Oil company executives locked inside “boom or bust thinking” are showing little interest in projects that would meet profit goals only when oil prices are high – in fact, they’ve been running their businesses as if prices will sink, The Washington Post recently reported.

If this is so, fuel and natural gas will not keep pace with demand, world energy officials worry.

The International Energy Agency thinks oil companies need to invest about $200 billion a year to keep up with demand, but are falling 15 percent to 17 percent short of that.

John S. Herold Inc. of Norwalk, CT, said, “Cash is now pouring in, but so far reinvestment has not risen at nearly the pace witnessed in prior oil and gas bull markets,” according to a recent Herold report.

Herold estimates that the five largest oil companies – BP PLC, Total SA, Chevron Texaco Corp., Exxon Mobil Corp. and Royal Dutch/Shell Group – will spend nearly $65 billion on capital costs this year. That would be the lowest spending as a percentage of cash flow – 54 percent – in the past four years that Herold analyzed.

Affect on refinery operations
As a result, refinery operations have not increased significantly in the past two decades, and fewer rigs are drilling for oil, compared with the early 1980s, when there was a flurry of activity, analysts said.

Many large oil companies are returning money earned from high oil prices to investors in dividend payments and are buying back stock. Some also are paying down debt. Wall Street has been rewarding the companies’ behavior, and stock analysts have applauded the companies’ approach.

Some analysts expect capital spending to increase slightly next year.

While providing spare capacity to pump more oil from the ground would help drive down oil prices – and possibly avert worldwide economic problems – it could be perilous for oil companies.

National and international companies are worried that prices could fall substantially and make their investments less profitable, analysts said. That was the experience in previous years, when oil producers expanded during booms only to be surprised by lower-than-expected demand that followed.

Investing in new capacity would not bring down today’s oil prices. Projects can take five to 10 years before they are completed.

At an oil industry conference in Vienna in September, sponsored by the Organization of Petroleum Exporting Countries, Exxon's chief executive, Lee R. Raymond, called on countries that limit foreign investment to open their doors to international oil companies.

“The future need for petroleum energy will be such that restrictions, in whatever form and wherever imposed, will jeopardize the provision of adequate energy supplies to world consumers,” Raymond told an audience that included oil ministers and other company executives.