BBC News
watch One-Minute World News
Last Updated: Wednesday, 15 February 2006, 00:33 GMT
Why oil will hit $100 a barrel
By Nils Blythe
BBC News business correspondent

Cairn Energy worker
Cairn Energy believes that South Asia holds great promise for finding oil

The era of easy oil is over, but growing demand from countries like India and China is forcing oil firms to enter unusual territory.

Mike Watts is a man of deep convictions. For years he was convinced that there was oil in large quantities deep beneath the sand of the Rajasthan deserts in Western India.

Few other people in the industry agreed with him.

Mike's company - Cairn Energy - was in partnership with the Anglo-Dutch giant Shell to explore the area.

Eventually, after some discouraging early forays, Cairn paid Shell 7m to buy Shell out of the project.

Then, just over two years ago, it struck oil in a big way.

The find was big enough to propel Cairn from a small exploration business to a company with a value of nearly 3bn.

No big finds anymore

Enough to make a difference in an impoverished region of India. But not enough to alter the balance of supply and demand in the world.

"The easy oil has already been found," explains Mike Watts on a sandy hilltop overlooking the Mangala discovery well which made his company's fortune. Oil companies are having to look much harder for major new oil finds.

And while some new finds are being made, like Cairn's in Rajasthan, few people in the oil industry believe that new discoveries will match the vast oil fields found in the 20th century.

And demand for oil is likely to go on rising.

Energy audit

To see why, travel a few miles from Cairn Energy's Mangala well-head and visit the local school.

Woman with two children in Rajastan
As India's economy is growing, energy demand will rise

It's the only stone building in the vicinity. The children walk here from simple huts surrounded by thorn hedges in the desert.

There is no electricity at the school or anywhere else. Local transport is provided by camels pulling carts.

And water is drawn from wells by hand.

Conduct a simple "energy audit" and you discover that the children use almost no energy. They were hazy about what a fridge was used for and few of them had ever travelled in a car.

But, with India's economy growing fast, these children and hundreds of millions like them are likely to become much heavier energy users as adults.

"If we are to rid ourselves of the scourge of poverty, demand for energy will at least double in the next 20 years," says India's former Energy Minister Mani Shankar Aiyar.

'Unsustainable'

And Mr Aiyar's view is broadly in line with the latest projections from the International Energy Agency (IEA).

Bill Gammell, Cairn Energy chief executive
Bill Gammell says the era of cheap oil is over
It forecasts that the world's total energy requirements will rise by half in the next 25 years.

The IEA candidly admits that such an increase would be "unsustainable" for the world's environment. It argues that in future much greater use will have to be made of non-fossil fuels.

And energy will have to be consumed much more efficiently.

But at present global demand for energy in general - and oil in particular - is rising inexorably. With supply struggling to keep pace with demand, oil prices are likely to remain high for years to come, according to leading figures in the industry.

'$100-a-barrel oil'

Sir Bill Gammell is the chief executive of Cairn Energy. He's a former Scottish rugby international who went to school with Tony Blair and knew George Bush when he was just a young Texas oil man with a famous father.

I think we might see $100 oil in the next five years
Sir Bill Gammell, Cairn Energy

Sir Bill's company was exploring for oil through the lean years of the 90s when the price of a barrel of crude was hovering around $20 a barrel.

Today the price is close to $60, and Sir Bill thinks it may go higher because supplies can barely keep pace with demand.

"I think we might see $100 oil in the next five years" says Sir Bill. "We won't see $20 again."

Next stop: Nepal

A similar view - from a rather different perspective - is expressed by India's former Energy Minister Mani Shankar Aiyar.

"As Mahatma Gandhi said - nature has given enough to meet man's need but not enough to meet man's greed. So unless the West curbs its greed we will stay in an era of high prices," says Mr Aiyar.

Meanwhile the hunt for new oil goes on.

Mike Watts, the exploration director of Cairn Energy has earned the nickname "sniffer" for his ability to find black gold.

He's now convinced that he will find worthwhile amounts of oil in the unlikely surroundings of Nepal.



RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites



FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

PRODUCTS & SERVICES

Americas Africa Europe Middle East South Asia Asia Pacific