[A-List] The Oil Crisis Is Now

["Michael Keaney" <michael011@xxxxxxxxxxx>]

Nationalism and state ownership seen as main threats to oil supply
By Sheila McNulty in Houston
Financial Times: May 10 2007

Increasing state ownership and rising resource nationalism are emerging
as the main long-term threats to global oil supplies, says a report for
the industry by an energy consultancy.

The report by PFC Energy highlights the shift in power towards
state-controlled national oil companies. Multinationals own or have
access to less than 10 per cent of world oil resources.

Resource nationalism, which is limiting access for international oil
companies, and the national oil companies' failure to reinvest profits
in production, are limiting the outlay required to replace existing
resources, which are being substantially depleted.

Robin West, chairman of PFC Energy, said: "The concern is not that the
world is running out of oil, but rather it is running out of oil
production capacity."

The PFC study shows that political factors are limiting capacity
increases in Mexico, Venezuela, Iran, Iraq, Kuwait and Russia. Saudi
Arabia is also limiting capacity expansion but because of a self-imposed
cap, unlike the other countries. These seven account for 65 per cent of
the world's reserves and 45 per cent of crude oil production.

Lord Truscott, undersecretary of state for energy, said: "There is a
need in parts of the world for technical investment. I see constraints
in the future if there is not investment in new and existing fields."

Before 1961 the industry could invest almost anywhere except the Soviet
Union and Mexico. Then it was pushed out of the Middle East and
Venezuela. Investment by international companies shifted to the North
Sea, the north slope of Alaska and offshore. But the North Sea and
Alaska are maturing even as output in key producers is declining.

Mr West said: "Eventually, should demand outstrip supply, you will then
have a run-up in prices, massive demand destruction and substitutions.
It will create tremendous pressures in the international petroleum
system, the international economic system, the international political
system."

Jim Mulva, chief executive of ConocoPhillips, said: "To the extent that
access has become more restricted for the international oil companies,
it could lead, and may lead, to constraint on supply." Yet there is
little the oil companies can do to change that. "For international oil
companies, access is a real challenge," Mr Mulva said.

*****

Politics and easy profits signal global oil crunch
By Sheila McNulty in Houston
Financial Times: May 10 2007

In the oil business, the constant development of new technology has
created the adage "good fields just keep getting better and better".

Companies are able to get more out of oil fields than they expected even
a decade ago. Yet if they cannot access those fields, the oil within is
not going to come to market.

A study by PFC Energy, the respected consultancy, shows world oil
supplies might well fall behind growing demand in the long term as
political factors limit production capacity increases in key producing
nations.

"The full impact of the nationalisations that took place in the 1960s
and 1970s are taking effect now," says Robin West, chairman of PFC
Energy.

Key national oil companies are not making the needed investment, either
because resource nationalism is leading them to block out
technologically advanced international oil companies or because they are
making so much money from current fields that they do not see the need
to reinvest.

The report singled out Mexico, Venezuela, Iran and Iraq as declining
producers. It listed Russia and Kuwait as stagnant producers and Saudi
Arabia - only just - as an expanding producer, with qualifications.

Lord Truscott, UK parliamentary undersecretary of state for energy, says
countries such as Russia could have problems in future if their national
oil companies do not have sufficient funds to invest in new fields,
while other countries must attract western investment and technology to
increase production capacity.

PFC says the Cantarell field, which accounts for two-thirds of Mexico's
production, is declining rapidly, yet developing deep-water exploration
could hold production steady if not boost it.

Venezuela could significantly increase production if it encouraged
investment in heavy crude. Yet its move this month to nationalise major
fields is likely to have the reverse effect, as the international oil
companies get less for their investment.

In Iran, prospects for capacity increases are not favourable, given the
political environment.

Iraq is seen as a "wild card". Pre-war production capacity was
significantly higher than current levels, but new investment could
reverse that trend.

PFC lists the stagnant producers as Russia and Kuwait. Russia's
production levels are expected to flatten, it says, and without better
management and capital, investment inflows are likely to remain flat.
That seems especially probable given President Vladimir Putin's
statements that current output levels are "appropriate".

Kuwait's courting of international oil companies to boost production has
stalled on political infighting.

Saudi Arabia has said future demand for its production may advance its
efforts, but Saudi Aramco, its national oil company, has said increasing
production too much might run down its reserves faster than the country
would like.

The impact of continued depletion and stagnation of oil production
capacity will not be felt for some time, given that other producers are
expanding production, many of them in partnership with international oil
companies.

In Kazakhstan, Angola and Nigeria, for example, production is expanding
with the aid of outside investors, says PFC, which says that Brazil has
created a strong and innovative national oil company that funds and
develops production increases on its own.

"The scale of these additions, however, is limited and will peak in
relatively short order," PFC says.

Whether the declining and stagnant producers will step in at that point
remains to be seen.

"For the first time in this petroleum cycle, the national oil companies
have a major responsibility for supporting world oil markets over the
long term," Mr West says.

"The real challenge is whether the national oil companies will meet
their responsibility to bring the oil to market,"he says.

It is unclear whether that responsibility is as important to those
countries as meeting their needs at home.

For, as Jim Mulva, chief executive of ConocoPhillips, the US's third
largest oil company, says: "The [national oil companies'] host country
may have other strategic objectives, which may limit the speed by which
they develop their resources."


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