November 5, 2008

Low Oil Prices Destroy Competition

From the Wall Street Journal

Nobuo Tanaka, head of the International Energy Agency, the Paris-based watchdog, was one of several experts at the annual Oil and Money conference here predicting that the industry could be setting the stage for yet another supply-and-demand whiplash down the road. "We're concerned that supply won't
catch up with demand after this crisis," Mr. Tanaka said. "The supply crunch may come again, but in a more acute way." . . .

Most of the majors' big projects are designed to break even at prices substantially lower than the current cost of crude. "I don't think there will be major changes in investment," said Paolo Scaroni, chief executive of Italian oil company ENI SpA.
"Maybe in unconventionals, but not conventional oil projects."
Yet it is precisely the so-called unconventionals that have become a big focus of the oil companies' activities in recent years. Billions of dollars have been poured into squeezing crude out of Canada's gooey tar sands, converting Venezuela's heavy
oil, and pumping ultra-sour natural gas in the Middle East. Some of those projects could now be scaled back or even abandoned, conference speakers said. Already, some independent companies producing natural gas in the U.S. have
announced cuts in investment. "If this oil price stays low, alternative energy, Canadian oil sands, Brazilian new discoveries will be out of the market," said Abdalla Salem El-Badri, OPEC's secretary-general.

...Mr. Birol said falling oil prices will also deter investment in alternative energy. Low-carbon technologies such as wind and solar were economically competitive only so long as oil prices were high. Countries set to meet in Copenhagen next year to agree a new deal on curbing emissions may decide it is a "luxury" in view of the financial crisis. Lower oil prices are "not good news for climate change," he said.

Here is a list of projects recently delayed or cancelled:

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