Global energy slowdown nigh in tight-credit
environment: analyst
Washington (Platts)--29Sep2008
Energy companies unable to make back costs at $60/barrel oil or $6/Mcf
natural gas will fail in an emerging environment of tight credit and slower
global growth, Oppenheimer energy analyst Fadel Gheit said Monday after the
US
Congress said it had reached a deal on the $700 billion bailout plan.
"Lower oil and gas prices and tighter credit favor companies with strong
financial flexibility, including major [oil companies] such as ExxonMobil,
Chevron and Royal Dutch Shell and larger exploration and production
companies
such as Occidental, Devon, Apache and EOG Resources," Gheit said.
"Investors may shun companies with net debt ratio above 35%, regardless
of their growth outlook."
That's because worldwide growth was inflated over the past five years by
about $1 trillion, Gheit said. "The global financial crisis revealed that
world economic growth in the last five years was boosted by low interest
rates
and easy credit, which funded risky investments and inflated corporate
profits," Gheit said.
"Although the ... bailout of the financial industry may provide a
near-term solution, it might not be sufficient to fix the problem and while
the long-term impact remains unclear, credit will likely tighten, and
economic
growth will likely slow," he said.
Even growth in China -- which has powered global growth in the past few
years -- will be slowed because of the company's dependence on exports and
high transportation costs, Gheit said.
Slowing global growth will cut into worldwide energy demand, Gheit
explained, especially for crude oil trading at a high premium to natural
gas.
"We expect oil demand to decline in developed countries and to increase
only modestly in developing countries despite large subsidies which, if
reduced, could cut demand growth further," Gheit said.
--Bill Holland,
bill_holland@platts.com
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