From the plains of North Dakota to the deep waters of Brazil, dozens of major oil and natural gas projects have been put on hold or canceled in recent weeks as companies scramble to adjust to the collapse in energy markets.
In the short run, falling oil prices are leading to welcome relief for consumers across the globe, particularly in the United States, and even in countries where taxes represent a large share of the cost of gasoline and other fuels.
But the project delays are likely to reduce future energy supplies - and analysts say they may set the stage for another rapid spike in oil prices once the global economy recovers.
Oil markets have just gone through their sharpest-ever spikes and their steepest drops on record, all within a few months this year.
Now, with a global recession at hand and oil consumption falling, the market's extreme volatility is making it harder for energy executives to plan ahead. As a result, exploration spending, which had risen to a record this year, is being sharply reduced.
The list of projects delayed is growing by the week. Wells are being shut down across the United States, new refineries have been postponed in Saudi Arabia, Kuwait and India, and ambitious offshore drilling plans are being reconsidered off the coast of Africa.
Moreover, investment in alternative energy sources like wind power and biofuels that had flourished in recent years could dry up if prices stay low for the next few years, analysts said. Banks have become reluctant lenders, especially to renewable energy projects that may prove unprofitable in an era of low oil and gas prices.
The precipitous drop in oil prices since the summer, coming on the heels of a vertiginous seven-year rise, was a reminder that oil, like any commodity, is a cyclical business. When demand drops and prices fall, companies curb their investments, leading to lower supplies. When demand recovers, prices rise again, starting a new cycle.
As familiar as the pattern may be, the changes this time are taking place at record speed. In June, some analysts were forecasting oil at $200 a barrel; now with prices under $50, no one knows how low they might fall.
"It's a classic - if extraordinarily dramatic - cycle," said Daniel Yergin, chairman of Cambridge Energy Research Associates and author of "The Prize," a history of the oil business. "Prices have come down so far and so fast, it's become a shock to the supply system."
The delays could curb future global fuel supplies by the equivalent of 4 million barrels a day within the next five years, according to Peter Jackson, an analyst at Cambridge Energy Research Associates, Yergin's company. That is equal to 5 percent of current oil supplies.
One reason projects are being shut down so fast is that costs throughout the industry, which had surged in recent years, are still elevated despite the drop in oil prices. Many companies are waiting for those costs to come down before deciding whether to go forward with new projects.
"The global market has been turned upside down since the summer," the International Energy Agency, a leading energy forecaster, said in a recent report. In today's uncertain environment, a slowdown in spending is inevitable, according to energy executives who are devising their budgets for next year.
Last year, spending on exploration and production amounted to $329 billion, according to PFC Energy, a consulting firm. That figure is certain to fall. "We're in remission right now," said Marvin Odum, the vice president for exploration and production for Royal Dutch Shell in the Americas. But once the economy picks up, he said, "the energy challenge will come back with a vengeance."
Oil demand growth has weakened throughout the industrial world. The International Energy Agency projects that worldwide demand will actually fall this year, for the first time since 1983. So much surplus oil is sloshing around the world right now that some companies, including Shell, are using oil tankers for storage.
Prices could fall as low as $25 a barrel, according to Merrill Lynch, if the demand slowdown extends to China next year, which looks increasingly likely. Different companies have different price thresholds for going forward with drilling projects. But across the industry, a price drop this drastic has "a dampening effect," said Odum, the Shell executive. "The big uncertainty is how long this economic environment is going to last," he said.
The biggest cutbacks so far have been in Canada's heavy oil projects, where some of the world's highest-cost production is concentrated. Some operators there need oil prices above $90 a barrel to turn a profit.
StatoilHydro, a large Norwegian company, recently pulled out of a $12 billion project in Canada because of falling prices. Similarly, Shell, Nexen, and Petro-Canada have all canceled or postponed new ventures in the province of Alberta in recent weeks.
The drop in prices could crimp investments even in places where production costs are low. The Saudi monarch, King Abdullah, recently said he considered $75 a barrel to be a "fair price." Saudi Arabia, which has invested tens of billions of dollars in recent years to increase its production, recently announced that two new refinery projects, with ConocoPhillips and the French company Total, were being put on hold until costs fall. In Kuwait, the government recently shelved a $15 billion project to build the country's fourth refinery because of concerns about slowing growth in oil demand.
The list goes on: South Africa's national oil company, PetroSA, on Thursday dropped plans to build a plant that would have converted coal to liquid fuel. The British-Russian giant TNK-BP reduced its capital-spending budget for next year by $1 billion, 25 percent less than this year.
In North Dakota, oil drillers are scaling back exploration of the Bakken Shale, a geological formation that was recently seen as promising but that is more expensive to produce that traditional fields.
"People are dropping rigs up there in a pretty significant way already," Mark Papa, the chief executive of EOG Resources, a small natural gas producer, recently told an energy conference. Another U.S. producer, Callon Petroleum, suspended a major deep water project in the Gulf of Mexico, called Entrada, just weeks before completion because of what it described as a "serious decline in project economics."
According to research analysts at the brokerage firm Raymond James, U.S. drilling could drop by 41 percent next year as companies scale back. "We expect operators to significantly cut their activity in the coming weeks due to the holiday season, and many of these rigs will not come back to work," the report said.
As scores of small wells get shut down, analysts at Bernstein Research have calculated that oil production in North America could decline by 1.3 million barrels a day through 2010, or 17 percent, to 6.14 million barrels a day.
This decline, rather than cuts by members of the Organization of Petroleum Exporting Countries, "will be the catalyst needed for oil prices to rebound," Neil McMahon, an analyst at Bernstein Research, said during a conference call this month.
The drop in energy consumption could afford some breathing room for producers who had been straining in recent years to match fast-rising demand.
But analysts warn that the world can ill afford a lengthy drop in investment in energy supplies.
To meet the growth in global population and the rising affluence expected over the next few decades, the world will need to invest $12 trillion to increase its oil and natural gas supplies, according to the International Energy Agency.
"If we cut back dramatically on investments, we could end up in a situation where supply growth goes flat when the economy starts to recover," said Jackson, the analyst.
"The steeper the decline, the steeper the response."