Stable oil prices and recovery: energy experts see a vital link
As the world economy begins to shake off the effects of recession, energy experts say stable oil prices - and dependable supplies - are vital to the recovery.
Energy specialists in government, academia, and the oil industry explain that stable oil prices would help energy consumers budget sensibly for such major investments as new steel plants - just as relatively stable European and American supermarket prices enable shoppers to buy items when needed rather than queuing up when supplies are short or hoarding in fear of future shortages or higher prices.
The key questions are how long will supplies last and how long will prices remain stable? The world's current oil ''glut'' already has lasted longer than many experts anticipated. And arriving at a formula for stabilizing oil prices has remained an elusive goal. An immediate concern is how to tranform today's oversupply into a supply-demand balance without allowing the scales to tip into a shortage, which would drive oil prices sharply upward again.
''What the world needs is some (oil-price) stability in order to create the conditions for sustained economic recovery,'' says Daniel Yergin, president of Cambridge Energy Research Associates. He forecasts that, barring unpredictable political events such as another Mideast war, a return to short supplies and escalating prices is unlikely for the next several years. But he says that due to the cyclical nature of the oil supply situation, ''the current decline in drilling activity sets the stage for constraints down the road.''
Professor Yergin adds that returning to tight supplies has become more likely because ''finding any more supergiant (oil) fields is going to be far more difficult than in the past.'' He says that depending on future world demand, ''probably the best guess now is that somewhere in the second or third decade of the next century we might see world production actually begin to decline.''
Internationally respected petroleum geologist Michel T. Halbouty sees a very different situation. He insists instead of running out of petroleum reserves, the world contains vast untapped treasures of crude oil and natural gas.
''My opinion is that we will find at least as much oil and more natural gas in the future as the world has found up to this point,'' says Mr. Halbouty, an outspoken independent oilman and energy policy adviser to the Reagan administration. He says that current commercial oil and gas production comes from only 160 of the world's 600 prospective petroleum basins. Even among the 160 basins currently being exploited, he adds, ''there is not a single basin to date that has been thoroughly evaluated.''
Drawing on his latest research findings prepared for Houston's Offshore Technology Conference this week, he says he is convinced that the oil industry has the technological ability to ''match the rate of new discoveries with the rate of world consumption.'' He says he anticipates that drilling in increasingly deep offshore waters and remote areas with new types of equipment will uncover tremendous amounts of oil and gas.
If Halbouty's forecasts are correct, this would likely put pressure on oil prices to increase. He says that pumping more oil from offshore and remote fields is bound to drive prices up because drilling in very deep water or in remote areas, and then transporting this oil and gas to market, will be expensive.
He also argues that the sudden price increases of past years were caused by unfounded fears of running out of oil. Freeing the oil industry from unnecessary government regulation and excessive taxation, he argues, would lead to increased exploration and production. He points to California's Santa Maria Basin off Santa Barbara as an example of what he terms ''the heavy price we pay any time we are deprived of exploring a potential producing area.'' Recent discoveries in this area indicate a giant oil field ''which may reach several billion barrels, protecting the United States from importing that much more oil from overseas,'' says Halbouty. ''But environmentalists held back this exploration for more than 15 years,'' he charges. He says the delays added both to the appearance of a shortage and to US spending on oil imports.
T. Don Stacy, the regional production manager for the Amoco Production Company, is equally upbeat about the oil industry's ability to match supply with world demand. He blames past energy crises not on actual oil shortages but on outside pressures interrupting the flow of oil.
Mr. Stacy, president of the Society of Petroleum Engineers, points to a range of technological breakthroughs such as new high-speed drill bits that can be precisely controlled and result in reduced drilling costs.
Heritage Foundation senior fellow S. Fred Singer, a former deputy assistant secretary of the Interior, argues that fundamental changes in energy policies are the key to solving the world's energy supply dilemma. ''Once prices are decontrolled, you cannot have shortages,'' he says. Dr. Singer contends that coal, solar power, and other energy sources gradually will gain in importance, creating ''a natural, gentle transition'' from reliance on oil and gas if government regulators withdraw from the energy business.
But a congressional aide specializing in energy issues doubts that easing what oilmen criticize as their tax and regulatory ''burdens'' would radically increase oil supplies. ''Even when oil prices tripled and quadrupled,'' he says, ''production remained relatively constant.''
''We won't run into serious supply shortage for another couple of years but supplies are going to tighten again, and prices are going to start going back up again,'' the aide says. But adds that he sees no escape from ''oil's long-term cyclical movements.''
Henry Jacoby, assistant director of MIT's Energy Lab, argues that one key obstacle to stabilizing oil prices is OPEC.
''The fact that the price is as high as it is right now (is) because the world price is being set by the OPEC cartel,'' he says.
Consumer advocate Edwin Rothschild, head of the Citizen-Labor Energy Coalition's Energy Action Project, goes a step further. He charges that major international oil companies have cooperated with OPEC producers to maintain artificially high prices. ''With a free and competitive world oil market,'' Mr. Rothschild says, instead of oil having dropped from $34 to $29 a barrel, ''we would have $10 to $15 oil today.''