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WASHINGTON -- Despite record oil prices and strong projected demand from China and the United States, oil analysts say major oil firms are skimping on their exploration budgets and pocketing big profits while waiting out the storm of high prices, reported the Associated Press.
"If ExxonMobil says it will expand its exploration budget by 50 percent, that will be a sign they think these prices will be sustained," said Edmond Chow, a Washington oil consultant. "So far, we're not seeing that."
The surge in fuel costs has been blamed largely on a shortage of production capacity rather than a dwindling of the world's crude reserves. And that, analysts say, is the result of a sharp decline in new drilling that followed the near-collapse of the Asian economy seven years ago. In 1997, many of East Asia's currencies plummeted against the U.S. dollar and demand for crude oil dropped sharply along with energy prices, forcing petroleum producers to slash exploration budgets.
Spending on exploration among the top 10 oil companies declined to $7.5 billion in 1999 from $11.3 billion in 1998, according to Wood Mackenzie, a Scotland oil consulting firm, and has yet to return to 1998 levels.
With new drilling plans put on hold, there was little petroleum capacity left to meet the needs of China's economic expansion, which has kicked into high gear in the last 18 months, and this year's recovery of the American economy.
"Growth in China and the United States caught" oil companies "by surprise," said Robert Ebel, who heads the Energy and National Security Program at Washington's Center for Strategic and International Studies. "Projects that should have begun in the late 1990s didn't happen, and as a result we're missing the capacity that would have been coming online now."
While exploration budgets have recovered somewhat since 1998, analysts say the increase may not be enough to match projected demand, particularly given how the next generation of oil development will take place in largely untapped but politically volatile regions like Venezuela and Nigeria, where instability in the last year has led to costly supply disruptions.
In related news, Phoenix-based Arizona Clean Fuels LLC is in the process of securing two dozen government permits for a $2.5 billion project to open what could be the first U.S. oil refinery built in almost three decades at Yuma County near Wellton, Ariz.