RIYADH, Nov 22: With crude prices hovering around the $50 and rather than seeking a ceiling, now appear desperately looking for a ‘floor’ somewhere at respectable levels, the world appears inching towards a new crisis.

The crude markets have entered a new phase as the incentive to invest in the industry seems getting less and less by the day. The emerging scenario may not only be disastrous for the industry, but indeed for the overall global energy balance too - a real cause of concern indeed.

The London-based Centre for Global Energy Studies (CGES) now believes that the oil demand would contract in 2008 for the first time in last 25 years.

With the global energy requirements continuing to grow – albeit at a slower pace than before - the issue of meeting the future global needs is a real one.

Platts, the energy information provider, had already projected last year that companies that produce/refine and transport oil and natural gas will need $21.4 trillion in capital expenditures through 2030 to meet the world’s growing energy demand.

And the recently released IEA World Energy Outlook also underlines that over $1 trillion in annual investments is needed to find new fossil fuels over the next two decades to avoid the impending energy crisis that could choke the global economy.

“There remains a real risk that underinvestment will cause an oil supply crunch” by 2015 as the decline in output from mature oilfields speeds up, the Paris-based adviser to 28 oil-consuming nations said in the World Energy Outlook. “The current financial crisis is not expected to affect long-term investment, but could lead to delays in bringing current projects to completion.”

The crisis is thus beginning to unfold. The prevailing uncertainty is prompting companies to withhold billions of dollars of investment in new oilfield and refining projects.

Royal Dutch Shell PLC, Europe’s largest oil company, said last month it was pushing back a decision on expanding an oil sands project in Canada. North American refining giant Valero Energy Corp has also announced curtailing capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. said it has delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

Saudi Aramco is also starting to feel the heat. It’s Chief Executive Officer Abdullah Jum’ah in a handout distributed earlier this month at an industry summit in Beijing said that a further drop in crude prices may curtail investments needed to offset declining output in ageing fields.

Investment is also needed to expand production capacity to meet long-term demand growth, Jum’ah emphasised in his message.

Saudi Aramco was reportedly already “reviewing” parts of its $129 billion upstream push to boost oil production in light of the “current economic circumstances.”

Khaled al Buraik, an executive director at Saudi Aramco recently emphasized, adding though that Aramco’s short-term projects were on track and the kingdom would reach its target of increasing production capacity to 12.5 million barrels a day by the end of next year, but the development of the Manifa field, which was to add 900,000 barrels per day of capacity by 2011, was under review. In the meantime, Manifa has already been shelved.

“It is clear that collapsing oil prices are not only detrimental to the economies of oil-producing states, but also to future upstream investments to sustain future oil demand consumption,” Vienna-based consultant JBC Energy said in a recent market report.

Demand for oil and crude prices may be falling with the economic slowdown, but that could well lead to a supply-side crunch in the next year or so, and that will push oil prices higher again.

And that is the big challenge. The industry needs to be prepared for tomorrow, even in these uncertain times. If we do not act now, another round of price spiral may not be far off. Is any one taking cognisance?