Production, exploration lagging
By Joe Carroll
Bloomberg News Service
CHICAGO — The world's energy producers, from Exxon Mobil Corp. to Petroleos de Venezuela SA to Saudi Aramco, are failing to invest enough in exploration and production to keep up with demand and hold prices in check.
Producers will spend $176.8 billion this year to find and develop oil and gas fields, said James Crandell, a Lehman Brothers analyst who has tracked such spending since 1982. That's less than the $211 billion in annual outlays the International Energy Agency says is needed through 2030 as daily demand rises to 121 million barrels from about 83 million today.
"I haven't seen anybody who can very clearly explain to me where those 40 million barrels are going to come from," former U.S. Energy Secretary Spencer Abraham said in a March 28 interview in Washington. "It's going to take a huge amount of investment, way beyond what I'm seeing right now."
Lack of investment helped push prices to a record $58.28 a barrel in New York on April 4 because it eroded OPEC's ability to pump more oil as demand and prices rose. Excess capacity cushioned the oil market in the 1990s, a decade when oil averaged $19.69 and topped $30 just once.
The Group of Seven industrial nations on April 16 called for the Organization of Petroleum Exporting Countries to boost output to counter the record prices. Members of the G-7, which include the U.S, Japan and Germany, represent two-thirds of global economic output.
"Oil prices currently pose the biggest economic risk," German Finance Minister Hans Eichel said at a G-7 press conference in Washington.
Publicly traded oil companies are diverting windfall profits to shareholders through stock repurchases and dividends, while state-owned producers funnel cash from record prices into bigger social programs, the Paris-based IEA said in a Jan. 18 report. There are "competing claims for recently inflated cash flow" the report said.
OPEC, source of 40 percent of the world's oil, may be reluctant to expand production too quickly for fear any hiccup in economic growth would cut demand and result in a glut that sends prices plunging, Ben Walker, a London-based portfolio manager at Gartmore Global Investments, which manages $78 billion, said in a March 17 interview.
Adnan Shihab-Eldin, OPEC's former research director and now its acting secretary general, said in an April 2004 presentation that oil producers want to avoid a repeat of 1986, when prices dropped to about $10 a barrel.
Exploratory spending has been restrained because, 150 years after the advent of the petroleum industry, the number of places left to explore is dwindling, said Aubrey McClendon, chief executive at Oklahoma City-based Chesapeake Energy Corp.
"There's less stuff to drill for any more," McClendon said during a presentation at a Feb. 16 energy conference in Houston. "I don't expect there to be a huge explosion in exploration in the next few years."
Crandell, with Lehman Brothers in New York, said his survey of 327 oil companies and state-owned producers found that "prospect availability continues to be a leading issue hampering spending, both domestically and internationally." Crandell conducts his survey twice a year, publishing the results in December and May.
While oil prices have fallen 10 percent since reaching an all- time high two weeks ago, oil bulls say that any decline is a brief respite in a multiyear rally. Light, sweet crude for May delivery climbed 15 cents to settle at $52.44 per barrel on the New York Mercantile Exchange yesterday, extending its climb from a day earlier.
"Oil can go to $35, but the trend for oil is up," said hedge fund manager Jim Rogers, co-founder with George Soros of the Quantum hedge fund. "There has been no major discovery anywhere in the world for over 35 years," Rogers said in an interview yesterday in New York. Oil may reach $100 or $150 in the next decade, he said.
Exxon Mobil, which pumped more oil last year than every member of OPEC except Saudi Arabia and Iran, expects global demand for crude to reach 118 million barrels a day by 2030, said Scott Nauman, manager of economics and energy planning at Exxon Mobil Corp., the world's largest oil refiner.
