THE BEGINNING OF A CLIMBDOWN ON GLOBAL WARMING?

Even the BBC is now admitting that there are natural causes of global warming

"Plans to curb greenhouse gas emissions produced by industry are to be scaled back by the government, a move branded by green groups as a "major climbdown". Carbon dioxide (CO2) emissions will now be capped at 756m tonnes over the next three years - up from of 736m tonnes. Environment secretary Margaret Beckett said the earlier figure, set in May, could have devastated industry.

The targets are part of the EU Emissions Trading Scheme which begins on 1 January 2005. Under the scheme, each EU country is allocated a target for CO2 emissions, and different sectors of industry -for example factories and power plants - are given "pollution permits" for the amount they can emit. These can be bought and sold on the open market.

In May, the government submitted the National Allocation Plan to the European Commission in readiness for 2005. Now the new rules will have to go back to the commission for approval.

Mrs Beckett said the change reflected new forecasts of energy demand, revised once it became clear the UK would need more than detailed in May. The government wanted to make the new emissions trading a success without damaging industrial competitiveness, said Mrs Beckett. "The fact of the matter is that we as a government were faced with a genuine and real dilemma, " she said. "Projections suggested that if we stuck with the original formula, it would have had a devastating effect on our industry. "None of us wanted to do that, but all of us wanted to get the emissions trading scheme off the ground." Mrs Beckett said the UK was still "on course" to meet it carbon dioxide reduction targets set in the Kyoto Protocol, though CO2 levels had "started to go up again", despite a reduction since Labour came into power. "But that has happened all over the Northern Hemisphere, " she said.

The move has angered opposition parties and environmentalists, who have dubbed the move a massive climbdown. Scientists believe carbon dioxide - released through industry, agriculture and the burning of fossil fuels - is exacerbating natural climate change.

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HIGH OIL PRICES = MORE OIL

High prices at the pump are finally giving oil companies the incentive to make long --and expensive-- bets to find new supplies. No one is going deeper than ChevronTexaco. The bad news for oil consumers is that global demand has been growing at 1.5% a year over the past five years, while production capacity has been inching ahead at 0.2%. That squeeze all but wiped out the industry's spare capacity and caused a spike in prices. The good news is that the zooming prices have gotten the attention of oil producers.

Outside the Middle East, West Africa and parts of Russia, most of the easily accessible reservoirs have been sucked nearly dry. Extraction and development costs in North America have rocketed to $11 per barrel from $5 in 1999, and in Europe to $18 per barrel from $11 over the same period. New reserves are much tougher to find and must be pried loose from wily dictators or from deposits deep under the ocean bed or in sandpits--and that costs big bucks. "The prospects are few and far between," says Louis Gagliardi, an oil analyst with John S. Herold Inc. in Norwalk, Conn. "Oil companies have to run hard and run fast just to stay in place."

At $20 a barrel, anyway. The prospects for long bets look a whole lot better at $34, which is where the five-year-out futures contracts are settling. "There's plenty of oil, but the costs of developing major new reserves in hard-to-get-to places are 100% higher than a decade ago," says analyst George Gaspar at Robert W. Baird. "High price is the incentive for these guys to step up to the plate." At the right price, there is a lot of oil. The Department of Energy estimates the amount of fluid hydrocarbons remaining in the Earth's crust is the equivalent of 7.6 trillion barrels of oil. That figure includes natural gas and tar sands. It's enough oil and gas to last 170 years.

Until the spike in prices, the Big Five were spending $47 billion a year on exploration and production--and getting less and less per dollar spent. ExxonMobil, the colossus among titans, shells out $12 billion a year on E&P and hasn't been able to grow beyond 4.2 million barrels a day for five years. At the bottom of the heap, ChevronTexaco of San Ramon, Calif. will invest $6.4 billion this year, but will still suffer a 4% decline in production. "I do worry about supply," says David O'Reilly, ChevronTexaco's chief executive. "I see upward pressure on demand in an economically developing world." In China--at 6.3 million barrels a day now the second-largest consumer of oil on the planet after the U.S.--energy use will probably double by 2020, says O'Reilly. Worldwide energy demand, driven by the population growth and industrialization of the developing world, will expand by 40% in the next 20 years.

How to meet that demand? The industry will enjoy estimated net income of $137 billion this year, up from $46 billion five years ago, according to Herold. The producers can easily, even after distributing $80 billion in dividends and share buybacks, afford the anticipated capital spending of $180 billion in each of the next two years. Tectonic shifts are already under way in their portfolios as they move out of declining fields in North America and the North Sea and push deeper into new regions with new technologies.

No one is pushing harder than ChevronTexaco, which is under tremendous pressure to show results. While it earned $10.4 billion on $130 billion in revenue over the last 12 months, its return on capital employed averaged 13% over the last five years, compared with 17% for ExxonMobil, reports Simmons & Co. That weakness is reflected in ChevronTexaco shares, which recently traded at 10.3 times expected 2004 earnings, compared with ExxonMobil's 14.4 and BP's 13.6.

ChevronTexaco is also a runt in terms of reserves, with 12 billion barrels of oil equivalents. ExxonMobil has 22 billion; BP, 18 billion; and Royal Dutch/Shell, even after its embarrassing 20% haircut, 14 billion. Production, at an average 2.6 million BOE (barrels of oil or the natural gas equivalent) a day, is about where it was three years ago at ChevTex.

Still, over the last five years the company has been the most adventuresome--at least by number of exploratory wells drilled--of the Big Five. Eager for a payoff, ChevronTexaco Vice Chairman Peter Robertson vows that production will hit 2 million barrels a day by 2008. "If I don't do this," he says, "I'm fired."

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