Royal Dutch Shell Plc  .com Rotating Header Image Energy: The $22 trillion question

Securing supplies, the boom in Wall Street interest, and what $100 oil means for the economy are all up for discussion at upcoming energy conference.

By Steve Hargreaves, staff writer
February 8 2008: 11:12 AM EST

NEW YORK ( — How safe are our oil supplies? Where will the new supplies come from? Have high oil prices killed the economy? Are speculative investors responsible for the price runup?

These are all central – an contentious – questions in the world of oil. And they’re all up for debate as leading members of the oil and energy industry gather in Houston, Texas for Cambridge Energy Research Associates’ (CERA) annual energy conference.

Executives from ExxonMobil (XOM, Fortune 500), Chevron (CVX, Fortune 500), ConocoPhillips (COP, Fortune 500), Citigroup (C, Fortune 500) and Goldman Sachs (GS, Fortune 500), among others, will join United Nations officials, environmentalist, former Federal Reserve chairman Alan Greenspan and a host of other experts for a series of discussions beginning next week.

As the U.S. economy teeters on recession, the impact of $100 oil is being called into question.

While everyone agrees high energy prices are at least partly responsible for the slowdown, their effects are debated. Some analysts say it’s a major factor, others say it’s minimal, as the economy is much less energy-dependent than it was during previous recessions of the 1970s and 1980s.

“That’s true up to a point,” said Daniel Yergin, the Pulitzer-prize winning author of The Prize : The Epic Quest for Oil, Money & Power and CERA’s chairman. “But I think we’re passed that point. At this level, these prices are a negative.”

Yergin said Greenspan is expected to address this issue when he speaks later next week.

But if the economy falters, oil prices could collapse. Oil companies are keenly aware of this, and must balance this danger against keeping the world adequately supplied with crude when planning multi-billion dollar projects with a payback time of many decades.

It’s one factor among many – including access to new resources in a world increasingly dominated by nationalized oil companies and falling production rates in existing oil fields – that oil companies must consider as they attempt to meet the supply challenge, another topic for discussion at the conference.

$100 oil and the ‘S’ word
Investment banks and hedge funds are often blamed for pushing gasoline over $3 a gallon – attributing the high prices to speculative investing from Wall Street types.

But experts debate the actual effect of all this newfound investor interest. Some say it’s marginal, adding maybe $10 to the price of a barrel of oil and providing much-needed liquidity to oil markets. Others say it has added at least $30 or $40 to the price.

“It’s a big question for debate, and the answer is not very clear,” said Yergin.

Executives from Citigroup and Goldman Sachs are slated to speak on this surge in trading activity, and hopefully they can provide some clarity on its effect on prices.

As with any discussion on oil, geopolitics is always a factor. Perennial topics like the diplomatic row with Iran, violence in Nigeria and Russia’s increasingly authoritarian government will again come up.

But Yergin said to look for larger issues involving energy infrastructure and whether it’s adequate to meet the world’s growing demand.

The need to address this issue was made especially clear when hurricanes Rita and Katrina knocked out a significant chunk of the country’s oil and gas production in 2005, and transmission failures caused a widespread electricity blackout in the Northeast in 2003.

Yergin said the world needs to invest $22 trillion – roughly 50% more than the entire annual economic output of the U.S. – in energy alone over the next 25 years to meet its growing needs. That number, he said, provides the backdrop to this whole discussion. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

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