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Editorial comment

Looking back, 2008 has been characterised by a year of extraordinary volatility in the price of crude oil. From crashing through the psychological barrier of US$ 100 in January, to achieving the dizzying heights of US$ 147 in July, before sliding back down to the current levels of approximately US$ 50, at the time of writing, it has been a roller coaster ride from start to finish.


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Looking back, 2008 has been characterised by a year of extraordinary volatility in the price of crude oil. From crashing through the psychological barrier of US$ 100 in January, to achieving the dizzying heights of US$ 147 in July, before sliding back down to the current levels of approximately US$ 50, at the time of writing, it has been a roller coaster ride from start to finish. Whilst the industry began the year by debating just how high the price of crude oil could possibly go, it ends in a state of no more certainty as it ponders just how far it will ultimately drop. In truth, the answer has to be, ‘who knows?’ Certainly the aftershocks of the current global financial crisis will rumble long into 2009 and until there is a definite recovery in demand, the price of crude oil will at best continue to fluctuate around present levels, though many predict further declines to a low of around US$ 40.

For the refining industry, which until a few months ago had been enjoying strong profit margins, the effects of falling fuel demand are already being keenly felt with margins now conversely going into reverse. As a result, new projects and refinery expansions have immediately been placed on hold. According to a recent Wood Mackenzie report, of the 160 refinery projects announced since 2005, a staggering 130 (80%) have now been cancelled or at best postponed. Of the remaining 30 projects that are still on track and scheduled for completion between now and 2015, the vast majority are state or national oil company sponsored and located in Asia and the Middle East. These new and sophisticated refineries will further cloud the picture for older European and US refineries, which face the prospect of production cuts and possible US closures as the balance of capacity within the refining sector moves eastwards as it follows future demand growth.

The repercussions of this significant fall in oil prices will be felt across the entire oil and gas sector in a variety ways. Certainly there will be less investment available for key research and development. This will impact unconventional plays such as ultra deepwater developments, arctic exploration and of course oil sands. Although key to oil and gas companies in building future resources, all of the aforementioned which exist at the cutting edge of technological development are only viable economically in a high oil price environment. The flipside of this is that many renewable energy solutions, such as wind and solar energy, similarly crave the oxygen of high oil prices and at present, look distinctly uneconomic. For the peak oil lobby too, the game has changed with today’s known reserves stretching considerably further into the future now that demand has weakened.

However, perhaps of most concern are the early signs that the oil and gas recruitment drive is faltering. Recent years have finally seen a concerted effort by the industry to attract young engineers back into the oil and gas sector. With a rapidly ageing workforce heading for retirement in large numbers and a desperate shortage of skilled workers, the industry cannot afford to revert to its reputation for boom and bust and hiring and firing. The global economy will recover from its current malaise and the emerging economies of countries such as India and China will continue to drive oil demand for many years to come. In China, just 20 people out of every 1000 own a car, compared to 500 in the US and European Union. This fact alone should be enough to provide the light at the end of the tunnel. The industry must continue to invest in building global oil and gas resources, in upgrading, modernising and expanding its refining sector and above all in developing, educating and nurturing its highly skilled workforce.


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