Three themes are used to structure the book and these

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Unformatted text preview: 1991), which chronicles the development of the world’s oil industry. Three themes are used to structure the book and these clearly illustrate the global impact of the oil and gas industry. The first of these is that oil is a commodity intimately intertwined with national strategies, global politics and power as evidenced by its crucial role in every major war in the last century. The second is the rise and development of capitalism and modern business. According to Yergin (1991 p13): “Oil is the world’s biggest and most pervasive business, the greatest of the great industries that arose in the last decades of the nineteenth century.” A third theme in the history of oil illuminates how ours has become a “hydrocarbon society” (Yergin, 1991 p14). Oil has become the basis of the great post-war suburbanisation movement that transformed both the contemporary landscape and our modern way of life. Today, it is oil that makes possible, for example, where we live, how we live, how we commute to work and how we travel as well as being an essential component in the fertiliser on which world agriculture depends, and key material in the production of pharmaceuticals. Globally, the industry has evolved from primitive origins through two world wars, the Suez Canal crisis, the Gulf War and significant fluctuations in supply and demand, all with their subsequent impact on the oil price, to become a multi-billion pound business comprised of some of the world’s biggest and most powerful companies. It is now recognised as an essential national power, a major factor in world economies, a critical focus for war and conflict, and a decisive force in international affairs (Yergin, 1991 p779). However, the global industry is changing. Four factors in particular are contributing to the uncertainty surrounding the industry’s future. These are reviewed in this section. The following section analyses the effect of these challenges on the U.K. oil and gas industry. The impact of these recent changes on investment decision-making in the industry will then be discussed. 41 • Field size Globally many of the oil majors still generate much of their output – and profits – from giant fields discovered decades ago. For example, in 1996 it was estimated that 80% of BP’s (British Petroleum) oil and gas production was from North America and Britain, mainly from a handful of large fields in Alaska and the North Sea (The Economist, 1996). Production from nearly all these giant fields is either near its peak or is already declining. New fields are rarely as large or as profitable as these earlier large reservoirs. Worldwide since the mid-1980s, few giant oilfields have been discovered (figure 3.1) and, although, many smaller fields have been found, they have not delivered the same economies of scale (The Economist, 1996). 45 40 35 30 Billion Barrels 25 (5yr moving average) 20 15 10 5 0 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 Figure 3.1: Worldwide giant fields (initial reserves by discovery year) (source: Campbell, 1997 p52) 42 • Finite resource Whilst virtually everyone is agreed that oil is a finite resource there is...
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This document was uploaded on 03/30/2014.

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