Editorial - October 2003
Dreams of desert rides in Libya
Possibly the most important news over the last month has been the UN's lifting of the sanctions on Libya. Potentially this opens the way for a return of the major oil companies to Libya, but for the moment this appears to be stymied by Washington's apparent determination to maintain ILSA (Iran Libya Sanctions Act) unmodified and to keep Libya on its list of states that sponsor terrorism
At present European and Asian companies with limited US interests are able to steal a march by signing exploration contracts. Recent reports suggest Total, Agip and RWE have already done so. The prize for the companies is that Libya remains relatively lightly explored, with many convinced that the Sirte Basin has great potential. This prize is made even more tantalising as the Head of State Moamer Quaddaffi has suggested that the oil sector should be privatised, while the Head of Government Choukri Ghanem is reported to be a supporter of foreign investment. The prize for Libya is the chance to reverse the steady erosion of its production capacity, which has fallen from a peak of 3.3mn b/d in 1970 to the current 1.45mn b/d. If the Bush administration is as beholden to oil interests as its critics claim, US oil companies should soon be back in Libya.
So far so good
Despite low oil stocks, lack of Iraqi exports, Nigerian shut-ins, Venezuelan shortfalls and recovering oil demand the whole system is holding together remarkably well with no obvious shortfalls in delivery and prices holding high but steady. Clearly the whole system is more flexible and more resilent than is sometimes feared. However, the nagging doubt remains as to the degree to which global economic recovery is being held back by high energy prices.
The US natural gas market also remains something of an enigma (see p35). It is clearly a system under pressure, but against the odds levels of gas in storage have been largely rebuilt so the country will start the winter heating season with only a limited shortfall.
A combination of a cool spring and a relatively cool summer, relaxation of environmental controls (allowing more coal-fired generation), closure of chemicals facilites and conservation caused by high prices means that, so far, all has lucked out. Prices are down, although still running at more than double the 1990s average. Supply has expanded with the recommissioning of the Cove Point LNG import facility - currently the largest of the country's four import terminals. Production from the Na Kika project in the Gulf of Mexico should also boost supplies later in the year. So, if the weather is kind and there are no accidents, it looks as though US customers will get the gas they want - albeit at fairly high prices - suggesting that traditional economics does work at bringing supply and demand into line.
Doing well - but why the secrecy?
Eagle-eyed readers of this publication will have noted that despite the UK's roads being choked with cars and new vehicle sales remaining very strong, the volume of fuel sold in the UK is either declining (petrol) or flat (diesel) (see p11).
The UK experience is hardly unique. Global oil demand growth is currently on a 1.5-1.8% growth trend, heavily focused in the Far East. Improving efficiency in use has brought demand growth to minimal levels in most developed economies. Minimal growth may pose challenges for the industry but it gives the lie to those who wish to characterise the industry as an environmental threat.
As this column has noted before, emissions of undesirable by-products such as carbon dioxide can only rise if volumes of fuel burnt rises. Clearly the UK's road users are now creating less CO2 as part of the well-established move to cleaner, more economical vehicles. This should be a cause for praise and rejoicing (although maybe not for those who've lost sales). Emotional dislike of other vehicles on the road should not blind us to the fact that vehicles contribute to our standard of living and usually represent the most economical way of moving people and goods. As the oil and auto industry are clearly succeeding in meeting the environmental objections, shouldn't we be rather more pleased?
Recent figures inform us that UK agriculture accounts for 74% of the land area, but creates just 2% of gross national product (GNP). It seems probable that the judicious building of some more roads would produce social, economic and environmental benefits for the vast majority of the population.
Chris Skrebowski
The opinions expressed here are entirely those of the Editor and do not necessarily reflect the view of the EI.
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