Summary:
Tony Hayward (BP's Chief Executive) argues that three of myths about the current oil prices are standing in the way of finding the right solutions to energy security and climate change. These myths are: 1) prices are due to speculation; 2) the world is running out of hydrocarbons; 3) we can switch to alternative sources of energy quickly. The solution to the crisis is to let the markets do the work: consumer will temper their consumption in response to high prices, while it will encourage the oil companies to invest in means of increasing output. Governments can help by removing barriers to that investment, improving access to resources and modernising the tax structure businesses work in. (Published: 10/06/08)
Notes
- some myths that need to be put to rest if we are to find the right solutions to big global problems such as energy security and climate change
- prices are caused by technical factors, e.g. speculation
- may have an impact on the margins
- but: the data clearly show that high prices are really caused by economic fundamentals: supply and demand
- demand:
- global energy demand growth in 2007 was above average for the fifth year in a row
- driven by the fastest period of economic growth since the early 1970s
- demand growth is concentrated in those emerging nations that also subsidise fuel prices, such as China, India and - increasingly - the oil-producing nations themselves
- supply:
- energy supply has struggled to respond
- production by the OPEC fell by 350,000 barrels of oil a day last year
- production situation is even more challenging in the market-oriented nations of the OECD (e.g. UK)
- many existing basins are maturing fast
- last time oil prices surged to this kind of level, 30 years ago, new production from the North Sea helped bring prices down
- this time, new OECD production will have to come from frontier provinces such as the Canadian oil sands, the Arctic and the deep waters of the Gulf of Mexico
- production in Russia has begun to decline
- fact: until now, the growing demand for oil from China and India in recent years has been met almost barrel for barrel by rising supply from Russia
- access to resources for international oil companies remains very restricted
- resource nationalism is on the rise
- important because it is the oil majors that have some of the best technology for bringing difficult resources on-stream
- world is running out of hydrocarbons
- world has ample resources:
- more than 40 years of proven oil reserves
- 60 years of natural gas
- 130 years of coal
- problems in bringing on new production are not so much below ground as above it
- not geological but political
- we can switch quickly to a low-carbon economy
- biofuels, wind and solar energy
- but: comprise a tiny share of global energy production
- humankind remains dependent on fossil fuels
- coal is the fastest-growing of all the main fuel types
- carbon emissions will continue to rise
- all need to work harder if we are to tackle the threat of climate change.
- how to secure the energy needs of the world in the 21st century?
- evidence is that where markets are allowed to operate, they do work
- that is the real source of hope for the future
- consumers in Europe and north America are already responding to high prices by moderating demand and beginning to embrace energy efficiency
- where investment is allowed to take place, energy production responds positively
- last year, US oil and natural gas production increased - in the case of oil, for the first time since 1991
- conclusion:
- producers and consumers should be encouraged to respond to the market's signal
- High prices are saying that we need more investment
- in energy efficiency, new production, new technology and new energy sources such as wind, solar and nuclear
- in order for that to happen, businesses and governments must act together
- companies know that they need to invest more
- governments must do their bit too
- removing the barriers to that investment
- improving access to resources
- modernising the tax structures we work in
