|
No news is good news - or so the saying goes. But sadly, the old adage seems to hold true for oil these days, as one negative story after another rolls in.
Despite oil producers saying that there is no reason to increase production, prices stabilise, then keep hovering between $95 and $100.
Even now, Iran is saying that not only is Opec keeping production levels as-is for now, the organisation could cut production even further after its next meeting in March.
Iran on Sunday declined to rule out that Opec would cut production at its next meeting in early March, a move vehemently opposed by oil-consuming countries.
Iran's Oil Minister Gholam Hossein Nozari told reporters in Tehran that Opec often cuts production in March, in response to the annual slack in demand as winter winds its way into spring.
Needless to say this has oil consumers such as the United States in a tizzy, especially since perennial US foe Venezuela has been pretty vocal about jumping on the reduced production bandwagon.
And despite repeated badgering by oil consuming countries, the organisation kept its daily output at sightly more than 29 million barrels of oil after its February meeting.
Couple this with Opec cutting its oil demand growth forecast for this year, and saying that an economic slump in the US might slow demand even further, and the possibility of increased production taking some of the steam out of prices is looking dimmer and dimmer.
So what is going on?
Despite those record prices, oil companies are facing some serious problems, including maturing oil fields, cranky oil producing countries and steadily increasing costs.
"An oil crisis is coming in the next 10 years," said John Hess, chief executive of Hess Corp told Reuters at the Cambridge Energy Research Associates (CERA) energy conference in Houston. "While recent discoveries ... are promising, we need to find a new production basin like the Alaska North Slope or Angola every year to ensure that we can grow our oil resource base to support increases in production for future generations. We stopped making such meaningful discoveries during the late 1990s."
What does seem crystal clear is that oil majors are not replacing their reserves.
Exxon Mobil posted a 76 per cent reserve replacement for 2007, after getting booted out from a Venezuelan project, while Chevron said that it replaced just 10 to 15 per cent of its reserves last year. Only BP is upping its reserve, replacing 120 per cent of its 2007 output.
Meanwhile, countries from Russia to Africa and on to South America have been actively pushing out foreign companies and reasserting control over their resources.
Venezuela, which exports more than half of its oil to the US, is even now duking it out with Exxon over compensation for the US company's stake in a venture that was privatised in 2007. Even now, $12.3 billion of PDVSA's assets have been frozen.
In Russia, there is a double whammy, where oil production has stalled as industry ownership have slipped back to the state. In fact, production grew by just two per cent in 2007, a mere blip on the radar compared to nine per cent growth recorded between 2001 and 2004.
So the real question facing oil companies is how to keep their huge profits flowing in a more restrictive international climate and despite increases in production costs.
After all, as oil producing nations struggle to keep more of the money at home, oil becomes harder to access and consumers increasingly wince at the pump, there is a smaller profit margin to be made.
- The writer is a freelance journalist based in Alaska, USA.
|
