An "industry specialist" look at the rising price of oil in this week's "L'Usine Nouvelle" magazine.
Abstract: World oil consumption is increasing. In 2004, it increased 3.2% over 2003. With the popularity of the 4-4 big cars, the development of China, India and other emerging countries, the trend will further accelerate.
Two questions dominate the market:
- What is the real production capacity of Saudi Arabia, which could serve as a safety valve in case of crisis?
- What will be the consequences of the scarcity of investment opportunities for productions at low cost?
Saudi Arabia (whose production is exclusively the responsibility of national companies with public capital) has always claimed to have the ability to increase rapidly (weeks or months) production with minimal investment required. But the reassuring statements towards Western no longer enough. No giant fields have been found since thirty years older deposits and extraction techniques have found their limits. With the approach of the test of truth, Saudi Arabia has just admitted that in reality 2-3 years it would take to increase production, the huge investments price for an unsatisfactory amount and probably oil bad quality.
Second source of concern: the lack of investment from the "majors". The International Energy Agency estimates 6200 billion dollars the investments that should be made in the next 25 years to hope to fill the demand. So 180 billions of dollars a year, 50 billion more than what the oil companies are doing now. Moreover, no one knows if Yukos (Russian company) will escape bankruptcy, taking with it all its infrastructure projects. The tendency for oil companies is therefore to fall back, to buy shares rather than to hyperrisculated investments with low visibility.
"The current prosperity, it is true, does not push for painful productivity efforts in Western oil companies. All know, however, that they have eaten their white bread for a long time. The new areas of exploration and production, be they very deep or very cold [...] would suppose gigantic investments. Nobody, for now, wants to take huge risks "
Conclusion: quite disturbing.