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The world's energy giants are increasingly cutting back in the face of slumping demand that they warn is not likely to pick up any time soon.

Little more than a year after oil jumped to its high of $147 (U.S.) a barrel, the industry is chopping spending and jobs, and mulling other measures that would affect investors.

Hopes of a quick return to good times in the oil patch have been punctured by natural gas prices, which have barely budged upward in recent quarters, and crude prices, whose partial recovery has been damaged by the global recession.

Some of the industry's most influential voices now say the world shows no sign of regaining its energy appetite any time soon. As that view becomes more widespread, oil and gas companies – which already gouged spending plans last fall and this spring – are further trimming spending, shifting budgets and even, in one instance, using itself as a test case to spur much-needed demand.

“The industry, after going from almost $150 to $30 and back to the mid-$60s, is completely looking at every single aspect of their business,” said Martin Molyneaux, managing director of institutional research for FirstEnergy Capital Corp. “It's a rejustification of what you're doing, why you're doing it and how you're doing it.”

“Leaning” expenses has become a growing buzzword for an industry that will soon begin formulating 2010 budgets that could see even greater cuts in the wake of lowered expectations for next year.

That push comes as one of the world's biggest petroleum companies played down any chance that demand will stage a quick return. Royal Dutch Shell PLC now expects global oil demand to decline by more than two million barrels a day this year, breaking the trend of an average annual increase of a million barrels a day since 2000, chief executive officer Peter Voser said.

“We are facing a very challenging environment in 2009,” Mr. Voser said on a conference call with reporters.

Shell said it plans to cut capital spending by about 10 per cent and to make additional job cuts. The company said it's not ruling out freezing its dividend at the current level. Exxon Mobil Corp. XOM said it will cut stock buybacks to $4-billion in the current quarter from $5-billion in the second quarter.

The world's appetite for crude won't recover to 2008 levels before 2011, the Energy Information Administration said. In the United States, demand fell by 1.6 million barrels a day or 8.2 per cent in May from a year earlier, according to revised data released Thursday by the agency.

Demand was the lowest for any month since September, when hurricanes and the start of the economic slowdown hit oil consumption, and has been low enough that companies are paying more attention to where their money is likely to create the best return. Some, like Talisman Energy Inc., are shifting it to new areas, such as the Marcellus Shale, where costs are lower and natural gas prices are stronger.

EnCana Corp. ECA-T , which is 80 per cent weighted to natural gas, is shutting in some natural gas wells, has cut its commodity outlook and has cut expenses by 10 per cent. But the company has shifted some spending to pump more heavy oil, which is one of the few bright lights in the market. The company has also embarked on a new program to promote natural gas in hopes of stirring up new demand. It has started with itself, buying new natural-gas-powered corporate vehicles and retrofitting old ones.

Other energy companies are seeking outside help, turning to the concept of “leaning” pioneered in the automotive industry, in hopes of restructuring their work force and the way they do business to be more efficient. PricewaterhouseCoopers (PwC) saw a 26-per-cent growth in its Calgary business last year, in part because of those turning to its efficiency-boosting services.

“Because things were happening so quickly, people were trying to build the bike as they were riding it,” said James McLean, who leads PwC's Alberta operations effectiveness practice. The recession “enables them to take a bit of a pit stop. We're helping them do that and really fundamentally work out what kind of bike they want to be on as well.”

Still, while some analysts expect lagging demand to undercut budgets – FirstEnergy recently dropped its projection for EnCana's 2010 capital spending by nearly 20 per cent – economist Jeff Rubin says countries such as China and India may drive growth sooner than expected. He believes a recovery is likely in the next 12 months, which would drive oil prices back to triple digits.

“What's being underestimated is the demand growth of oil outside of the OECD,” he said in an interview. Energy consumption in North America and Western Europe has likely peaked, Mr. Rubin added, and the number of vehicles on U.S. roads is likely to decline by 20 per cent in the next decade.

“But for every one auto coming off the road in North America, there's five guys waiting to get on the road in a new Tata or new Chery,” he said. “That's where you're going to see oil demand continue to grow very strongly.”

With files from Dow Jones

and Bloomberg News