The Delicate Politics of Oil Discovery

NEW YORK (Dow Jones Newswires), Sept. 17, 2009

Barely a week goes by these days without a major oil company announcing a massive new discovery. Recent hot spots include the Gulf of Mexico, offshore Brazil and West Africa. But beware jumping to conclusions about how much this changes the dynamics of the oil and gas market, for oil bears or peak-oil pundits.

The discoveries do show energy companies are no slouches in finding new ways to detect and develop reserves with the right backdrop. That includes high oil prices as a catalyst, access to the fertile areas, and regimes conducive to exploration and foreign investment. This month alone, BP PLC (BP) in the Gulf of Mexico, Petrobras (PBR) and BG Group (BG.LN) offshore Brazil, and Monday ENI (E) and Repsol (REP) offshore Nicaragua have found what may amount to nearly 10 billion barrels of oil equivalent. A consortium led by Anadarko (APC) have discovered what could be a major new field off the coast of Sierra Leone.

Unfortunately, if geological and financial impediments are ultimately surmountable, political constraints are harder to drill through, particularly in countries where the industry is in state ownership. Unlike the bonanzas offshore Texas and Brazil, Mexico's industry remains oddly in decline. But then exploration is in the hands of oil monopoly Pemex, too often bled dry of cash to fund government spending.

Indeed, impressive as the application of new seismic and other technologies are, Wood Mackenzie, the energy consultancy, says the latest discoveries are in line with the underlying exploration trend of the past decade. Indeed, given the incentive of a multiyear rally in oil prices, it's a surprise that output from non-OPEC countries hasn't increased. Instead their oil production has hovered a little above 50 million barrels a day.

With the world economy recovering faster than expected and broad energy consumption sure to rise in the years ahead as the industrialization of China and India continues, it's tempting to conclude oil prices must inevitably be squeezed higher. But leaving aside the uncertainty of long-range forecasting in the industry, it's worth remembering some immediate issues. OPEC production cuts leave the cartel producing at roughly 6.5 million barrels a day below full capacity. It might take years of robust global growth to absorb that.

Factor in the impact of new fuel-efficiency standards and the push for biofuels, it could be 2020 before U.S. gasoline consumption, historically the driver of global oil demand, returns to 2008 levels, says Edward Morse at Louis Capital Markets. And there are signs that even China is catching the fuel efficiency bug as it realizes subsidizing energy stymies economic competitiveness. If demand surprises on the downside and the oil majors' innovation helps supply surprise just a little on the upside, the oil market could remain delicately balanced for some time to come.  

Copyright (c) 2009 Dow Jones & Company, Inc.

Related Companies
 Company: BP plcmore info

 - BP, Shell Help Lift Oil-Trading Profitability to 6-Year High (Oct 26)
 - Sources: BP Sells US Crude Oil to Thailand, Australia for First Time (Oct 26)
 - Industry Must Be 'Stimulating, Challenging' to Inspire Millennials (Oct 25)
 Company: Petrobrasmore info

 - Petrobras Sets Up Minority Panel On Transfer of Rights Areas (Oct 24)
 - Petrobras Says Deep-Water Opening Luring Big Oil to Brazil (Oct 10)
 - Brazil's Petrobras Graft Probe to Sharpen Focus on Parties (Oct 7)
 Company: BG Groupmore info
 - Despite Cuts, Big Oil to Expand Production into the 2020s (Sep 5)
 - Sound Energy Appoints Ex-BG Exploration Lead (Aug 24)
 - Shell Misses Expectations As Earnings Plunge On Oil, BG Costs (Jul 28)
 Company: Anadarko Petroleummore info
 - Timing of $2B Anadarko-Freeport Deal Makes GOM Assets a Bargain (Sep 14)
 - Anadarko Goes Deeper in GOM with $2B Deal (Sep 12)
 - Oil, Gas Companies Evacuate GOM Staff Ahead of Tropical Depression (Aug 30)
 Company: ENImore info

 - ENI: FPSO Soon Ready to Start Work at East Hub Development Project (Oct 14)
 - Mozambique Minister's Sacking Will Not Affect Gas Project Decision (Sep 30)
 - Eni: Laarich East-1 Well Onshore Tunisia Has 2,000 Bpd Capacity (Sep 19)
 Company: OPECmore info
 - Iraq Lures Investors To Boost Its Oil Output As OPEC Debates Cuts (Oct 26)
 - Iraqi Leaders Lobby OPEC's Barkindo For An Oil Output Cut Exemption (Oct 25)
 - Venezuela Replaces OPEC Governor Amid Push For Oil Deal (Oct 18)
 Company: Pemexmore info

 - Mexico's Pemex OKs New Gulf Joint Venture In Bid To Boost Output (Oct 18)
 - Mexico's Pemex Set to Announce Debt Management Deal (Sep 28)
 - Mexico's Sole Platform Fabrication Project to Create Jobs (Sep 27)
 Company: Repsol more info
 - Bolivia, Repsol to Sign Deal to Develop Two Natural Gas Fields (Oct 26)
 - Jefferies: OPEC Output Cut Unlikely (Oct 11)
 - Spain's Repsol Provides $1.2B Credit Line For Venezuela Oil JV (Oct 7)

Our Privacy Pledge

Most Popular Articles

From the Career Center
Jobs that may interest you
United States Sonora: Operator, Plant-Multi-Chem, I
Expertise: Geoscience Technician
Location: Sonora, TX
United States Sonora: Operator, Plant-Multi-Chem, I
Expertise: Geochemist
Location: Sonora, TX
Senior Client / Program Manager
Expertise: Geologist|Reservoir Engineering
Location: Seattle, WA
search for more jobs

Brent Crude Oil : $50.79/BBL 1.30%
Light Crude Oil : $49.96/BBL 1.10%
Natural Gas : $2.77/MMBtu 2.12%
Updated in last 24 hours