Your automated reply to why there's no oil exploration

When oil prices are low, companies have less retained earnings to plow into longterm capital projects. Furthermore, getting credit for such projects is hard right now--interest rates are really high.

Or these companies could realize what the International Energy Association recently admitted, the world oil reserves are vastly inflated and that all oil fields will soon be realizing far deeper production cuts than previously estimated. Check this recent report out.

http://www.monbiot.com/archives/2008/12/15/at-last-a-date/

Basically the uncertainty of prices went way up which means that rather than higher prices contributing to producer rent or low prices contributing to consumer surplus it is instead being allocated into a risk premium by both consumers and producers.

Dan,

You've probably seen Kevin Drum's reply on this. I work as an economist in the oil and gas sector, and we're not just makin' stuff up to screw the masses.

The easy stuff around the world is all gone. Getting the rest of it out is technically challenging and expensive, and does require very long lead times - to design, construct and finance.

The countries which own the resources are shrewd negotiators, and there's lots of competition - so rates of return get bid down to just above our cost of capital.

When you get an upward price shock (which no-one associated with the industry predicted, at least not in the short space of time it happened) you get a brief period when the oil and gas companies see profits spike upwards. Then you get the supply chain responding, so our costs go up and governments start getting their share of the cut. Finally, you get demand destruction, a price fall, but costs and taxes stay high - so you get a balancing loss period.

You also have (as RWB at #1 mentioned) a spike in our cost of capital - all around the world, people ar running from risky investments, and debt got a lot more expensive to issue. So we have a triple whammy - our price per widget has fallen by two thirds, our costs are high, and we can't borrow. So we do what everyone else is doing - pull in our horns and hunker down.

This isn't a plea for sympathy - I'd much rather be working for us than the Big 3 or the airlines right now - but people working here are behaving economically rationally.

To Anthony's point at #2, I've worked on "Peak Oil" related stuff for over 15 years. Fundamentally, there's a difference of opinion in the industry between a camp I'll call the Geologists (we're not finding any more of the big fields) and one I'll call Technical/Economic Fundamentalists (we're getting better at getting the stuff we've already found out, plus the main problem is government restrictions). Again, this is an honest debate, not an attempt to suppress unpalatable truths (a la Big Tobacco).

I personally side with the Geologists, but picking the point in time when this really bites is as hard as picking the peak of any bubble.

Right now there's just a huge glut of oil, companies are actually using their cash now to rent super-tankers to store the stuff. While your first point is true to some extent, there's been a massive cut in exploration as the price has cratered. It also hits the alt energy sector, which is only being held up by the prospect of government subsidies under Obama.

http://www.ft.com/cms/s/0/d638d9fc-caf7-11dd-87d7-000077b07658.html?nclick_check=1

And the real driver behind a possible future rise in oil prices actually isn't this investment/lack of investment due to the business cycle; rather it's in big oil-producing countries like Russia and Venezuela (and Mexico to an extent) where they've squeezed out the oil companies and unless something is done in a dramatic way, these countries are set to have their production fall sharply in the future.

The obvious explanation is that they don't explore when prices are too high or too low, but only when prices are just right.

Sort of...

Yes, there is a "Too High" and a "Too Low" but if stability returns to the market at a price in between those two extremes then the oil companies will return to investing in long term projects...if the credit issues get sorted out.

Like electrical generators in California learned, it becomes more profitable not to produce than produce and make up the difference in prices. It works, but makes for a bumpy ride.

Anthony, the Monbiot piece you cite is prpaganda. I have deconstructed the lie:

Fatih Birol, the lead author of the new energy outlook:

"In terms of the global picture, assuming that OPEC will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is of course not good news from a global oil supply point of view."

Monbiot: "Around 2020. That casts the issue in quite a different light. Mr Birol’s date, if correct, gives us about 11 years to prepare."

~~~
This is the deception that forms the basis of Monbiot's alarmist claims. He bases the crisis on a plateau of conventional oil production. The problem for Monbiot's claim is that non-conventional oil, which includes even offshore production, is produced at an average cost of well under current spot oil prices. An adjustment to the era of mostly non-convential oil production can still be a cheaper price. Where's the problem? "Prepare" for WHAT exactly? Can't we survive if oil costs $35/barrel?

Big companies today were affected by global recession, when your business is at risk take action to consolidate and grow your business. In any aspects in life people of different situations were affected by global recession. This might be the worst nightmare that we are facing today. A payday loans are perfect for instances when you immediately need funds for unexpected expenses. A payday loan, or short term loan, or cash advance loan, is a loan that you take out and pay back in a couple of weeks or whenever you get your next paycheck along with a nominal fee. There isn't any residual interest that you have to pay down for years, like a credit card or bank loan, and the application is incredibly easy. You could be done with the application and have your payday loan within a couple hours if you apply online or over the phone. Read more about a payday loan on the Money Blog.