GLOBAL RESOURCES ANALYSIS


LIMITS | EXPLORATION


The rate of exploration is limited by exploration facilities. The call for more supply from the buying nations is not answered for the two above mentioned reasons (current income is good and more supply will not give more income, rational governmental decisions on nationalized resources), but also mainly for one extra reason: there is just not enough capacity. The clearest example for this is coal. The price of coal is going to the roof by the increasing demand (caused by both world population growth, world prosperity growth), but de demand for coal rises double by high oil prices, which had lead to phase out the oil to power and gas to power plants in favor of coal to power plants. Production capacity is the main problem. Otherwise many resources rich countries had chosen to increase production severely, because governments are globally wide known of their focus on addressing today and lack of taking care of the future facets. The production capacity doesn't match the market demand, building new production capacity is having here and now less budget for spending (no government likes that concept). Russia is peaking in 2012, they don't see the need for pull this yet earlier by increasing actual world demand (and supply the market for lower prices now and being not able to benefit of the higher prices than). Exploration limits are also caused by the market polarity change. The big five saw that the origin countries will take over the ownership of reserves (Exxon > Venezuela, Eni > Kazakhstan, Shell > Russia, etc) are therefore has invested very carefully. Some origin countries has done this bold (Venezuela) and finding themselves now globally in severe juridical dire straits, other has done that smart (Canada by special taxes, Russia and Kazakhstan by juridical very clever designed totally re-opening contract negotiations or executing contract penalties). This twilight zone in ownership of course has leaded to under investment by the Big Five Oil Majors. And the 'new' owners (origin countries) invest very slowly: they aren't in a hurry to put their last resources against lower prices by higher investments to the current or near future market, they have capital enough, but they see very clear that this unique opportunity of exploration of natural resources is a very limited event. Within 5 years China will face the same issues in Africa as Shell has faced in Russia: contract re-openings that bring the market polarity change in all the contracts China these days has closed in Africa. The demand side definitely has lost in the market game of global resources. Having natural resources is equal to having (or getting soon) the chips at the board game. The exploration limits are facts. The growing use of the production nations also. By both equal level staying exploration and by declining exploration: exports will be each year severely lower than the year before. An extra market tightening facet is that domestic demands grows in accelerating speed in all production nations, leaving severely less volume available for export due to the exploration limits.


Author: Gijs Graafland


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