Llewellyn
King
Read Llewellyn's bio and previous columns
November 19, 2007
Energy Angst:
Long-Term Oil Gloom Spreads In Houston
HOUSTON – Saudi Arabia has more oil, Amsterdam more tankers, New York
more money, but Houston has the heart of the global oil industry. These
days, it is not beating well. Study after study, executive after
executive, and analyst after analyst is warning that there are rough
times ahead for oil supply.
Here, oil news is analyzed, sorted and shelved. But in 37 years of
writing about energy, in boom and bust, I have never found the kind of
fatalism that now grips the oil patch.
The cause of the furrowed brows is simple: The global production and
supply of oil, at between 85 and 86 million barrels a day, is straining
the system. At those rates, supply and demand are in rough equilibrium
which, according to many experts, should put the price at about $80 a
barrel. The difference between that price and what we are paying (as
much as $98 a barrel on some contracts) is a market premium extracted
because of future fear – fear of war with Iran, fear that big oil
producers will demand payment in euros, and simple fear that demand in
Asia is outstripping the world's ability to produce much more oil.
The most gloomy predictions come from a loose agglomeration of
economists and geologists who believe in the theory of “peak” oil. This
is a view that holds that Saudi Arabia and other high-producing areas,
have peaked and will begin to go into decline without enormous new
discoveries and tremendous new investment that is not being made. The
most persuasive voice of this gloom is Mathew Simmons, a Houston-based
geologist and banker. Given the production realities, he believes that
$100-a-barrel oil would be a bargain, and that the world should brace
for $300-a-barrel oil.
In pessimism, Simmons is closely followed by Chris Skebrowski of the
Petroleum Review in London. Skebrowski, who used to work for British
Petroleum and the Saudis, believes that the world will be in oil chaos
within five years. In that time, he believes demand will grow by 7
million barrels, which will be in deficit.
A
third voice of gloom comes from Christophe de Margerie, head of the
French oil giant Total SA. He says the world will be hard put to produce
the 118 million barrels the Energy Information Administration of the
U.S. Department of Energy has predicted for 2030.
If you think the negatives are coming only from oil patch radicals, try
Rex Tillerson, chairman of ExxonMobil. He told the World Energy
Conference in Rome that if the world oil-dominating, state-owned oil
companies are not freed from political control, and allowed to bring in
western technology and capital, then a crisis is inevitable.
There is evidence that the oil majors themselves are hurting. When oil
passed $60 a barrel, their profits shot up. But they are not up
commensurately with oil at $90 a barrel. The big guys are getting
squeezed.
State-owned oil companies have been criticized for not spending enough
on new exploration and technology. The big American companies have been
accused of preening themselves for Wall Street, with stock buybacks and
other beauty treatments, instead of finding and exploiting new oil
reserves.
All of this makes Houston, well, a different place. It has not totally
recovered from the collapse of Enron. Amid the prosperity, some of the
old bombast has gone. Oil people used to love to ridicule Washington and
pour scorn on New York. I find this a more subdued, tolerant, and even
chastised Houston.
I
liked the old Houston with its larger-than-life wildcatters, even if
they thought I was an effete, Eastern, big government-loving liberal. I
liked the guy who told me I could ride with him to Morgan City, where
the oil rigs are made, so we could drink in the roughest bar in Texas.
“If you don't have a gun, they'll issue one at the door,” he said matter
of factly.
© 2007 North Star
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