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Date Posted: 05:40:00 05/28/08 Wed
Author: SleepingHare
Subject: Re: An Excellent Op-Ed
In reply to: Lynx 's message, "Re: An Excellent Op-Ed" on 13:26:40 05/27/08 Tue

The recent price rises are due to static production and increasing demand caused by economic growth in Asia. The static production does not reflect a lack of oil left to produce. It is a result of underinvestment in exploration and development since the price shocks from about 6 years ago when oil dropped to $20 a barrel. Major oil companies like Exxon aren't investing in projects that wouldn't be profitable at $20 a barrel.

I'm not that concerned about the price increases. The longer they stay up the more oil companies you should see starting to invest in riskier projects (i.e. ones that could end up unprofitable if prices dip down again). The local Canadian example is the Alberta tar sands, which are comparable in magnitude to the world's proven reserves of conventional petroleum. The main problem is that production costs would be $30-40 a barrel and global oil prices would need to be $50+ for an extended period of time to make the investment attractive. If you want a second spot to watch, look to the former Soviet republics of central asia. They are landlocked and politically unstable, but may hold as much oil as their better known Arab neighbors to the south.

In the meantime some good may come from the high prices. More governments, businesses and consumers will increase their energy efficiency. Firms experimenting with technologies that will one day replace oil may find more receptive and generous investors.

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