Updated: A new study by research firm IHS Herold illustrates why there are fears of a supply crunch: oil is getting much more expensive to find, but investment in finding new oil is falling this year.
Exploration spending by listed oil companies rose 21 per cent and development spending 23 per cent in 2008 – but total reserves fell 3 per cent, according to the study. Much of this was due to some existing reserves becoming uneconomic: there was a a 5.2 billion barrel decline in revisions “due to the steep drop in commodity prices”. It’s not the first time total reserves have fallen, but it makes us wonder what this year, when capital investment is set to fall further, will bring.
Meanwhile the average cost of replacing a barrel of oil equivalent rose 70 per cent to $23.44 in 2008. Here’s how finding and development costs weigh up against reserve replacement:
Source: IHS Herold
The study culled data from the filings of 232 companies with the SEC “and other similar agencies worldwide”, so some of the really big national oil companies such as Saudi Aramco aren’t in there. Petrobras and Pemex are represented, however, along with the big Russian and Chinese companies.
ThinkCarbon has put together some nice charts on renewables vs fossil fuel capacity around the world, based on EIA data. The red line is fossil fuels, the blue line is renewables.
Apart from the US, which appears to have seen a temporary spike in hydropower in the late 1980s, the trajectories of renewables are pretty smooth and predictable.
The story of renewables capacity is really the story of government subsidies, as new technologies need support to move towards being commercially competitive.
Crude oil prices dipped on Wednesday ahead of the latest US inventories data while gold found support from dollar weakness as investors in commodity markets awaited the outcome of the US Federal Reserve’s monthly meeting.
US interest rates will remain locked near zero for an extended period and the focus of the meeting will be to see if US policymakers issue a more upbeat assessment of the economy and provide any guidance on their exit strategy from quantitative easing and the other special measures taken to counter the financial crisis.
In energy markets, Nymex November West Texas Intermediate oil slipped 44 cents to $71.32 a barrel while ICE November Brent eased 53 cents to $70.00 a barrel.
Some of the biggest investment banks don’t just trade commodities on paper, they invest in the physical side of the commodities business, too. The characteristics of the markets – and their regulation – gives advantages to anyone who can move real assets around. A couple of months back news filtered out that GLG, a hedge fund, was going to form an oil production company, and it won’t be the first financial player to make this move.
The FT published a cut-out-and-keep guide to what the big investment banks are doing in physical energy commodities, presented here for your enjoyment (click for full size):
Financials keen to keep ‘physical’ assets (FT, 23/09/09)
Sovereign wealth funds go physical (FT Energy Source, 07/09/09)
No-one was expecting Chinese president Hu Jintao to announce an overall target for carbon reduction – but there were a lot of high hopes that he might put a number on a carbon intensity target – reducing the amount of carbon emitted per unit of GDP.
“We will endeavor to cut carbon dioxide emissions per unit of GDP by a notable margin by 2020 from the 2005 level.”
So, a notable margin it is.
Chinese companies supplying petrol to Iran
Sales threaten US efforts at fuel embargo (FT)
China’s Hu makes energy efficiency pledge
But fails to set target on cutting emissions (FT)
India signals flexibility on climate targets
Shift to acceptance of ‘implicit’ cuts (FT)
India’s environment minister is tough-talking showman
Jairam Ramesh could play decisive role at Copenhagen talks (FT)
Horse trading on treaty has yet to pay dividends
Discord threatens to block any co-ordinated action (FT)
Merkel on defensive over nuclear power
Chancellor wants to reverse pull-out (FT)
German plant oil association criticises biofuel decree
Says decree’s guidelines go beyond EU stipulations (Argus Research)
Airline industry plans 50% cut in emissions
First sector to take a united stand (FT)
Banks braced for Fed’s commodities decision
Concern over power plants and tankers (FT)
Financials keen to keep ‘physical’ assets
Shift is seen as means to manage risk (FT)
BP in new warning over Texas refinery
US agency cites ‘areas of concern’ over safety (FT)
Norwegian oil producer fears for Iraq drilling rights
DNO fighting to save investment in Iraq (FT)
Saudi Aramco sees idle oil fields through 2010 on weak demand
CEO says recovery in demand yet to begin (Bloomberg)