THE CARBON WAR

We want to play our part 153
trading their pipelines for money. “At some point they all get desperate enough,”
one fund manager tells Bloomberg.
Global layoffs in the oil and gas industry have passed 100,000. The US
shale regions are hit the worst, but the pain is global. Oil boom towns are
beginning to turn into ghost towns.
“Oil collapse could trigger billions in bank losses,” the Telegraph worries.
The surge in junk loans to the industry in recent years is coming home to
roost, it seems.
Where will the oil price go next? This has now become a very critical
question. Lower still, say some analysts. Right back up again, say others. BP
boss Bob Dudley goes to Davos and tells the world to expect low oil prices
for up to 3 years. The IEA forecasts $60 oil for another two years. “The price
correction will cause the North American supply ‘party’ to mark a pause,” the
agency says. “It will not bring it to an end.”
Bullish as ever. Let us see.
OPEC Secretary-General Abdallah Salem el-Badri has a very different
view to those of BP and the IEA. He suggests the oil price will soar to $200,
without giving a timeframe, as investment shrivels. My collaborator Mark
Lewis argues in the Financial Times that when the rig count translates into oil
output reduction – after a lag because of a backlog of completed wells yet to
be produced – the oil price will rise in the second half of 2015. That sounds
like the best guess to me.
I have fun in Singapore asking the progressive-company executives to
imagine they are running oil and gas companies. Discoveries of new oil and
gas reserves dropped to a 20-year low in 2014, I say, the fourth consecutive year
of falling discoveries, with no discoveries of giant fields. Knowing this, and all
the other setbacks accruing for the oil and industry, it is tempting to sense a
whiff of incipient panic in decisions they are taking now. Exxon says US shale
will drive its growth in the future: it will double production in the next three
years, creating cash for overseas projects even at $55 a barrel, because of the
gains it has made in the efficiency of fracking operations.
Really? Warren Buffett wouldn’t seem to agree. The legendary investor
sold all his ExxonMobil shares in the last quarter of 2014. He also dropped
ConocoPhillips.
Shell, having written off billions of dollars in failed shale investments,
opts for focus on the Arctic. Despite $15 billion of capex cuts in the next 3
years over the rest of its operations, CEO Ben van Beurden announces plans
to resume drilling in the icy north. It is important “not to overreact,” he tells