An old industry rule-of-thumb states that when oil hits the $25- to $30-a-barrel range, the economy suffers, consumption declines and alternative energy sources begin to win favor. But today, consumers use energy much more efficiently than they did two decades ago, and the price cap has been driven upward as a result. That is according to Len H. Paton, managing director of Chase Securities Inc. Paton spoke recently at an offshore industry outlook conference in Houston. To illustrate this improved efficiency, Paton says that the daily rate of oil consumption was 16.7 million barrels in 1975. But if today's energy efficiencies were in place then, that number would have been 9 million barrels. "The new economy is far less sensitive to oil price shocks," Paton says. "The old fear of $25 to $30 oil bringing great pain is no longer a correct view." Paton didn't hazard a guess as to what oil price would inflict great pain on this new economy. While $50 to $60 oil would crush some industries such as transportation, no one knows for sure how it would affect the economy as a whole. "It's difficult to say what would happen," he says. Based on the outcome of the recent OPEC meeting, prices should remain in a $22 to $27 window, and that should help put an end to the industry's most dire problem-extreme boom-bust cycles, Paton says. "We've got to eliminate the gut-wrenching cyclicality that has plagued this industry," he says. One of the bigger victims of the industry's cycles-debt capital-will be quite expensive for the next year or two, he adds. There are fewer commercial banks that are willing to supply it because of the volatility of prices. -Jodi Wetuski
Recommended Reading
Where, When and How to Refrac—Weighing All the Options
2024-07-12 - Experts weigh in on strategic considerations when deciding how to rejuvenate production from a tired well.
E&P Highlights: July 22, 2024
2024-07-22 - Here's a roundup of the latest E&P headlines, with LLOG acquiring 41 blocks in the Gulf of Mexico and Saipem securing $500 million in contracts from Saudi Aramco.
TGS Grants Early Access to CCS Data Along Texas, Louisiana Gulf
2024-07-15 - TGS’ carbon storage dataset covers the available Texas General Land Office lease blocks and is scheduled for release in early August.
Seatrium Awards Classification to ABS for 2 Newbuild FPSOs
2024-06-14 - The two FPSOs will be deployed by Petrobras in the eastern part of the Santos Basin, 200 km offshore Rio de Janeiro.
Exxon Buys Viridien Vessel Monitoring System
2024-06-13 - Formerly known as CGG, Viridien’s Marlin vessel monitoring system will be used to support Exxon’s operations offshore Guyana.