BP’s Hayward Says Era of Cheap Energy Prices Is Over (Update1) 

By Nesa Subrahmaniyan and Christian Schmollinger

June 9 (Bloomberg) — BP Plc Chief Executive Officer Tony Hayward said the era of cheap energy is over as oil production isn’t rising fast enough to meet demand amid a lack of spending.

The energy industry is facing the challenges of climate change and ways of increasing supplies, Hayward said at the Asia Oil and Gas Conference in Kuala Lumpur today.

“Producers are being hampered by 25 years of low investments, because of low prices,” he said. “The result is a supply chain being stretched to breaking point.”

Exxon Mobil Corp., Royal Dutch Shell Plc, BP, Chevron Corp., Total SA and ConocoPhillips will spend a record $98.7 billion this year on exploration and production, Lehman Brothers Holdings Inc. estimates. Costs more than quadrupled since 2000 as explorers targeted more challenging reservoirs and demand rose for labor and materials.

If the industry is able to increase oil-recovery rates 5 percent above the current 35 percent, it would add about 170 billion barrels or five years’ supply to global reserves, Hayward said.

Taxes and government share of oil and gas revenue have continued to increase across the world, hampering investments by explorers and producers, he said. State-run companies are demanding better terms as energy prices surge.

“This is unsustainable and counterproductive,” Hayward said. “All it means is that we have less money to invest in new production.”

Higher Taxes

Nigerian President Umaru Yar’Adua on May 20 ordered his government to seek $1.9 billion from Shell and Exxon in revenue and taxes from two deepwater projects.

Government and oil companies have been able to cooperate in ventures successfully, Hayward said, citing the Baku-Tbilisi- Ceyhan pipeline across the three nations of Azerbaijan, Georgia and Turkey

State-run KazMunaiGaz National Co. said in January it would start sending oil across the Caspian Sea to the BP Plc-led Baku- Tbilisi-Ceyhan pipeline in 2012. The new link will carry oil from the Kashagan and Tengiz fields to Kuryk for shipment by tanker to Azerbaijan, where the BTC link to Turkey originates.

Crude oil climbed more than $10 to a record $139.12 a barrel in New York on June 6, prompting U.S. Energy Secretary Samuel Bodman to describe the market as “shocking.”

Prices have doubled in the past year.

To contact the reporters on this story: Nesa Subrahmaniyan in Kuala Lumpur at [email protected]; Christian Schmollinger in Singapore at[email protected].

Last Updated: June 9, 2008 01:32 EDT

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