OIL PRICES In what has been defined as
OIL PRICES In what has been defined as “The New Economy of oil”, oil prices in the past did not follow a steady trend, and the record shows a behavior of “episodes” guided either by a core cartel of exhaustible resources The New Economy of Oil The Royal Institute of International Affairs-2001.
The New Concept The new episode as defined by this concept will be driven by two other issues : Competition from other fuels, especially Natural Gas. Reduction of massive structural surpluses of oil production capacity creates inthe time of price shocks In 1973 and 1979, restraining competition when prices are at survival levels. The New Economy of Oil The Royal Institute of International Affairs-2001.
1950 - 1970
1970 - 2000 1970 – 1985: Arabian Light, 1986 – 2000: Dubai Source: Energy Information Administration - DOE
In the WORLD 06/67 - 08/67 2 2 10/73 - 03/74 6 2. 6 11/78 - 04/79 6 3. 5 October Arab -Israeli War, Arab Oil Embargo Iranian revolution 10/80 - 12/80 3 3. 3 Outbreak of Iran - Irak War 08/90 - 10/90 3 4. 6 04/99 - 03/00 12 3. 3 Iraqi invasion of Kuwait/Storm of Desert OPEC cuts production Source: Energy Information Administration - DOE Six Day War
Global Oil Supply Disruptions To avoid the potential impact of oil supply disruptions consumer countries have reacted in different way: Building up of oil stocks in order to mitigate price volatility Development of a commodity market that includes futures options Starting with heating oil futures in 1978, energy futures and options on the NYME have grown and profoundly changed energy marketing
World oil Stocks
World oil demand/supply balance Source: OPEC
Concluding remarks Price volatility in oil markets is driven by a wide range of factors. Political events Balance between OPEC decissions and importing countries Economic Crisis Because of these issues long term planning is almost difficult
World Natural Gas Consumption TCF 1999 2000 Growth Rate(%) TOTAL WORLD Source: CEDIGAZ 84. 5 87. 9 4. 1
Natural Gas Demand DOE estimates 2000 2020 87 TCF 162 TCF Average growth rate 3 % The largest increments are expected in Latin America and developing Asia, China and India Among the industrialized countries largest increases are expected in the US and Western Europe For industrialized countries Gas use is projected to grow by 2. 4 % per year compared with 1. 1 % per year for oil
GROWTH OF WORLD ENERGY CONSUMPTION BY FUEL 1015 BTU 250 200 150 100 50 0 1970 Oil 1975 1980 1985 Natural Gas 1990 Coal 1995 2000 2005 Renewables 2010 2015 Nuclear With an average growth of 3. 1% per annum, by 2015 the demand for Natural Gas will be greater than the oil demand Source: Global Energy
Reserves/Production Ratio Natural Gas R/P (years) 61 Source: BP 2001, Statistical Review of World Energy Oil 39. 9 Natural Gas will be the major driver of the energy development in the next 15 years
Natural Gas use increasing Gas use is increasing, around the world, for a variety of reasons: Price Envinronmental concerns Fuel diversification and/or energy security issues Market deregulation (for both gas and electricity)
Natural Gas Future Consumption Future consumption will require bringing new gas resources to market with LNG trade will grow in the future but it will depend on the development of a spot market
Algeria Arzew Libya Marsa El Brega U. S. A. Kenai Abu Dhabi Das Island Malaysia Bintulu Indonesia Bontang Brunei Indonesia Lumut Arun Algeria Skikda Australia North West Shelf Qatar Bintulu Oman LNG Trinidad Qatar Atlantic Rasgas LNG Nigeria Bonny Island
Exports World exports between 1990 – 2000 have grown at 5. 99 % per annum The largest growth was in the Middle East region, 19. 84 % per annum Imports World imports between 1990 – 2000 have grown at 6 % per annum Asia is, by far, the largest importer of LNG accounting for 70 % of global imports in 2000.
LNG demand Asia - Pacific (million t/y) TOTAL 1999 2000 2005 2010 68. 5 73. 5 93. 9 115. 6
$US/MMBtu Long Term US Price Projections, Henry Hub EEA NPC EIA CERA WEFA PIRA
Concluding remarks There is no spot market for natural gas. Gas price depends on long term contacts signed between supply and demand. LNG will create a spot market for natural gas Currently, markets for LNG are strongly influenced by oil and oil products markets. As the use and trade of natural gas continues to grow, there is a challenge for developing price mechanisms that facilitate international trade
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