Not so long ago the EU’s biggest oil-producing companies - also known as the Big Oil companies – reported about their income for Q2 2011, simultaneously revealing a decline in oil production.
According to the experts of The Wall Street Journal and , the situation becomes disturbing for those who invest in the oil “blue chips” despite the companies’ growing income as the volume of oil production is being gradually reduced. Unfortunately, it is not an accident, it is a steady trend.
Why does the EU’s volume of domestic oil production decline every year?
According to the West European Association of Traders and Investors under , the report provided by the Big Oil companies reveals a rather negative picture:
1. British Petroleum PLC (UK) has reduced its production volume by 11% as it is still affected by last year’s disastrous oil spill in the Gulf of Mexico.
2. Eni (Italy). The company’s production volume has already declined by 15% due to the continuous civil war in Libya. Before the war it was the company’s major supplier, thus satisfying 2% of the global demand for crude oil.
3. Repsol YPF (Spain ). There has been a 17% decline in its production capacity so far. The reasons are last year’s spill in the Gulf of Mexico, civil war in Libya and strikes in Argentina.
4. Statoil (Norway) - a 16% decline.
5. Total (France) - a2% decline.
Oil shortage issue: the Big Oil companies’ efforts to solve the problem
According to the experts of , in order to stay among the frontrunners in the global market of crude oil, the mentioned companies see 3 major ways to solve the burning problem:
1. The search and development of new oil deposits. BG Group (UK) is the only European oil company that managed to show a production increase in Q1 2011 at the expense of a new oil deposit.
2. The development of hard-to-reach deposits, which are riskier and costlier but more promising.
3. Innovation technologies, which are rather costly as well. That is why in the future only the real giants of the industry will survive.
The distribution of “power”:
One of the main problems of European oil companies is that they are tied to certain territories, while their deposits are being gradually exhausted. That is why it is essential to start developing new territories, which raises another question: what territories are still “vacant”?
1. Canada. The country has rich oil reserves but the US oil companies already share them with the local Canadian companies.
2. Venezuella. It can boast its immense oil reserves but Hugo Chavez keeps the oil industry closed for foreign companies.
3. Sudan. Its oil reserves are huge as well but are already divided between Chinese and American companies.
4. The Arctic Ocean. The offshore drilling in the Arctic Ocean is promising but very risky. There are risks of big-scale ice shifts and disasters caused by oil spills.
5. Russia. It is a very promising country for the Big Oil companies, especially as most Russian oil companies keep increasing their production of oil. But obviously the EU companies will face numerous difficulties there, mostly due to the local peculiarities of business and big-scale local rivals.
As we can see, the list of alternatives is rather short. The rules of the game are being changed, thus forcing European companies to survive and making changes to the global oil industry.
Oil market perspectives
According to the Department of Market Sentiment Analysis of , the price of the crude oil futures (CL) is moving within a mid-term upward sloping channel. For the last 3 months it has been retracing against the major uptrend. The market reaction to the lower border of the sloping channel will clarify the future scenario. If the price breaks and consolidates below the lower border, it will probably continue declining down to the area of $86.4 - $86/b. If the price rebounds from the lower border it may continue the flattish movement.
Market Leader and would appreciate it if you could participate in a survey. Please, visit the Academy’s forum and answer the question given below:
If EU oil companies are out of the running who will replace them?
· US corporations
· Chinese oil holdings
· Russian oil companies
· Your own opinion
