I think you’re too harsh on the shareholders who don’t want the oil companies to drill more. The problem is that drilling new oil fields is a really capital-intensive process. Even drilling infill wells in existing fields is expensive. You are talking about multi-year payback periods. The logic goes like this: we need an oil price greater than X for the next N years (exact values of X and N will vary by location, but say $90 and 5 years as a ballpark) in order to earn a return on new investment. The oil price is above X today, but there is no guarantee that it stays there and actually the futures market is signalling that it doesn’t. So hedging the output of the new wells before you start drilling isn’t a viable option. And the shareholders all remember clearly that last time there was a high oil price, the oil companies acted like that price would stay high, so they all drilled too many wells and then lost a ton of money when the oil price fell. And the shareholders didn’t get the benefits of the high oil price applied to existing production, because the oil companies spent their windfall drilling new and very expensive holes in the ground instead. So when the shareholders see a temporary spike in the oil price that could reverse in a month if there’s a ceasefire in Ukraine, I can’t really blame them for saying “let’s not make that mistake again!”
There is also some element of genuine concern for ESG and desire to prevent new sources of carbon emissions. I very much doubt that the people citing climate change concerns have done a decent cost-benefit analysis of short-term improvements in energy security vs long-term harm from global warming, but I’m also not convinced that people like you who come down in favour of energy security have done the analysis.
I think you’re too harsh on the shareholders who don’t want the oil companies to drill more. The problem is that drilling new oil fields is a really capital-intensive process. Even drilling infill wells in existing fields is expensive. You are talking about multi-year payback periods. The logic goes like this: we need an oil price greater than X for the next N years (exact values of X and N will vary by location, but say $90 and 5 years as a ballpark) in order to earn a return on new investment. The oil price is above X today, but there is no guarantee that it stays there and actually the futures market is signalling that it doesn’t. So hedging the output of the new wells before you start drilling isn’t a viable option. And the shareholders all remember clearly that last time there was a high oil price, the oil companies acted like that price would stay high, so they all drilled too many wells and then lost a ton of money when the oil price fell. And the shareholders didn’t get the benefits of the high oil price applied to existing production, because the oil companies spent their windfall drilling new and very expensive holes in the ground instead. So when the shareholders see a temporary spike in the oil price that could reverse in a month if there’s a ceasefire in Ukraine, I can’t really blame them for saying “let’s not make that mistake again!”
There is also some element of genuine concern for ESG and desire to prevent new sources of carbon emissions. I very much doubt that the people citing climate change concerns have done a decent cost-benefit analysis of short-term improvements in energy security vs long-term harm from global warming, but I’m also not convinced that people like you who come down in favour of energy security have done the analysis.