More oil worries

The trip to NYC generated some positive externalities. Being on a train for 3.5 hours with fellow Foreign Policy editors is great for idea generation and for digging interesting tidbits out of the NYT, FT, WaPo, and Economist (thanks, James). The staff’s collective mind is full of blogable thoughts.

On the way back to DC, enticed by a cover package on oil, I bought a copy of BusinessWeek. Oh my, this was a feast. Great stories on Venezuela and Russia’s Sakhalin Island. It really reported out some key points of analysis.

Reserve replacement ratios: 

Overall production at the oil majors is struggling to keep up with demand, and the reserve replacement ratio, the measurement of how well they are replenishing their supplies, is slipping. A healthy ratio should always be over 100%. But ratios for most of the six oil majors will slip below that level over the next five years, according to Sanford C. Bernstein & Co. “That’s nowhere near the rate of reserves needed to satisfy world demand,” says Robert E. Gillon, an analyst at oil research firm John S. Herold Inc. 

What are the chances of a big boost from new fields? The national oil companies are keeping reserves to themselves, which is significant because:

In theory that shouldn’t matter, as long as someone is getting the oil to market. In practice, though, the private oil companies are better than national companies at the technology and innovation that get the best results. Over the long haul, if Big Oil can’t apply its skills fully, consumers will suffer more than they expect.

In her interview with us this week, Amy Jaffe articulated another concern that BusinessWeek didn’t touch upon: The fact that in state-run firms, large investments in oil production aren’t usually politically palatable:

But the larger question is whether the state-run oil firms—such as Russia’s Rosneft, Venezuela’s PDVSA, or Saudi’s Aramco—are going to have the political climate to allow them to spend billions of dollars expanding production. It’s politically easier to just take the higher prices in the short term.