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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