International

Sept. 2002 Vol. 223 No. 9  International

Kurt S. Abraham,  Managing/International Editor

Upstream activity remains disconnected from prices. When our readers and industry friends ask us where E&P activity levels are headed, we try to give them a short-term forecast based on supply-and-demand levels, and oil and gas price trends. Sometimes, we factor in overriding political issues or major news stories that rule the day.

Occasionally, we run into periods where there are no good reasons for activity to be up or down. Right now is one of those strange periods. When was the last time that West Texas Intermediate and natural gas spot prices in the U.S. stayed consistently at or above $25/bbl and $3/Mcf, yet most E&P stats remained in the doldrums? Ah, you can’t answer that one, can you good reader, because these are not normal, reasonable times. What is underway at present is a distinct "disconnect" between price levels and industry behavior.

Consider some recent numbers. Canadian and U.S. rig counts usually decline from January levels to lows in the spring (most often April) and then climb gradually for the balance of the year, sometimes with dips around the end-of-year holidays. However, these patterns are not holding in 2002. As of mid-August, U.S. average monthly rigs working were only 851 (stalled at July’s average), still struggling to overtake January’s 867. Canada’s monthly average not only had not come close to January’s level, it was slipping (225 for first-half August) from July’s figure (266).

Also at mid-August, U.S. rigs were 32% under the year-earlier figure, and Canadian units were down 31%. Even "international" drilling outside the U.S. and Canada is wavering. In 2000, that monthly average rose to 662 in July from 560. Last year, the figure rose to 748 from 717 in the same period. Not so in 2002, where there was a net decline to 705 from 744, and international rigs threatened to slip below 700 for the first time since July 2000.

Since mid-March 2002 and as of mid-August, WTI spot price has been at or above $25/bbl for 89% of the time, and not below $26 since June 24. Similarly, natural gas spot price at Henry Hub stayed at or above $3/Mcf. It should be noted that as this column was finished, the most immediate week’s numbers dipped to as low as $2.75.

Nevertheless, given good prices and the need to drill to maintain long-term U.S. and Canadian output levels, activity should have gained a better pace by now. So what is deterring oil companies from reasonable spending levels? The word this editor hears most often from people at oil companies, service / supply firms and drilling contractors is "fear." Fear of a double-digit, U.S. recession; fear of capital shrinkage due to stock market declines; fear of another warm winter; fear of fall-out from the notorious U.S. accounting scandals; fear that oil companies will have to spend time examining / cleaning up their own books; fear that the U.S. public is not traveling enough (thereby cutting jet fuel and gasoline demand); fear of consequences of an expected but untimed U.S. attack on Iraq; and, dare we say it, fear that U.S. President George W. Bush has abandoned his original energy agenda, leaving E&P firms in the lurch.

Given this laundry list of fear, the upstream industry (exclusive of large, long-term projects) seems to be suffering a crisis of economic confidence. A collective mindset like this is not easily dislodged – it will require a confluence of several factors in the U.S., Canada and the UK to change, including good economic news; prompt resolution of accounting scandals; more consistent, clear foreign policy; a little help from Mother Nature; and good, decisive leadership from top politicians. So, George W., Jean Chrétien and Tony Blair, are you listening? As a previous U.S. president’s campaign advisors used to say so bluntly, yet eloquently: "It’s the economy, stupid!"

The poll-winning meal for June 2002 at AirlineMeals.net was this dinner served on Austria's Lauda Air.

Who has the best / worst airline food? Now for something a little lighter, yet near and dear to our frequently flying readers’ stomachs. We bring you an electronic arena of airline meals, known as the "AirlineMeals.net" website. The brainchild of a 32-year-old Dutch graphics / website designer, this site is a deliciously democratic, sometimes irreverent look at airborne meal service.

The website lives on photos and reviews of airline meals submitted by individual travelers. As this column was written, there were 466 reviews of meals from roughly 100 airlines, covering all classes of service. Contributors take their own pictures while sitting behind tray tables. It is great fun to compare what actually lands on passengers’ trays with the brightly colored, perfectly shaped menu items shown in airlines’ brochures on the website.

Passenger reviews include a photo, airline name, flight date and route, class of service, meal type (breakfast, lunch or dinner), beverage choice, a self-determined rating of 1 to 10 (worst to best) and "comments." Ah, the comments make the day. A Finnair passenger said that his dinner "tasted okay, but I concentrated on drinking." A U.S. traveler grumbled, "For years, Northwest’s service – especially its food – has been about a half-step from utterly disgusting." A Lufthansa flyer said his dinner was "served with statuesque efficiency. Did I mention the weird tomato plate?" An Air Canada passenger described his meal as "Digestive – cheap red wine." Lastly, a jet setter aboard British Airways’ high-priced Concorde lamented, "Very delicious! But where is the caviar?"

Generally, most Asian and certain European airlines score higher on meal service. On international routes, U.S. airlines hold their own, but they take a drubbing on domestic service. And, if traveler reviews don’t satisfy your curiosity, you can examine a behind-the-scenes tour taken in July by the website’s owner and a friend in Brussels, at facilities run by American Airlines and caterer Aviapartner. It is a photo-laden primer on airline meal assembly.

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