BP, Shell execs see energy crisis looming

London - While the global economic recession has led to a distinct softening in energy prices over recent months. However, the consequent fall off in investment in new projects in the oil & gas sector could lead to supply shortages and spiralling prices as soon as a recovery starts to kick in, senior BP and Shell executives warn. 

BP chief executive Tony Hayward cites oil price volatility as one of the most immediate challenges for  the energy industry. Since peaking at a record high about 10 months ago, he noted that prices had fallen by about 60% and are currently hovering around $50/bbl, amid the spread of recession across Europe, North America and parts of Asia, he noted.

However, the global economy will recover, said Hayward, citing IEA forecasts showing that primary energy demand would grow on average by about 1.5% every year to 2030, led by China, India and the Latin American countries. Oil demand is expected to grow at about 1.3% and gas demand by some 3% a year so that the world will be consuming around 40% more energy by 2030.

The energy industry will, therefore have to invest over $26 trillion between now and 2030 to meet this future demand. This demand will be met by  hydrocarbons, said the BP boss, noting that there remains 42 years of proved oil reserves left in the ground and 60 years of natural gas, as well as significant extra resources that will require new technologies to exploit.

"It is therefore important that we continue to support exploration and development of hydrocarbon resources across the world in a safe and responsible manner," said Hayward, noting that around 80% of all energy is provided by fossil fuels, which will still provide the majority share of primary energy in 2030.

The BP leader went on to call for an economy-wide carbon price to promote energy efficiency and address climate change: "Until energy producers and consumers know and pay the cost of carbon, the uncertainty associated with planning and investing in the transition to a low carbon economy will remain high.

"We need to use less energy and use it more efficiently; Introduce a cap and trade scheme, providing environmental certainty based on an absolute emissions cap."

By suppressing demand and moderating CO2 emissions, the economic downturn is currently masking the hard truths surrounding energy security, according to Roxanne Decyk, director of corporate affairs and sustainable developmente at Royal Dutch Shell plc. But, she forecasts, these issues "will return with a vengeance" when the economy recovers and demand for energy picks up.

Calling for positive government action in the areas of: access to rescources, tax regimes, CO2 policy frameworks, and more diverse and secure energy supply routes, Decyk said energy companies need the right environment to be commit to investing in new projects that bring on line extra supplies required to meet future growing demand. At present, she added, the impact of the recession is making investment difficult.

Oil demand is 3% lower than last year, while prices have dropped to 2004 levels. However costs are still double what they were then, profits are now being squeezed at a time when smaller and medium-sized players are strapped for cash due to the scarcity of credit , said the Shell executive .

Many planned investments have been postponed noting that there have been no major new investments announced in the past one or two months, added Decyk, citing a survey by Barclays¹ Capital of over 350 upstream companies, investments will fall by 12% in 2009.

"And other industry observers are already suggesting that this estimate is too optimistic," Decyk commented. "If investments were to fall dramatically, a new and severe supply crunch will be only a matter of time."

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