October 31, 2007
Total chief sceptical about future oil supplies
On day two of the Oil & Money conference in London, Christophe de Margerie, Total’s chief executive, dropped something of a bombshell when he said he saw predictions that world oil output could rise to 100m barrels per day as the "optimistic" case.
Given that the International Energy Agency, and other official bodies are predicting a rise to 115m b/d or more, that is a strikingly low number.
As with the IEA’s own concerns about production, the issue is not so much the geology of oil reserves - the "below ground" factors, as they are known - although they play a part in Mr de Margerie’s story. More important, however, are the "above ground" factors: the lack of capacity in the industry to develop resources sufficiently quickly, and the geo-political problems that have hit production in countries as diverse as Nigeria, Venezuela, and Iraq.
What that means for prices, Mr de Margerie wouldn’t say. Predicting oil prices is a mug’s game, and Mr de Margerie has been around too long to get involved in it. As Albert Helmig, president of Grey House, a consultancy, put it: "The only thing I can guarantee is that the price will be different tomorrow. [There is] a lot of noise, little fact."
That said, however, it is clear that Mr de Margerie’s view of supply potential implies that prices will oscillate around a much higher central point than in the past.
As a finance student and oil consumer, I find your economic analysis of the current oil situation insightful and provocative. After reading this post and learning about the debate regarding oil output and prices, I am not surprised that the experts participating in the Oil and Money conference are hesitant to predict the future cost of crude oil. As you imply when you write “predicting oil prices is a mug’s game,” the forecasts tend to be incorrect due to the volatility of the market. Despite my lack of confidence in price estimations, I still find that certain market predictions are critical in determining the oil industry’s future, which leads me to disagree with your point about production factors. You write that above-ground factors such as “the lack of capacity in the industry to develop resources sufficiently quickly” are more important than the below-ground factors such as the geology of the oil reserves. While a short term analysis of the current oil crisis would merit such a conclusion, the below ground factors you describe as unimportant will ultimately have a greater long term impact on consumers and the economy. Currently, scientists estimate the depletion of the world’s oil supply using the Hubbert Peak for World Oil (which is the basis of the Peak Oil theory you mention in your previous post), and studies based on this theory indicate that complete depletion will occur shortly after 2050. Regardless of whether the supply will completely diminish as fast as predicted, how will “above ground factors” be important when there is little oil left to process?
Posted by: JLH | November 6th, 2007 at 9:29 am | Report this comment