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Daily Telegraph: Will oil giants be over a barrel when 'bubble' bursts?

Feb 3rd, 2006
by admin.

The seismic shock of President George W Bush's mid-week bombshell that America had to break its addiction to oil continues to send ripples across the Atlantic.
Speaking on BBC Radio 4's In Business last night, former US vice president Al Gore said too many big US corporations are living in a “bubble of unreality” by failing to look beyond the carbon economy.
Mr Gore quoted a senior Bush-supporting CEO at one of America's biggest companies saying: “Let's face it, 15 minutes after President Bush leaves office the United States will have a new policy on climate change and carbon emissions.”
The former Veep might earn a living from saying this sort of thing nowadays (he runs a consultancy that advises companies on investing in a sustainable future) but his warning carries weight.
He continued: “Many business leaders are now looking at their whole cards, as we say in America, and realising America is in a kind of bubble of unreality. As soon as the current administration leaves, and perhaps before it leaves, there will be a change and those companies that get out in front of this curve are going to be a better positioned.”
Shell is one European oil company which might reasonably be described as ahead of the curve on alternative energy. Yesterday it (fruitlessly) tried to divert attention away from more claims of profiteering by accompanying its announcement of record annual profits with a press release trumpeting its green credentials. “New developments in biofuels, wind, solar and hydrogen,” it boasted, “Shell has now invested over $1billion in alternative energies, making it one of the world's leading companies in the sector.”
Shell's investment in alternative energy amounts to little more than a week's worth of profits and represents a fraction of the $19billion that Shell will spend on capital expenditure this year. Even Shell's chief executive, Jeroen van der Veer would probably admit that oil seed or straw are never going to replace oil and gas as the world's number one energy source.
However, betting on different energies is spreading the chips at the roulette wheel. Sooner or later, Shell will produce a winner which it can add to the “energy mix” it offers to customers.
The current enthusiasm for these alternative energies (two months ago BP unveiled plans to invest $8billion in non-carbon energies over the next 10 years) makes sense with oil prices at $60 a barrel.
But what will happen when the oil price comes down? After all, the barrel price is just a product of supply and demand. History tells us that today's shortage is almost always tomorrow's glut.

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