StatoilHydro CEO says oil industry risks rising

* CEO says oil and gas industry faces downside risks

* Industry focus now on cash flow, not production growth

* Says suppliers' costs high while quality has deteriorated

* Sees wave of oil and gas industry mergers

By Wojciech Moskwa

OSLO, Nov 18 (Reuters) - Norwegian oil major StatoilHydro (STL.OL) said on Tuesday the oil and gas industry was facing its gloomiest outlook in years and blasted oil services companies for charging top dollar for often sub-quality work.

Chief Executive Helge Lund said the international petroleum industry faced a cost "tsunami", a "bust" in the oil price and tighter lending conditions due to the financial crisis.

"I now see more downside risk for our industry than in a long time," Lund told a seminar on the world energy outlook with oil prices below $60 per barrel, down from $147 in July.

"The industry's attention is clearly very quickly shifting from production and growth to cash flow and flexibility...Oil and gas companies all over the world are revisiting plans and investments, and projects are put on hold," he said.

Lund said StatoilHydro would stick to its dual strategy of "capturing the full potential" of the Norwegian shelf and seeking long-term international growth, while maintaining financial flexibility and controlling costs.

"Our short-term response is capital discipline and controlling our cost base... We will use all levers at our disposal, including a dialogue with our suppliers," Lund said.

"Keeping financial flexibility is my top priority in steering through the economic crisis...whether it lasts one, two, three, four, five or six years," he said.

MEDIOCRE QUALITY

Lund said the explosion in exploration and production costs over the past four to five years, which accompanied a surge in energy prices and a push by producers to tap new resources, had led to a worse quality of services and delays.