Charles,
re. oil my impression is that it won't be much cheaper during the year. There are two main trends: worldwide consumption raises with more than 2%/year; and the OPEC production part of that consumption is on a steady rise. This is one reason (IMHO) for a cyclical trend towards increased drilling & exploration in non-OPEC states, combined with new exploration techniques which allow for adding new reserves and exploring smaller fields.
I don't expect drillers to lose substantially even if oil will be somewhat lower during the year. As long as there aren't enough rigs, dayrates will increase. I expect those drillers to increase earnings most who are able to sign a lot of new contracts during 1997. Look at glm.com e.g. A lot of current projects will end during 1997.
Only if dayrates exceed capital cost for new construction, we will see (offshore) rigs added in 98 or 99. I expect late 98 to be a possible turning point for drillers, not much earlier. GLM's CEO said interesting things about "sustainable" dayrates, that is dayrates allowing for new construction.
If I will ever hear much about additional rigs, I'll be more cautious.
There is another main, decades-long trend in oil. Today proven reserves are expected to hold oil for about 42 years. As consumption rises, added reserves make for an ever smaller percentage of this. I made a small calculation that proves that these given 42 years reserves (without any new reserves, though) translate into only 28 years if consumption rises 3% annually.
I'm not sure what happens if worldwide several social and demographic trends combine. There are billions of people in emerging markets whose comsumption will rise exceptionally over the next years. And a great percentage of these are young and active people who usually consume more.
I'm 33 years old. I expect to live until there's no oil left. (Really.) Oil and gas will be one main investor theme of my life, I surmise.
Besides drillers exploration companies with large proven reserves will gain the most over the years and decades. Alternative energy concepts such as fuel cells will dominate in thirty years. That's another theme to be considered now. Hydrogen will be the fuel of the 21. century.
I predict that we will see a dramatic shakeout in some years, ten, fifteen or twenty years from now, caused by rising oil and gas prices, shrinking reserves, a social security desaster when the first boomers retire, and the costs to build up a whole new infrastructure based on hydrogen. But there's always hope. And there's to make money on both sides, oil/gas *and* hydrogen, for a long time to come.
"There's more to the picture than meets the eye." (Neil Young) |
