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Crude Economics
Cheap Oil Imperils the Next Energy Breakthrough

Crude prices have mounted a recovery recently after fighting in Nigeria has helped to ease the global oversupply, but this tepid rebound is too little, too late to save the research budgets of the world’s biggest oil companies. The FT reports:

BP made the biggest cuts, reporting a 41 per cent drop in its research and development spending for 2013-15, in part because of its decision to stop work on advanced cellulosic ethanol.

The other large western oil groups have mostly made cuts of 15-20 per cent, company reports show, with the exceptions of ExxonMobil of the US and Eni of Italy, which have cut by just 3 and 2 per cent respectively.

The fall in R&D budgets prompted warnings that the companies were undermining their ability to develop more challenging oil and gas resources, or to invest in alternatives to fossil fuels.

We wrote last week about the lasting medium-term effects coming our way over the next decade as a result of oil and gas companies slashing their exploration budgets, but cuts to research and development spending pose similar—and in some ways longer lasting—challenges to our future energy security.

This may come as a shock to clueless greens, but oil and gas companies understand that the hydrocarbons they’re drilling for aren’t inexhaustible. These firms are all keeping an eye on what comes next—whether that be technologies like fracking that provide new access to reserves previously thought to be out of reach, or whether that’s making some non-fossil fuel energy source commercially scalable and profitable without government subsidization.

So while cheap oil is generally good for consumers and the global economy, this period of sustained bargain prices is threatening that next wave of energy breakthroughs, and that’s a shame.

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  • rheddles

    Yeah, it sure is a damn shame oil can’t remain under the control of a bunch of arab princes who pay to have our airplanes flown into our buildings. We’d be much better off if millions could be left in poverty through high oil prices so we could make a hypothetical wave of energy breakthroughs.

  • Frank Natoli

    So while cheap oil is generally good for consumers and the global economy, this period of sustained bargain prices is threatening that next wave of energy breakthroughs, and that’s a shame.
    ONLY in the matter of carbon fuels would anyone say the above with a straight face.
    Imagine someone saying that computers becoming more powerful AND cheaper was a “shame”.
    Or that a flat screen TV, a 60″ plasma that cost $10,000 ten years ago, replaced by an LED today for $1,500, was a “shame”.
    The author would be laughed out the building onto the street.
    Let me suggest a real “shame”:
    British Petroleum, BP, found itself in accord with the author, started calling itself “Beyond Petroleum”, spending millions of pounds on fuels other than petroleum, while short changing safety on the Gulf of Mexico rigs it was drilling, resulting in the blow-out that gave the Obama Administration justification to shut down Gulf drilling and endlessly thumb its nose at federal judges ordering it to continue lease processing.
    That was shame. It was also a shame that the BP CEO didn’t go to prison.

  • Jacksonian_Libertarian

    By far the best return on research capital has been in fracking. I’m thinking the market should determine what research should be funded, not governments, bureaucrats, environmentalists, or journalists. By this criteria, research cuts aren’t bad like the author suggests, but rather a good efficient thing to do. This money is just being wasted on foolish pie in the sky dreams, which do nothing to serve the consumer or help the bottom line.

  • Proud Skeptic

    The way I see it is that God has had enough with us running up these dead ends and just like with the great flood, he is wiping out solar, wind, etc. to make room for something with more promise. LOL!

  • Andrew Allison

    Cliff notes version: The decline in oil prices has made unicorn hunting uneconomic!

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