Are High Oil & Energy Prices Here To Stay?

Jad Mouawad wrote an excellent article The Hand Turning the Spigot (free registration required) in the New York Times.

But stung by recent speculation that its fields are faltering, Saudi Arabia is also eager to prove that it will do its part to meet growing oil demand. Earlier this year, Aramco outlined a $50 billion program to increase production and refining operations, double the number of drilling rigs in the kingdom, replace declining fields, and raise capacity by 14 percent to 12.5 million barrels a day in 2009. That would be the largest expansion for the state-owned Aramco in over a quarter-century.

Even for a country that holds a quarter of the world's oil reserves, or an estimated 261 billion barrels of oil, this is a huge undertaking - like adding the entire production of Venezuela or Norway in under five years.

...

"They are now basically producing enough to meet demand, with their capacity rising slowly," Mr. Freeman said. "They are not concerned anymore with higher energy prices attracting alternative sources of energy or conservation efforts. The feeling now is that there's plenty of room for it all."

The key learning from this article is that higher oil and energy prices are likely here to stay. Of course, if true, then there will be economic consequences for many companies, industries, and countries. Politically, there will be consequences too. Oil rich countries that have dubious leadership will be blessed with abundance that will allow those regimes to remain in power longer with more influence. And oil poor nations, especially lesser developed countries, will struggle even more than they have in the past. It will be interesting to watch the world adjust this new pricing environment, especially as China and India expand their economies.