to the drawing board and look at a more economical approach. The new plan, if it were to be approved by the end of this year, wouldn't deliver first oil until 2020. The key takeaway is that once the trio gives the final go-ahead, it will be nearly five years before Mad Dog 2 will produce a drop of oil.

Now as the Mad Dog development shows, offshore projects get delayed all the time for various reasons. However, we're talking about 46 projects currently being deferred, or a whole year's worth of project capacity, with the potential for dozens more to follow, and this adds up quickly. These are enormous projects each capable of producing well over 10,000 barrels per day and therefore it implies a pretty wide gap in supplies if demand growth is as expected. It's a scenario that could lead oil prices to skyrocket .

Investor takeaway

If oil prices do remain lower for longer. it could have dire consequences for the industry both in the short and long term. In the short term there could be more job losses, bankruptcies, and investor pain from falling stock prices. However, in the long term, the consequences of not investing in future oil production could lead to future supply shortages and potentially a major spike in oil prices.

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The article A Staggering $1.5 Trillion of Energy Projects Might Not Get Built in Time originally appeared on Fool.com.

Matt DiLallo owns shares of BHP Billiton Limited (ADR). The Motley Fool recommends Chevron. Try any of our Foolish newsletter services free for 30 days . We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy .

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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