Hi to all - I have picked this news article up from the NZX web page. I find it quite interesting!
Oil price spike predicted in four years
Reuters | Wednesday, 15 July 2009
A sharp decline in oil and gas exploration because of the global credit crunch will lead to another spike in prices, probably within the next four years, a leading energy finance consultancy said.
Christopher Moyes, president of Dallas-based Moyes & Co. Inc, which manages acquisitions and investments for dozens of medium-sized oil and gas companies, said the spiralling cost of capital over the last year has slashed the number of exploration projects and hit the value of potential oilfields.
As the cost of financing all projects has escalated, oil companies are turning their backs on risky exploration and are instead under pressure to obtain hydrocarbon resources through the easier route of mergers and acquisitions.
"It is bound to lead to a supply crunch," Moyes told Reuters in an interview. "Sometime between 2013 and 2016 we will have another price crunch."
"The last three price spikes have had a lead time of about 1500 to 2500 days. The bottom of the price trough was January. It is about 1500 days until where we run into the supply crunch again, when demand rises and we can't supply."
"The problem will be a demand issue out of China and India, putting pressure on the market, causing prices to go up and we won't be able to turn the taps on fast enough."
Oil prices peaked a year ago at over $US147 per barrel for benchmark US light crude oil futures but then collapsed to under $US40 in December before recovering to over $US70 in June and falling to just below $US60 by 1500 GMT on Tuesday.
The International Energy Agency, the Organisation of the Petroleum Exporting Countries and other agencies have warned that an oil supply crunch is possible if exploration does not begin to pick up fast.
Evidence of a collapse in upstream activity is mounting.
Oil and gas drilling in British waters fell by 57 percent in the second quarter, with only 15 exploration and appraisal wells started. US gas drilling rigs were down 56 percent year on year last week, according to oil services firm Baker Hughes.
As demand for new acreage has fallen, so have prices, with the value of some oil and gas fields down as much as 90 percent.
Some potential Texan oilfields were now selling for around $US2000 ($NZ3205.12) an acre when they would have sold for closer to $US10,000 an acre before the financial crisis, he said.
"Exploration values fell between 50 and 90 percent from July 2008 to the end of the first quarter 2009. It's a nine-month slide," he said.
"Fields naturally decline at 10 percent or faster, so unless you are continually replacing it, you are constantly eroding that cushion that we have got. (Investment) now is probably not enough to fill the gap between the declining production and where demand will be in five years time," he said.
"If the industry gets more money it will start new developments. But it takes lead times of two to five years to get even existing discoveries on stream," he said.
Moyes said countries such as Iraq wishing to develop their resources might have to accept much lower prices from oil companies, particularly Western ones, in order to attract them.
"A lot of governments are going to find much lower bids for exploration programmes and only the best are going to attract investment," he said. "This means less oil will be available to be produced. We have enough oil in the world to last probably 40-50 years - it is access to it that we won't get."
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