Tuesday, June 10, 2008

Gas Prices Result of Poor Production Investment

British Petroleum's CEO, Tony Haywardnotes that a 25 year drought in oil production investment, i.e. the means of finding, drilling and collecting oil, is part of the reason why fuel prices are so high. According to the Telegraph:
"Producers are being hampered by 25 years of low investments, because of low prices," Mr Hayward told the Asia Oil and Gas Conference in Kuala Lumpur today. "The result is a supply chain being stretched to breaking point."

Crude oil surged on Friday to a record $139.12 a barrel in New York, although it had eased off to trade at $137 early on Monday.

Fears about the ability of the oil industry to quickly tap new reserves come on top of existing forecasts that the world will exhaust its oil supplies in the next half century.

Mr Hayward added that if the industry was able to increase oil-recovery rates by 5pc from the current 35pc then it would add about 170 billion barrels, or five years of global supply.

Investment in production and exploration has been affected by taxes and governments taking an increasing share of oil and gas revenue, he said. State-run companies are demanding better terms as energy prices surge.

"This is unsustainable and counterproductive," Mr Hayward said. "All it means is that we have less money to invest in new production."

According to the BP boss, the oil industry faces the dual challenge of increasing production and climate change.
Eventually gas prices will level off when production methods come online, but the level where prices stabilize may be shocking to many. As for the fears of depleting the oil supply--they are valid, although the timing may be off.

What gives me hope is the developing market for hydrogen and fuel cell automobiles. If I had money to invest, I would be putting my money in fuel cell technology.

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