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Oil & Money shows industry between a rock and a hard place

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Contributed by: DeoBhagan: Wednesday, October 09 2013 @ 12:00 AM AST

On October 4, Morgan Stanley Research Europe reported as follows:

This week we attended the Oil & Money conference in London, where a large number of company CEOs, energy ministers and industry experts presented. Below we focus on two presentations given by Shell CEO Peter Voser and Total CEO Christophe de Margerie. Combined, they highlight the ‘stress’ within the current energy system: capex must go up to meet future energy demand, but capex cannot go up because the industry already invests nearly all its cash flow and returns have become unattractive.

The first part of the statement above was argued for by Peter Voser, who made a strong call for the necessity of high and growing investments in energy infrastructure. A combination of population growth and rising average incomes, particularly in a number of developing countries, means that energy demand will continue to grow strongly over coming decades. At the same time, the industry is fighting against high decline of existing oil & gas fields. If the industry does not maintain high levels of investment, risk of a supply shortfall will increase, he argued, leading to large price volatility.

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