BP chief Tony Hayward says lack of investment to blame for oil spike

By Graham Ruddick
Last Updated: 12:58am BST 10/06/2008
 
BP chief executive Tony Hayward has played down the prospect that the surge in oil may unwind anytime soon as the industry's lack of investment in production capacity catches up with it.

BP chief executive Tony Hayward was speaking in Kuala Lumpur
"Producers are being hampered by 25 years of low investments, because of low prices," Mr Hayward told the Asia Oil and Gas Conference in Kuala Lumpur today. "The result is a supply chain being stretched to breaking point."

Crude oil surged on Friday to a record $139.12 a barrel in New York, although it had eased off to trade at $137 early on Monday.

Fears about the ability of the oil industry to quickly tap new reserves come on top of existing forecasts that the world will exhaust its oil supplies in the next half century.

Mr Hayward added that if the industry was able to increase oil-recovery rates by 5pc from the current 35pc then it would add about 170 billion barrels, or five years of global supply.

Investment in production and exploration has been affected by taxes and governments taking an increasing share of oil and gas revenue, he said. State-run companies are demanding better terms as energy prices surge.

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

According to the BP boss, the oil industry faces the dual challenge of increasing production and climate change.

Oil prices this morning fell from Friday's record high after Saudi Arabia's oil minister Ali al-Naimi said the rapid increase in prices was "unjustified". Opec, of which Saudi Arabia is a leading member, is insisting that the oil market remains well supplied despite the surge in prices.

However, according to a forecast by Goldman Sachs, the price of crude oil could reach $150 a barrel this summer. "Prices will plateau, not collapse," Jeffrey Currie, the head of global commodities research, told the conference in Kuala Lumpur. "Demand keeps going up but supply can't keep up."