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$100 Oil: Big Oil Struggles to Tap New Energy Amid High Costs

James Herron, Dow Jones Newswires via Rigzone
Ten years ago, a keen futurologist imagining the effects of $100 oil might have predicted a world where major oil companies, their coffers bursting with mega profits, were pumping cash into high technology and delivering new energy sources saving the world from economic meltdown in the nick of time.

Fast forward to the present and energy buzzwords like ethanol, oil sands or gas-to-liquids are certainly on everybody’s lips, but they’ve done little to diminish the world’s dependence on black gold. In fact, as oil prices edge ever closer to $100 a barrel, industry experts say the ability of the major private companies to develop new energy sources is diminishing.

The demand-driven surge in commodity prices of all kinds – whether oil, metals or grains – means blockbuster profits have been matched by soaring costs, particularly for new projects using cutting edge technologies. Meanwhile, aging plants and fields are proving less reliable, making core businesses less profitable even as oil prices hit new highs.
(7 November 2007)

The slippery slope of rising oil prices

David Parkinson, Globe & Mail
The next energy shock will be different than the last one, but that doesn’t mean it will be easy

Even with oil knocking on the door of $100 (U.S.) a barrel, this still isn’t a 1970s-style global oil crisis. But it’s getting close – close enough that dramatic 1980s-style changes in energy consumption might not be far off.

Experts say crude prices, which topped $98 during trading yesterday, aren’t having the same impact on consumption patterns and the global economy that $40 oil had in 1980 – even though the two prices are similar on an inflation-adjusted basis – because the world’s economic activity is now generally less energy-intensive. But they believe we are finally approaching levels where the impact, both on consumers’ well-being and government policy, could trigger the kind of deep shifts in consumption patterns that the world experienced 25 years ago.

“We are about to be in the same situation that we were in the 1970s oil shock,” said Frederic Lasserre, head of commodities research at Société Générale in Paris. “At this level, you see a real change in consumer behaviour.”
(8 November 2007)

Greenspan Says World Economy Will Acclimate to Oil Above $100

Guillermo Parra-Bernal, Bloomberg
Former Federal Reserve Chairman Alan Greenspan said rising oil prices will lead businesses and consumers around the world to consume less fossil fuel and increase their use of alternative energy sources.

“The sooner we get the higher prices, the quicker the world economy will accommodate,” Greenspan told a conference of executives in Sao Paulo, Brazil, via satellite. “They can be a remedy for high oil consumption, which can result in less and less dependence.”

Crude oil today rose above $98 a barrel in New York for the first time, as the U.S. dollar fell to a record low against the euro. Greenspan said the price increases are driven in part by a recent “explosion” of growth in developing countries and a push by oil-producing nations to keep the cost of oil high to boost revenue. Oil has gained 68 percent this year.

“There is increasing awareness that oil politics are not in the interests of the majority” of the world economy, Greenspan said.
(7 November 2007)

Like it or not, $100 oil forces new energy policy on U.S.

Editorial, USA Today
There are many causes for oil prices surging to near $100 a barrel. China and India are voracious new consumers driving up demand, and fear of supply interruptions – principally from conflict between the United States and Iran – might be adding as much as $30 to the price. The falling dollar also makes oil more expensive.

There are also many potential effects. Rising prices hurt the economy. As people are forced to spend more money on transportation and home heating, they have less for other things. They are also less likely to go on distant vacations or buy other goods and services that cost more because of higher fuel costs. This belt-tightening, combined with falling housing prices and tighter credit, could trigger a recession.

Add to that volatile mix a threat to national security. The biggest beneficiaries of oil at $96 a barrel are countries such as Iran, Venezuela, Russia and Saudi Arabia, places that are, or could become, security threats.

But higher prices do have an upside. They mean that the United States finally has a national energy policy. It might not be one of its own choosing. But it is having an impressive and immediate effect.
(8 November 2007)

Wide worries over oil prices
Analysts say burden could spur recession

Robert Weisman, Boston Globe
The price of crude oil is poised to cross the $100-a-barrel threshold, raising the prospect that the burden on consumers and businesses could be the final straw to tip the US economy into a recession.

How the oil market got to this historic milestone – with prices nearly doubling from their 2007 low of $50.48 and more than tripling since 2003 – is a twisting tale of hurricanes, speculators, refinery constraints, and geopolitical jitters. Many fear the fallout, long cushioned by robust growth, soon may be felt in everything from rising gasoline and heating bills to higher air fares to reduced corporate earnings.

“This is definitely a major threat to the economy,” said Brian Bethune, economist for Global Insight, a research firm in Waltham, who warned that sustained per-barrel oil prices in triple digits could shave as much as 0.5 percent off an already slowing gross domestic product next year. “We’re getting down to a critical stall speed.”
(8 November 2007)

$100 oil would have a big political impact

Gideon Rachman, Financial Times
People facing alarming birthdays often say things like: “Forty is just a number.” You could say the same about “$100 oil”. But such benchmarks concentrate minds. As the oil price threatens to break through $100, politicians all over the world will think hard about the strategic consequences.

So what is likely to happen? The biggest single effect is obvious. Oil producers become richer and more powerful. The biggest oil consumers – the US, China and the European Union – become increasingly anxious. Beneath that big trend, there are smaller effects that could change the course of some of the most delicate and dangerous problems – Iraq, Iran, China’s foreign policy and the resurgence of Russia.

The effects of a rising oil price on the economies of the producing countries are dramatic. The Organisation of the Petroleum Exporting Countries made $650bn from oil sales in 2006, compared with $110bn in 1998. Russian oil and gas revenues have quadrupled over the same period.

When bad governments make good money, they become more relaxed at home and more assertive abroad.
(7 November 2007)
Nice summary of likely geopolitical changes. Viewpoint is that of the Anglo-American oil consumer. Original may be behind a paywall. You probably can get around it if you go through Google News. -BA

As Energy Prices Soar, U.S. Industries Collide
Dow Chemical Pushes Limits on Other Firms, But Customers Push Back

Jeffrey Ball, Wall Street Journal
Nearly a year ago, with his company reeling from rising energy prices, Dow Chemical Co. Chief Executive Andrew Liveris took a stand that turned heads in Washington. He called for tougher fuel-economy requirements for auto makers — businesses that buy some $1.5 billion of goods from Dow each year.

The move was as rational as it was risky. Dow figured that limiting oil usage by cars would ease price pressure on fossil fuels, which Dow must buy in vast quantities to feed its factories. Dow also reasoned that if car makers were forced to improve mileage, they might buy more of various Dow products that can make vehicles go farther on a gallon of fuel.

In the global push to curb energy consumption, Mr. Liveris noted earlier this year, “someone wins, someone loses.”

The designated loser, however, was livid. “I called my buddy at Dow and said, ‘What the — are you doing?'” recalls a Washington lobbyist for a major auto maker. Faced with the outcry from that industry, Dow backed down, and this summer withdrew its support for the controversial fuel-economy measure.

So it goes in the sector-by-sector jousting over what to do about America’s voracious energy appetite, which shows little sign of abating despite oil’s lofty price

…The auto and oil industries are at each other’s throats, with Detroit saying the oil industry should install more ethanol pumps and the oil industry saying Detroit should make cars that are more efficient. Renewable-energy producers are arguing over who qualifies for federal tax breaks
(8 November 2007)

BP CEO: In Medium-Term, ‘Era Of Cheap Energy Is Behind Us’

John Biers; Dow Jones Newswires
Pointing to “real tightness” in crude-oil supplies, BP Chief Executive Tony Hayward Thursday predicted that oil prices would remain relatively high for the foreseeable future but rejected the notion that the world has hit peak output.

“For the medium-term, it’s very clear the era of cheap energy is behind us,” Hayward said in a speech, citing political and technological factors that constrain supply growth.

…On Thursday, Hayward said he expects per-barrel oil prices to trade in the $60-$80 range for the “medium term,” but said it isn’t clear how long the “medium term” is. He rejected the idea that oil prices have shifted permanently into a higher trading range.

“Oil is a commodity and is subject to price cycles,” Hayward told reporters after the event. “Who knows where prices will be in 15-20 years?”

He also rejected the idea that the world has hit peak oil, saying the world has enough proved reserves to maintain output for 40 years.
(8 November 2007)

Act now to avoid an energy crunch

Financial Times
The unrelenting rise in inter­national oil prices, to record nominal highs on Wednesday, has thrown into relief the prospect of a looming energy crisis. The International Energy Agency’s annual energy outlook sounds the alarm, warning that without immediate steps to cut energy use and huge investment by oil producers, a supply-side crunch is a real possibility.

The biggest contributors to a surging rise in energy demand over the next two decades, says the IEA, will be China and India, the future engines of the global economy.
(7 November 2007)

This doorstopper opens our eyes to the energy crisis

Tom Stevenson, UK Telegraph
The International Energy Agency’s annual review is not for the faint of heart. Whether your principal concern is energy security, the price of oil or global warming, the 663-page World Energy Outlook doorstopper is a wake-up call.

The main point to emerge from the report is that, like it or not, we will be living in a fossil-fuel world for the foreseeable future. Oil, coal and gas will have to meet pretty much all of a massive increase in energy demand by 2030.
(8 November 2007)