It's big energy money week! Get your annual financial thrills as the big international oil companies - Shell, BP, ExxonMobil and the rest - publish their quarterly financial reports results this week, all at once!
And if you like a gory financial thriller, they promise to be quite a good read, because profits are tanking. Take Shell, for example. When your quarterly profits fall by 70% in one year, you know something's gone a bit wrong. ExxonMobil's are down by 66%. BP's profits have more than halved. The global economic downturn is kicking in.
What a shame, you might think. (You might not actually care too much, but spare a thought for the thousands of staff who are going to lose their jobs as a result.)
But what the hell is going on? Isn't big oil supposed to be the infallible money making machine, crushing human rights concerns, environmental degradation and all opposition before it? Well, as far as I understand it, it boils down to this: People don't want enough of the product. Oil is the hard liquor of global finance, and with the economy hungover and whimpering in the corner, the last thing it wants is more of the sauce.
We reckon this isn't just a short-term thing - although the price of oil will doubtless go up and down in the future, we reckon that major energy companies are consistently overestimating fuure oil demand. If you read the Shifting Sands report, it shows that both the International Energy Agency and the Association of Oil Producing Countries - neither of which could be described as screaming green radicals - have recently produced reports where they've seriously revised down long term forecasts for oil demand. The main dynamic they suggest is that high oil prices constrain growth, so oil demand is also constrained.
The reason that we think this dynamic will have a lasting effect, rather than being corrected by the market as oil prices fall, is that it looks like high oil prices are leading to more substantial and structural change. High oil prices force consumers to use oil more efficiently, and (possibly also with the climate at the back of their minds) encourage governments to implement energy efficiency standards more rigorously. Because oil is mainly used to power vehicles, this is particularly good news for getting more efficient vehicles into play - both the US and China are now implementing vehicle efficiency standards because of high oil prices.
This drives investment into things like plug-in hybrid cars, electric vehicles, and other less oily ways of getting around, and that's the kind of wider structural change which is massively bad news for companies like Shell, who bet their business plans on the assumption that people will always want more and more oil at ever-increasing prices. Investing in expensive oil production methods like tar sands and deep water production in the arctic only makes sense in that scenario. If the scenario doesn't pan out, you're left scrambling as OPEC can satisfy lower demand for oil much more cheaply.
Bad news for big oil. Good news for the planet. Isn't it odd how those two always seem to go together?
Hear GP campaigner Lorne talking about this very issue on the rather inappropriately named ‘Wake up to Money' this morning. (At 14mins 18 seconds)
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