Joe Penney / Courtesy Reuters A fuel pump is seen at a filling station in Bamako, January 9, 2015.

Cheap Oil Won't Kill Exploration

How Companies and Countries Can Make the Most of Low Prices

For the second time in a decade, oil prices have taken a major tumble. If energy stays relatively cheap for a few years, a massive redrawing of the economic and political landscape could follow.

Some of the consequences are easy to predict—because they happen every time oil prices drop. China, India, the United States, and other oil importers will gain because falling energy costs will free up money for growth in other sectors. As in the past, it is also likely that major oil-exporting countries—Russia and the countries of the Middle East and Latin America—will face pressure to adopt massive energy sector reforms to attract new, taxable investment.

Cheaper oil could also redraw the geoeconomic landscape in subtler ways. Of course, low oil prices could force some oil and gas producers to stop drilling, since some fields will no longer be economically viable. It could also reduce the capital budgets of the biggest oil firms, whose cash balances are already strained in today’s environment. But the price slump may also create a sizable opportunity for new oil exploration projects, such as deep-water oil and gas fields, which have long lead times (five to eight years) and do not rely solely on today’s oil prices—provided these projects attract funding for critical infrastructure, such as new pipelines. Already, these projects have shown surprising resilience as the excess supply of drilling rigs drives down exploration and development costs.

Winners in this new cheap-oil world will be the firms that have cash to spend and governments that are good at attracting scarce new investments. The result could be a shift in oil exploration—the drilling of new wells in new fields—away from the traditional basins to underexplored places, such as East Africa and even Iraq. If well managed and the economics look favorable to investors, the next several years could see a diversification of world oil supply—a good thing for all big energy consumers since oil security

Loading, please wait...

Browse Related Articles on {{search_model.selectedTerm.name}}

{{indexVM.results.hits.total | number}} Articles Found

  • {{bucket.key_as_string}}