Amid Slump, Energy Firms Eye Future Warily The global recession has made the outlook for the oil and gas industry grim. Demand and prices are low, and some oil-rich countries are postponing drilling projects. The political landscape in Washington, which was friendly to the oil industry under the previous administration, has changed.
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Amid Slump, Energy Firms Eye Future Warily

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Amid Slump, Energy Firms Eye Future Warily

Amid Slump, Energy Firms Eye Future Warily

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MICHELE NORRIS, host:

Call it group therapy. Some of the most powerful oil executives in the world are meeting in Houston this week and looking to better days ahead. Demand for crude and, subsequently, the price of oil have plummeted - now below $36 a barrel today.

But as NPR's John Burnett reports, there's a resolute belief that what goes down must come up again.

JOHN BURNETT: The crowd inside a swanky Houston hotel exuded affluence in dark, well cut suits and munching chilled shrimp, but the topic of the day was gloom and doom.

Saudi Arabia's energy minister Ali al-Naimi summed it up. He said that a year ago, the price of oil and other commodities seemed unstoppable.

Mr. ALI al-NAIMI (Oil Minister, Saudi Arabia): Today, as we ponder the horrific consequences of the terrible swiftness and scope of the collapse, we know now that what we saw then was not unstoppable, but rather unsustainable.

BURNETT: A year ago, the talk here was all about how to find and produce ever more oil and gas for the seemingly insatiable global appetite. Today, there is so much excess crude on the world market that it's being stored in supertankers, like floating tank farms, waiting for prices to rebound.

So, you might ask with gasoline under $2 a gallon in many places, what's the problem? Well, oil execs want the world to know that consumers may be happy, but oil this cheap will not, over the long-term, pay for the expensive development projects necessary to produce adequate oil and gas for future demand.

Daniel Yergin is chairman of Cambridge Energy Research Associates, the industry-forecasting service that puts on this annual get-together.

Mr. DANIEL YERGIN (Chairman, Cambridge Energy Research Associates): The decisions that are made today are the ones that are really going to determine what our oil supply picture looks like in five or six or seven years.

BURNETT: When oil hit $145 a barrel last summer, drilling and production costs had skyrocketed alongside of it. Now that the price has dropped below $40 a barrel, production costs have not come down accordingly.

Tony Hayward is CEO of B.P.

Mr. TONY HAYWARD (CEO, B.P.): The challenge for all of us is not to allow this cyclical fall pitch us into a structural loss in capacity.

BURNETT: In oil-speak, that means that companies should not let the oil price plunge put too many of their important projects on hold because - says Hayward.

Mr. HAYWARD: Energy demand is increasing, and despite the rapid growth of alternatives and renewables, fossil fuels will continue to play a major role in future energy mix.

BURNETT: Many of the world's major oil companies, like B.P. and Exxon Mobil, have said they're going ahead with their capital spending despite the recession. But The Wall Street Journal reported yesterday that OPEC members are postponing 35 oil-drilling projects.

Now, the concern is that the world is projected to need 40 percent more energy in 2030 than it uses today. When the economy recovers and demand surges again, if there's not enough capacity, then oil prices will spike again.

The landscape of the oil business has also changed politically. For eight years, the administration in Washington was friendly to fossil fuels, but the winds of national energy policy are shifting dramatically.

Last week, the Obama administration cancelled oil-drilling leases on 130,000 acres of protected areas in Utah. And yesterday, it put off plans to open new coastal areas to offshore drilling.

Nariman Behravesh is chief economist at IHS Global Insight.

Do you think people at this conference this week feel a little bit out in the cold now?

Doctor NARIMAN BEHRAVESH (Chief Economist, IHS Global Insight): To some extent, they do because the emphasis is so much on what the administration is saying on the non-conventional renewables, solar, you know, wind power and so on.

BURNETT: Behravesh continued, there's a sense in today's oil industry that the gravy train has ended.

John Burnett, NPR News, Houston.

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