Your SPE: Global Economic Crisis - Challenges for Industry and for SPE
- Leo Roodhart (2009 SPE President)
- Document ID
- Society of Petroleum Engineers
- Journal of Petroleum Technology
- Publication Date
- February 2009
- Document Type
- Journal Paper
- 14 - 16
- 2009. Copyright is retained by the author. This document is distributed by SPE with the permission of the author. Contact the author for permission to use material from this document.
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- 32 since 2007
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In my columns up to now, I have completely ignored the fact that the world is in an economic crisis at the moment. This is not because I travel around so much that I don’t realize there is something going on. The simplest reason is that my column has to be completed more than 2 months before you read it because of publishing deadlines. The second reason is that SPE is a professional society that offers a forum for like-minded individuals in which an exchange of technical ideas and information can take place. In different words, we are not a lobbying organization and we do not do politics.
However, we are, as a society, part of the greater world and any crises, such as the current one, will affect SPE’s operations. During the 50+ years of our existence, SPE has survived crises of all kinds, so I do not worry too much. SPE is financially very robust, with a good reserve fund built up during the last decade of growth and good support from members and organizations. However, everything SPE does is around oil and gas and that means that anything that affects oil prices will affect SPE.
So, what’s going on? The oil market is inherently volatile; it has made a fool out of forecasters many times over the last decades, and it will make a fool out of me if I would even try to predict what will happen in 2009. On the one hand, we are made to believe that the current economic recession will end the growth in oil/energy use, which means that even if the supply growth slows, the extra production will not be needed and oil prices go down. Against that short-term view, there are a number of thinkers from our own industry, who I will cite here, who argue that our industry requires a long-term view. Analysis from sources such as Simmons & Company Intl., Douglas-Westwood, and the Paris-based energy think tank International Energy Agency (IEA) can be found on their web sites.
What they are saying is that, at the moment, many of the world’s economies are still robust. The economies of India, China, and the Middle East are still growing, and China has a USD 1.9 trillion cash war chest. Of course, the financial crisis could spread into a serious economic downturn (and since this column is printed months after I write it, you will know), but oil demand should still grow in the longer term. In the short-term, new oil supply additions will get delayed because of the credit crisis. Mega energy projects may get delayed or cancelled, so supply will fall. But a recession will mean that demand for oil uses will decline, too. According to the Financial Times, the floor under the oil price is set by the level at which significant volumes of production become uneconomic, which the 21 December 2008 Financial Times says is around USD 30 to 40. However, if the industry slows down and production costs decline, that level will go even lower.
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