Upstream Investment Research Articles

Unconventional Oil: Will It Satisfy Future Global Oil Demand?

The role of unconventional resources (e.g., oil sands and extra-heavy oil) is anticipated to increase in the global oil market. Although we are facing a scarcity of conventional (low cost) oil resources, unconventional oil resources might manage (for a period of time) to supply constraints in terms of meeting expected increases in oil demand. Here, we use the ACEGES (Agent-based Computational Economics of the Global Energy System) model to investigate the potential impact of unconventional oil resources on the future evolution of the oil market on a global scale. The key assumption of the model is that technological improvements will allow unconventional oil production to increase at a rate similar to the rate of production of the conventional oil resources. An important observation from the ACEGES-based simulations is the significant shift of the peak production of oil (both conventional and unconventional) if and only if technological progress will allow upstream extraction rates for unconventional resources, similar to the historic extraction rates of conventional oil. Given the estimated potential of total oil resources, the ACEGES-based scenario suggests that the unconventional oil production may shift the peak year of total oil by 60 years or more, assuming favourable upstream investment plans and a continuous increase in the demand for crude oil products at a reasonable price. However, increased total oil production might not meet the unconstrained (high) growth rates of oil demand.

Exploring the undulating plateau: the future of global oil supply

In this paper, we analyse the factors that will influence long-term oil supply and describe the future form of the global oil supply profile as an 'undulating plateau' rather than an irreversible, short-term peak or an ever upward trend of increasing production. The ultimate transition from a world of relatively plentiful and cheap oil to one of tight supply and high cost will be slow and challenging. An understanding of the signposts for the future path of supply and the drivers of that profile will be critical to managing the transition. The ultimate form of the global supply curve may well be dictated by demand evolution rather than a limited resource endowment in the longer term. Several factors will probably control future global oil supply. We believe that the scale of global oil resource will not constitute a physical supply limit for at least the next two or three decades. However, all categories of oil resources are already more expensive to develop than in the past, requiring high oil prices to stimulate supply growth. Lower rates of oil demand growth relative to economic growth, combined with more challenging supply growth, will probably lead to an undulating plateau sometime after 2040, with demand from non-Organization for Economic Cooperation and Development states continuing to dominate. Upstream investment requirements and oil price volatility will increase towards and beyond the undulating production plateau. In this new world, high oil prices will induce demand destruction, fuel substitution and ever increasing energy efficiency. As we discuss below, the fundamental differences between the IHS Cambridge Energy Research Associates' (IHS CERA) view of the future of oil supply and many peak oil supply models are the timing of the onset of a dramatic slowdown in the rate of growth of supply and the existence or otherwise of a production plateau. We do not dispute that supply will plateau and eventually fall; the question is when, how and at what price? As the plateau approaches, oil prices are likely to increase strongly, with some very severe spikes along the way.

Need to Knowledge (NtK) Model: an evidence-based framework for generating technological innovations with socio-economic impacts

BackgroundTraditional government policies suggest that upstream investment in scientific research is necessary and sufficient to generate technological innovations. The expected downstream beneficial socio-economic impacts are presumed to occur through non-government market mechanisms. However, there is little quantitative evidence for such a direct and formulaic relationship between public investment at the input end and marketplace benefits at the impact end. Instead, the literature demonstrates that the technological innovation process involves a complex interaction between multiple sectors, methods, and stakeholders.DiscussionThe authors theorize that accomplishing the full process of technological innovation in a deliberate and systematic manner requires an operational-level model encompassing three underlying methods, each designed to generate knowledge outputs in different states: scientific research generates conceptual discoveries; engineering development generates prototype inventions; and industrial production generates commercial innovations. Given the critical roles of engineering and business, the entire innovation process should continuously consider the practical requirements and constraints of the commercial marketplace.The Need to Knowledge (NtK) Model encompasses the activities required to successfully generate innovations, along with associated strategies for effectively communicating knowledge outputs in all three states to the various stakeholders involved. It is intentionally grounded in evidence drawn from academic analysis to facilitate objective and quantitative scrutiny, and industry best practices to enable practical application.Summary The Need to Knowledge (NtK) Model offers a practical, market-oriented approach that avoids the gaps, constraints and inefficiencies inherent in undirected activities and disconnected sectors. The NtK Model is a means to realizing increased returns on public investments in those science and technology programs expressly intended to generate beneficial socio-economic impacts.

Investment Policy for Time-Inconsistent Discounters

This paper explores how a principal with time-inconsistent preferences invests optimally in technology or capital. If the current principal prefers her future self to save more, she can increase current investments complementary to future savings and decrease investments in the strategic substitutes, for example. To characterize the principal’s choices they are compared to a market equilibrium where the investors are private agents. Each investing agent applies the same discount factors as do the principal and he obtains full property rights to the future returns. With geometric discounting, there would be no need to regulate (subsidize/tax) these agents. With time-inconsistent preferences, however, the current principal benefits from subsidizing investments in “green” capital (complementary to future savings) and tax investments in substitute capital such as “brown” technology and even adaptation technology. The paper can thus compare policies for different types of investments at the same level in the production hierarchy, but investments at different levels are also compared. With quasi-hyperbolic discounting, the optimal subsidy is unrelated to this level. With discount rates that are strictly decreasing in relative time, however, upstream investments (needed for downstream investments) will optimally be subsidized at a higher rate. When applied to environmental policy, the paper provides a new rationale for subsidizing green (and taxing brown) technology unrelated to the traditional motivation emphasizing public good aspects.

Unbundling in the Telecommunications and the Electricity Sectors: How Far should it Go?

1. Introduction During the last 25 years, both on developed and developing countries, there has been a sound experience of restructuring, deregulation and privatization of sectors that were previously regulated monopolies and most of the times also state-owned. Reasons behind this trend were manifold: technology changes, poor performance of regulated firms and a general ideological shift towards markets are among the most important. A central feature in debate for network sectors concerns unbundling. The most common argument in favor of integration was basically twofold: it would be a solution to overcome, at least partially, double marginalization and it would give incentives to upstream investments (Hoffler and Kranz, 2008). Since the 90's and for most European network industries, the main political question--Should vertical integration be allowed?--has been replaced by two others: * How far that separation should go? * Should the same policy principles apply to all network industries, namely public utilities? In the communications sector most of the European countries already implemented accounting separation and the present debate is about functional separation. UK introduced it in 2006. Sweden and Italy followed this policy aiming to encourage retail competition. However, in other European countries (Netherlands, for instance) regulators decided to maintain vertical integration, mainly arguing that the incumbent firms face competition from alternative networks. Based upon the evidence of unbalanced cost allocation by electricity firms between regulated and non-regulated operations, the European Commission introduced the 96/92 EC Directive which required the accounting unbundling of both generation and retail stages of the electricity value chain from the network business (transmission and distribution). Later on, the 2003/54/CE Directive went further requiring legal unbundling as there were serious grid access problems by non-integrated firms. Through their transmission business, integrated companies acted as barriers to market competition either favouring their own generators or through under investments on the transmission grid. Finally, in 2007, the Third Energy Package was proposed by EC in order to solve, among others, this problem which EU Energy Sector Enquiries proved to be major barriers to liberalisation. As it will be explained in section 4, the final outcome of this recent EC regulatory initiative was a compromise that still can give place to under investment on the grids. Therefore, at the moment, communications and electricity face the same question: how far should the unbundling process go? The main goal of this paper is to analyse the arguments under discussion, namely: 1. Which were the main reasons for different regulatory approaches in the past? 2. Presently is it possible to draw some lessons from one sector to the other concerning the effects of different regulatory approaches on competition and investment? Overall, we conclude that ownership separation is fairly influenced by the economic nature of each utility infrastructure. Vickers (1995) recognizes that the most significant contribution of ownership unbundling to competition in network industries is that it reduces the incentive to discrimination by a network operator which belongs to the same holding group of other generators and/or retail firms. There is empirical evidence on the increasing congestion of transmission networks with the development of wholesale markets and its negative impact on competition (Joskow, 2005a, 2005b and 2006). Also, Hirst (2004) refers that the dynamics of investment in transmission capacity is far from that of trading patterns. Ownership unbundling achieves competition in electricity wholesale markets, although it may eventually lead to a concentration increase of generation through mergers. As presented by Balmert and Brunekreeft (2009) the EC final political compromise on the unbundling issue of the transmission business may raise some complicated, unexpected problems on investments, one of the chief arguments which the 3rd Package proposal aimed to solve. …

Assessment of Potential Oil and Gas Exploration Investments: Management Perspective

Assessment of potential oil and gas exploration investments is a crucial initial step for petroleum companies to ensure the success of the investments. The study explores the decision–making processes of the upstream investment in U.S. petroleum companies. Two hundred and twenty–one high–level decision-makers representing 221 U.S. petroleum companies completed mail questionnaires concerning decision–making processes in assessing potential oil and gas exploration investment employer by their firms. The result of the study established and empirically described the management view of the current practices of assessing oil and gas exploration investments. The study also identifies the relationships between the decision–making processes and the performance of the company.

Investment Decision Making in the Upstream Oil Industry: An Analysis

Oil is the world‘s biggest and most pervasive business, the greatest of the great industries that arose in the last decades of the nineteenth century.These words of Daniel Yergin in his book, The Prize (1991), which chronicles the development of the world‘s oil industry, highlight the importance of oil industry in the recent times. In an environment of growing competition, higher resource costs, and significant price uncertainty, 'Investment Decision Making' is given top priority. There are many decision making techniques in academic literature. Some fundamental concepts were formulated more than two hundred years ago. But their application became apparent only in the 1950s and 1960s. Their application in practical decision making has been made recently. It is an acknowledged fact that the current practice techniques used for investment decision making in most industries lag behind the current decision theories.Which techniques are most appropriate and applicable to upstream oil industry is what is to be analyzed here. This study draws on the oil industry literature to find the techniques used by upstream oil companies. It tries to identify the techniques that are available and what are the tools appropriate for upstream investment decision making. Each tool has certain limitations. Thus, a combination of decision analysis techniques and concepts are to be used.The rationale behind this study is the assumption that the techniques used would be adding value to the upstream oil companies. This assumption would then be tested to verify this relationship. The risk and uncertainty involved in each technique is also considered.Investment appraisal, industry literature and the insights gained from various conferences, seminars etc. are used to draw conclusions.

輸入自由化後の豪州牛肉生産をめぐる日本企業の進出と撤退

輸入自由化後の豪州牛肉生産をめぐる日本企業の進出と撤退

A Public Policy Perspective on Global Energy Security

Goldthau, Andreas. (2011) A Public Policy Perspective on Global Energy Security.International Studies Perspectives,,doi: 10.1111/j.1528-3585.2011.00448.x © 2011 International Studies Association Despite an emerging literature on global energy governance, there so far is no extensive intellectual rationale for it. This article seeks to fill this gap by putting forward a public policy framework to analyze global energy. With that lens, energy security relates to problems of market failure at a transnational scale. These may occur due to imperfect competition; negative externalities; lack of information; or the presence of public goods. It is argued that major global energy risks such as oil price volatility, lack of transport infrastructure, and insufficient upstream investments can be convincingly conceptionalized as markets failing to provide for a crucial good—energy security. This article thus proposes market failure as an analytical justification of and as an intellectual foundation for further research in global energy governance, and sketches possible research agendas in that field.

Oil Scenarios for Long-Term Planning: Royal Dutch Shell and Generative Explanation, 1960-2010

Most executives know that overarching paints of plausible futures will profoundly affect the competitiveness and survival of their organisation. Initially from the perspective of Shell, this article discuses oil scenarios and their relevance for upstream investments. Scenarios are then incorporated into generative explanation and its principal instrument, namely agent-based computational laboratories, as the new standard of explanation of the past and the present and the new way to structure the uncertainties of the future. The key concept is that the future should not be regarded as ‘complicated’ but as ‘complex’, in that there are uncertainties about the driving forces that generate unanticipated futures, which cannot be explored analytically.

The downstream externalities of harvesting rainwater in semi-arid watersheds: An Indian case study

► We assess the downstream impacts of upstream rainwater harvesting in a water scarce river basin in India. ► Using data on crop water use, rainwater harvesting investments, land use, agricultural prices and production costs we simulate the impacts on cropping patterns and assess the change in agricultural value produced. ► The results indicate that upstream benefits are insufficient to compensate downstream losses and pay back investment costs when benefits are limited to a re-allocation of irrigation water. Water-related investment projects affect downstream water availability, and therefore should account for these externalities. Few projects do, however, owing to lack of awareness, lack of data and difficulty in linking upstream investments to downstream effects. This article assesses the downstream impacts of rainwater harvesting in a semi-arid basin in Southern India, focusing on the trade-offs that arise when crop water use is re-allocated from a downstream surface water irrigation system to groundwater irrigated agriculture upstream. The results indicate that the downstream impacts are considerable and that net benefits are insufficient to pay back investment costs. Further research is required to reduce the uncertainties in the water balance of irrigation systems at basin level, to account for the inter-annual variability of crop water availability and to elaborate the wider welfare effects.

The evolution of global value chains: displacement of captive upstream investment in the Australia-Japan beef trade

The evolution of global value chains: displacement of captive upstream investment in the Australia-Japan beef trade

Ethical Beliefs and Information Asymmetries in Supplier Relationships

Heightened ethical concerns involving upstream suppliers (e.g., Peanut Corporation of America, dairy suppliers to Chinese infant formula manufacturers) have sparked interest in how managers’ knowledge of suppliers’ behavior influences decision making. This article explores the role of managers’ ethical beliefs in these often information asymmetric decisions. Using economic experiments, the authors asked managers to make strategic marketing decisions given upstream supplier ethical information. The results show how information asymmetries can interact with managers’ ethical beliefs to produce inconsistent behaviors related to (1) upstream investment in ethical product attributes and (2) willingness to leverage ethical product attributes in downstream markets. Specifically, low-ethical-beliefs managers seemed to rationalize leveraging ethics downstream even when upstream supplier past behavior was negative. High-ethical-beliefs managers invested positively in ethical product attributes with a known ethical supplier but were less willing to leverage that behavior downstream. The findings provide insight into how managers’ individual ethical beliefs, given upstream supplier information asymmetries, can affect stakeholders, including consumers, investors, and society at large.

The Geopolitical and Economic Importance of Energy Rich Central Asia: Possibility of an EU-Russia Alliance

The scramble for oil and influence by the big powers in the Caspian Sea region has been likened to the Middle East in the 1920s. But in today’s Central Asia there is an even larger and more complex quagmire of competing interests. There are the big powers such as Russia, the EU, the US; the neighbours such as Iran, Pakistan, Afghanistan and Turkey; the Central Asian states and the most powerful players of all, the oil companies, competing in what we call “The New Great Game.”The Caspian sea basin has tremendous potential, offering the possibility of production increases from 1.6 million barrels a day (b/d) in 2001 to 5.0 million (b/d) in 2010.In an emerging multipolar world, the prime source of intractable conflicts and a formidable political and diplomatic weapon in the hands of states will be energy sources and pipeline routes. As energy is not just a commodity but a need, Europe wants security of supply. Russia on its part wants security of demand. Russia needs European upstream investment in its energy sector, while itself seeking to invest in downstream markets in Europe. For the European Union the key strategic challenge is its dependence on Russian gas.In the twenty first century an enduring goal is a long-term partnership, built around reaching economic integration embracing the whole of the European continent, including Russia.

Lessons Learned from 2008

Guest editorial The year 2008 may go down in history as the year of many lessons learned but soon forgotten. For the oil industry, it is important to reflect on what in fact those main lessons were and what their relevance is to the future. One answer should not surprise most oil professionals. The industry discovered that it had been operating at a production capacity plateau for several years and no longer can provide the supply elasticity required by global oil demand given the cost and complexity of the oil-supply chain. The oil price surge that started in 2003 and collapsed in 2008 had its roots in 1998. At that time, oil prices had sunk to USD 10/bbl, which resulted in the drying up of capacity investment across the world. In time, low oil prices resulted in runaway oil demand that could not be matched by increases in supplies. This shortfall resulted in the rapid increase in oil prices that eventually contributed to the global recession and the price collapse of 2008. Even though the industry returned to making massive investments between 2003 and 2008, it could not match the tide of rising oil demand. Ultimately, it was unable to exceed a production plateau of 85 to 86 million BOPD in spite of the best efforts by OPEC and non-OPEC producers alike. The attendant surge in oil prices to USD 147/bbl was, therefore, hardly surprising given these structural realities. These oil-supply limitations could not help but fuel the speculative fervor and hedging that occurred in the financial markets. In hindsight, all of these events should have been predictable. While the global economy can shift its rate of growth within months, the energy industry is too complex and too mature to respond effectively, even under the most favorable economic circumstances. Politics, logistics, basin maturity, and technological limitations all converge to create an oil-supply plateau that cannot satisfy the growth of unconfined energy demand. The existence of this ultimate supply ceiling will not recede under the current prospect for reduced upstream investments. In fact, there are good reasons to believe that this production plateau will become even more restrictive in the coming years. Preventing the Boom and Bust Cycle This vicious circle of rising energy demand, finite energy supplies, and volatile oil prices will repeat until the oil industry comes to terms with the need for better energy planning. Forward oil-supply planning is, in fact, the only option for setting constructive energy policies that can begin to facilitate the management of oil-price volatility.

An Integrated Decision-Management Process Shortens Time to First Gas

This article, written by Assistant Technology Editor Karen Bybee, contains highlights of paper SPE 115251, "Reducing Time to First Gas: Lessons Learned in Expediting and Informing International Investment Chain Decisions," by Deborah D. Resley, SPE, and Christopher Reinsvold, SPE, Decision Strategies, originally prepared for the 2008 SPE Asia Pacific Oil and Gas Conference and Exhibition, Perth, Australia, 20-22 October. The paper has not been peer reviewed. The monetization of gas, particularly in liquefied natural gas (LNG) projects, requires large capital investment in most links of the gas value chain from production to end use. Companies that invest in a single component of the value chain, such as nonintegrated gas producers, must understand the value of and risks inherent in every link in the chain, because gas will be priced in relation to its final point of sale. Final sale price as well as the effects of processing and capacity limitations ripple their way upstream to alter the timing, demand, and viability of the upstream investment. Introduction LNG projects are good examples of complex global gas-development projects with large capital-investment requirements. To build a commercial LNG project from gas production to point of final sale requires investment in and development of several capital projects. These linked or integrated projects serve to produce, treat, transport, and sell the gas in specific markets. These projects are joined in a value chain by at least 16 major commercial contracts, beginning with a production-sharing contract at the wellhead and ending with a gas-sales agreement in the end-use market. The entire set of investment decisions in the LNG chain can be driven by objectives such as the ability to book gas reserves by a certain date, optimizing the entire gas portfolio of assets, and in the case of companies with a portfolio of LNG assets, the potential for arbitrage and the ability to leverage and trade each LNG asset. LNG projects now have even more complex business chains than 10 years ago, involving multiple investors in various parts of each chain. Successfully commercializing gas in integrated LNG projects and achieving acceptable returns requires numerous investment decisions. Building such a chain involves high-level coordination and integration of both technical and commercial processes, the option of reducing costs through increasing throughput, and leveraging economies of scale to reduce plant costs.

Iraq struggles to pass new oil law

Amid the continuing chaos in Iraq, the government is trying to obtain agreement on a new oil law covering upstream investment and the sharing of oil revenues amongst the 18 provinces of the country. Despite several attempts to draw up new legislation, the government has been unable to obtain sufficient agreement among the various ethnic, religious and other groups to obtain a sufficient majority to allow the country's parliament to pass any new law covering the petroleum industry.

Comments: The Spending Challenge

The good news is that upstream spending is up, way up. But looking beneath the surface numbers reveals that cost inflation is eroding future production gains. With oil prices roughly double and global demand, boosted by consumption from developing countries, 9% higher since 2000, industry upstream capital spending was bound to increase. And it has—a 70% jump (U.S. $340 billion) from 2000 to 2005, according to a new survey of international oil companies (IOCs), national oil companies (NOCs), and independents. But the rising cost of equipment and services ate heavily into that increase, meaning that real investment grew only 5% during the period, says the Intl. Energy Agency (IEA), the energy association that represents 26 major industrial nations. Looking ahead, the companies surveyed reported that they expect to spend $470 billion from now to 2010 on upstream projects. Demand growth in the first part of this decade has raised questions about whether the industry can supply enough oil and gas to the world if demand continues rising at such a rapid pace. Peak-oil theories abound, companies say the easy oil has been found, and host nations are making foreign investment more challenging. And while many reports and studies counter that doomsday scenarios about declining global oil production are faulty, if cost inflation continues to chew up spending increases, the industry will have a hard time replacing production not to mention raising output. Rising consumption from developing countries and industrialized nations such as in western Europe and the U.S. is putting enormous pressure on the majors and NOCs, perhaps unrealistic pressure regardless of whether peak-oil-production forecasts carry weight. In addition, the cost of talent is spiraling higher as the industry's technical-skills shortage creates bidding wars among companies. That situation is unlikely to change anytime soon, regardless of the oil price. Meanwhile, host countries—taking advantage of IOCs' need to boost production—are raising royalties and taxes and asking for a bigger share of the hydrocarbons rent. Service companies have raised prices, while rig rates are much higher than even a year ago. Those factors dictate that even more upstream investment is needed, warns the IEA. It cited Russia, which supplies a quarter of Europe's gas demand, as a country that is underinvesting in its production future—perhaps not even enough to maintain export levels and not enough to be able to export gas to Asia. Technology has helped Russia build back production levels since output peaked in the late 1980s and fell dramatically in the 1990s. Russia was the reason oil producers were able to handle the surge in demand in the first part of this decade. As technical papers and plenary presentations at the recent SPE Russian Oil and Gas Conference in Moscow emphasized, great gains have been made in improving the recovery factor from the country's massive brownfields. But frontier areas, such as the Arctic offshore and large swaths of Siberia, remain ripe for investment. Reports, such as the IEA's, are meant to sound alarm bells. But, from an industry perspective, it is worth noting that its job of supplying energy to meet the world's growing consumption has gotten harder.

Oil outlook to 2025

AbstractOil is expected to maintain its leading position in meeting the world's growing energy needs for at least the next two decades. In the reference scenario, oil demand is set to rise by 30 million barrels per day over the next twenty years. However, although developing countries account for most of the rise, energy poverty will remain an important issue. From the supply perspective, the resource base is sufficient to satisfy expected oil demand growth. Non‐OPEC supply is eventually expected to reach a plateau, and, therefore, over the longer‐term, OPEC will be relied upon to supply most of the incremental barrel. These projections underline the need for substantial investment along the entire hydrocarbon supply chain, although the global scale of upstream investment that this outlook implies is not expected to be greater in magnitude than that witnessed in the past. Nevertheless, oil prices must be sufficient to mobilise the resources to supply the market with the necessary oil.In line with OPEC's longstanding commitment to support oil market stability, OPEC crude capacity expansion plans are already in place to reach almost 38 mb/d by the end of 2010. This demonstrates the seriousness OPEC attaches to the need for security of energy supply. However, energy security has to be seen from both supply and demand perspectives. Uncertainty over future demand translates into large uncertainties over the amount of oil that OPEC Member Countries will eventually need to supply. Even over the medium‐term to 2010, there is an estimated range of uncertainty of $50 billion for required investment, increasing to $140 bn by 2015.The investment challenge extends along the entire supply chain. The downstream sector is a very important part of that chain. Over the coming decade, rising volumes, the continued move towards demand for lighter products, and the movement towards significantly cleaner products, means that the downstream sector will require significant investment. However, investments are coming at a considerably slower pace than warranted by the expected demand growth. Ways need to be explored that could accelerate expansion plans, and create the right investment climate.A further critical issue concerns whether increasing use of fossil fuels is consistent with the protection of the environment. Technological options that allow continued use of fossil fuels in a carbon‐constrained world must be considered. One promising example is carbon capture and storage. Steps need to be taken to move this technology forward with large‐scale demonstration projects.

Comments: Gaining Access

The day ExxonMobil announced a first-quarter profit of U.S. $8.4 billion—eliciting protests from politicians and consumer groups—its stock price dropped. The huge profits disappointed some Wall Street analysts who were expecting even larger cash flows. That underscores big oil's dilemma: trying to satisfy the short-term interests of the market and the political sphere while meeting the long-term goals of production needed to satisfy the world's growing appetite for fuel. As oil prices rise and peak-oil theorists get wider attention, some are calling on the oil industry to pump massive amounts of capital into the system to meet growing demand and to debottleneck supply constraints. The Intl. Energy Agency believes the industry should spend U.S. $7 trillion by 2030 to quench global consumption needs. But while large oil companies are reporting healthy profits this year with oil at $70/bbl, increasing production is proving to be a formidable challenge. Besides the short-term pressures of the financial markets and analysts, there is an increasing shortage of qualified technical labor for upstream projects. In a recent speech at a conference in Washington, DC, Edgard Habib, chief economist for Chevron, said the labor shortage is particularly acute in the services sector, which finds itself "maxed out." Access to promising acreage is also becoming a significant hurdle in some regions. In places such as the U.S., politics and public opinion have put many areas out of bounds to investment, such as parts of Alaska and offshore areas on the west, east, and Gulf coasts. Many national governments—eager to get a larger share of the pie now that oil prices have risen sharply, or because of leftward shifts in ideology—are narrowing the opportunities for credible investment by international oil companies (IOCs). Latin America is a primary example. In the course of just a few months, Venezuela hiked royalties significantly and increased control of upstream investment, including four heavy oil projects involving some of the largest majors; Bolivia nationalized its natural gas business; and Ecuador took control of some of Occidental's fields after canceling the company's contracts. In a tight supply/demand environment, such actions that seem to threaten available oil supplies lead to more price volatility, which increases political pressure on oil firms. Ernst & Young recently studied 10 energy "hot spots" and their investment climates. Five appeared to be favorable places to invest (Norway, Canada, Qatar, India, and the United Arab Emirates); three countries looked promising for investment with caution (China, Russia, and Saudi Arabia), and two (Nigeria and Indonesia) appeared to have challenges that might impede foreign investment significantly. Among the criteria were economic stability and tax policy, government structure, legal and regulatory systems, infrastructure, and the availability of skilled workers. IOCs walk a tightrope of pleasing the market, returning value to shareholders, and increasing long-term production. The ideal is world-class fields that provide long-term output growth, cheaper lifting costs, and opportunities for enhanced oil recovery. For the record, IOCs have been raising capital and R&D spending and have been investing in large-scale projects with promising opportunities for growth as they record healthy, sometimes even record, profits. ExxonMobil recently bought a stake in the massive Abu Dhabi Upper Zakum field; BP is pushing ahead on major projects in Trinidad, the Gulf of Mexico, and Russia; Chevron and Shell have increased investments in Canadian heavy oil ventures; and several companies have re-entered Libya. The consultancy Cambridge Energy Research Assocs. calculates that as much as 15 million BOPD of global capacity could come on line by 2010.