Worldwide energy investment will drop sharply this year in the face of the global economic crisis, with more than 20 planned upstream oil and gas projects valued at $170 billion canceled or deferred between October 2008 and April, the International Energy Agency said in a report prepared for the recent G8 Energy Ministerial meeting held on May 24-25 in Rome.

The 20 projects involved around 2.0 million bpd of oil production capacity.

Another 35 projects, involving 4.2 million bpd of oil capacity, were delayed by at least 18 months.

“Energy companies are drilling fewer oil and gas wells and cutting back spending on refineries, pipelines and power stations,” the report stated. “Many ongoing projects are being slowed and a number of planned projects have been postponed or cancelled—for lack of finance and/or because of downward revisions in expected profitability.”

IEA estimates that global upstream oil and gas investment budgets for 2008 have been cut almost $100 billion or 21 percent compared with 2008. The agency said that “it is likely the upstream industry will reduce spending on exploration most sharply in 2009—largely because the bulk of spending on development projects is associated with completing projects that had already been launched before the slump in prices.”

Oil sands projects in Canada will account for the bulk of postponed oil capacity, the report stated, while investment in non-OPEC countries is seen dropping the most.

The IEA report showed 15 oil sands projects in Canada with a peak capacity or 1.726 million bpd suspended. The international energy watchdog reported another Canadian oil sands project with a 100,000 bpd peak capacity originally slated to start production in 2012 delayed until 2014.

The report also detailed 2.410 million bpd in peak refining capacity additions globally cancelled or delayed, with 405,000 bpd of the expected capacity additions in the United States.

A BP-Husky joint venture to expand heavy oil production by 15,000 bpd at the Toledo refinery in Ohio, was suspended. Marathon delayed the expected start of production for a 15,000 bpd heavy oil expansion project at its Detroit refinery in Michigan, from the third quarter 2011 until the first quarter 2013. A ConocoPhillips-EnCana joint venture at the Borger refinery in Texas, delayed the start of production from a planned 50,000 bpd heavy oil project expansion from the second quarter 2011 until the first quarter of 2013.

Additionally, Motiva has delayed an extensive expansion of its refinery that would increase capacity by 325,000 bpd from the first quarter of 2011 until the first quarter of 2012.

Investment cuts will only affect capacity with a lag, so in the near term, weaker demand will result in an increase in spare or reserve capacity. However, said IEA, “there is a real danger that sustained lower investment in supply in the coming months and years, could lead to a shortage of capacity and another spike in energy prices in several years time” once the economy recovers.

“The faster the recovery, the more likely that such a scenario will happen,” said the IEA.