Thursday, August 20, 2009

A Ceiling on Energy Prices

In short, Edward Morse, director of economic research at LCM Commodities makes the argument that the last round of high oil prices, surprise surprise, resulted in the development of new capacity - both in Saudi Arabia and deep sea resources (FT Alphaville, emphasis theirs):

If there was an obstacle, it was not a lack of hydrocarbon reserves— deep-water resources appear to be even more abundant than was thought a decade ago—but a lack of equipment to discover and produce them. Fewer than two dozen drilling vessels (each costing $1 billion) were available in 2000. But as contracts were put in place at the time of very high oil prices, the fleet of vessels started to expand. By 2012, there should be closer to 150 such units available for finding and developing deep-water resources.
He also cites the development of the massive abundance of shale gas - though it seems even here he's understating the case. Read on here.

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