Economy Watch
Published May 2, 2005
Oil industry faces wrenching change: Economist
World may even be in the midst of a speculative oil bubble that could burst quite suddenly
(LONDON) Oil prices are sky-high with profits to match but there might be shocking changes for the industry in the future, according to a survey. The London-based Economist magazine, in its first in-depth survey of oil for 20 years, said that 'prices are sky-high, with profits to match'. 'But looking further ahead, the industry faces wrenching change.'
The survey published late last week was conducted by environment & energy correspondent Vijay Vaitheeswaran, who spent the last few months talking to leading figures of oil in Saudi Arabia, Russia, China, Texas and elsewhere.
The last few years have seen an extraordinary turnaround in the oil industry's fortunes. Oil prices have surged from US$10 a barrel in 1998 to above US$50 US in early 2005 without prompting an economic shock. This surge has prompted talk of a new era of sustained higher prices. But The Economist argues that the prospect is wrong and the future will see far greater volatility, not ever-rising prices. It says that 'we may even be in the midst of a speculative oil bubble that could burst quite suddenly'.
Conventional wisdom maintains that today's high oil prices mean a golden era for oil majors and Opec, and a possible economic shock for consumers. However, Mr Vaitheeswaran said that the arrival of US$50 a barrel of oil heralds big trouble for oil companies while producing countries and the consumers seem to be coping rather well with today's shockingly high oil prices.
He said the fact that oil majors are posting record profits and appear to be rolling in money is misleading. In fact, oil majors are in the worst shape in decades and face major problems, including replacing their dwindling reserve base.
The survey says that just as existing fields in Alaska and the North Sea are rapidly declining, Opec countries and Russia are increasingly shutting the oil majors out. They now face challenges that could wipe them out altogether. Fifty US dollars a barrel of oil has yet to scare off consumers, but sooner or later petroleum's monopoly grip on transport will lead to an energy shock.
Despite the fears of many, this is not because the world is running out of oil, the real problem is not scarcity but concentration of oil, the magazine argues. Now, about two-thirds of the world's proven oil reserves lie in the hands of just five Persian Gulf countries. As the market share of those countries soars, so too will the chance of disruption, embargo or worse.
Mr Vaitheeswaran argues that there are other factors impacting the oil industry, such as growing concern about global warming, worries about the Middle East's political stability - AFP |
