Oil and Gas

Oil is the world’s vital source of energy and will remain so for many years to come, even under the most optimistic of assumptions about the pace of development and deployment of alternative technology.

But the industry is going through a period of adjustment.  Although demand is rising, the future sources of oil and cost of producing it are uncertain.  Price hikes in 2008 and short term price volatility have highlighted how sensitive prices are to short-term market imbalances.  Currently, the main problem is that investment is going to the wrong places.  Upstream investment has been rising rapidly in nominal terms, but mainly to cover rising costs (especially in higher-cost, non-OPEC countries) and the need to combat decline rates.  Most capital is diverted to exploration and the development of high-cost reserves, partly due to restrictions on international companies’ access to the cheapest resources.  But, at a global level, expanding production in the lowest-cost countries will be critical in meeting the world’s needs at a reasonable cost to the end-user and consumer, especially in the face of withering resources and accelerating decline rates.