Olje og gass de viktigste energibrerne det moderne

Olje og gass - de viktigste energibærerne det moderne samfunnet Sveriges Landtbruksuniversitet Uppsala Torsdag 8. mai 2008 Ole Gunnar Austvik Høgskolen i LIllehammer www. oga. no

Tentativt program Global energi – oljemarkedet Prisdannelsen på olje Det europeiske gassmarkedet Diskusjon, spørsmål, meninger, innlegg…. www. oga. no

Global Energy Use Since 1860 Million tons of oil equivalent gas End of WW 2 oil coal Source: www. manicore. com www. oga. no

World Primary Energy Demand 18 000 16 000 14 000 Oil Mtoe 12 000 10 000 8 000 Gas 6 000 Coal 4 000 2 000 0 1971 Other renewables Nuclear Hydro 1980 1990 2000 2010 2020 2030 Oil, gas and coal together account for 83% of the growth in energy demand between now and 2030 in the Reference Scenario www. oga. no Source: IEA

World Energy Use by Region 1970 -2025 www. oga. no

Energy Consumption per Capita USA and China 1975 -2015 www. oga. no

…. Energy usage and the environment in conflict www. oga. no

CO 2 - emissions and economic development End of WW 2 www. oga. no Source: www. answers. com

World Energy-Related CO 2 Emissions 40 000 35 000 Mt of CO 2 30 000 25 000 Kyoto target 20 000 15 000 10 000 5 000 0 1971 1980 Coal 1990 2000 Oil 2010 2020 2030 Gas Global emissions grow more than 50% between 2003 and 2030, but fuel shares hardly change www. oga. no Source: IEA

…. The global oil market www. oga. no

Top Oil Consumers and Importers 2005 * * * www. oga. no Sources: EIA, BP

Vehicles per 1000 people for USA and China www. oga. no

The largest oil producers and exporters in 2006 Incl. NGL/condensate) Production www. oga. no Norway has a R/P-ratio < 10 år, Saudi-Arabia > 100 år Exports Source: Petroleum Economics Ltd.

Oil Development Costs “Petrolist” States MENA oil reserves are among the cheapest to find, develop & extract in the world, with total production costs ranging from $3 to $5 per barrel www. oga. no Source: IEA

Oil in The Middle East | www. oga. no Horm uz 18 mb/d

World Crude Oil Flows 2028 2008 www. oga. no

Million Barrels per Day US Oil Imports by Source: Energy Information Administration, Annual Energy Outlook www. oga. no

Oil Prize Developments 1861 -2006 1978 -80: 2 d Oil Shock ”OPEC II” 1985/86: Oil Price Callapse 2004: 3 d Oil Shock 1973/74: 1 st Oil Shock ”OPEC I” www. oga. no

Whatever the main motive for the invasion of Iraq, the conflict has major oil political and geoeconomic consequences. www. oga. no

Energy Information Agency (U. S. Department of Energy): Persian/Arabian Gulf production must double in 20 years in order to meet demand growth…. . (… unless substantial new oil is found other places or major technological breakthroughs take place. ) …This (administrative) claim has prevailed since the mid-1990 s…. . long before G. W. Bush took office … www. oga. no

. . Not only private economic interests. . The Oil Price as a Global Common Good The oil price is the same for all (corrected for qualities and transportation costs). In addition to commercial economic interests the oil price involves substantial national interests, as well. At present consumption and production levels a price rise of 10 $/bbl represents an annual increase in expenditures and revenues in the range of (assuming constant exchange rates…): n All consuming countries - 110 billion $ n OECD - 80 “ n EU - 30 “ n USA - 30 “ n All producing countries + 110 “ n Saudi Arabia + 30 “ n Norway + 10 “ n OPEC + 80 “ There are huge economic interests at stake! www. oga. no

Possible outcomes of the conflict - as seen from the Bush Administration. . . ”Best case” n n n A new west-oriented regime, no reactions in the Arab world, privatization of the oil industry, increased oil production, spill-over effects to other PG countries, ’democratization’ etc. The oil prices stabilizes around 15 -20 $/bbl. Perhaps less for a while. Negative side-effect: Increased dependence on PG oil. Permanent military presence. ”Worst case” n n Long lasting conflict that spreads throughout the area. New fundamentalist regimes in several countries, coup in Saudi-Arabia, the Strait of Hormuz becomes an area of war, considerable destruction of oil installations, terror attacks around the world. Oil prices unstable around 35 -60 $/bbl, hikes up to 50 -90 $/bbl. Long term: SPRs becomes too small -> even higher prices. Positive side-effect: Increased energy diversification, more oil from other places, increased conservation. Dependence on PG oil decreases in relative terms. www. oga. no

PETRO - NORGE Net government cash flow from petroleum activities 1971 - 2006 High oil prices ”Worst” case ”Best” case www. oga. no

Coffee break www. oga. no

Models of the Oil Market • Economic Theory of Exhaustible Resources (”Hotelling” Rule) • Property Rights Theory • Target Revenue Theory • Price Capacity Analysis • “Peak Oil” • Political Models • Scenario Techniques • … others… www. oga. no

Oil Price Prognoses From the 1980 s 1998 - $/bbl Average price prognoses (month/year) ? Actual prices Source: Manne & Schrattenholzer 1987 www. oga. no

Natural resource economics www. oga. no

Price path with a backstop technology price Price of backstop technology p 0 b Scarcity rent time T* www. oga. no

Property rights www. oga. no

Privatization: Nationalization of international oil companies was a necessary condition to create a strong OPEC National vs. international oil companies within OPEC 1960 -1981 www. oga. no Property Rights. . .

Property Rights Model Price Supply - 2 Supply - 1 P 2 P 1 Demand Q 2 Q 1 www. oga. no A lower discount rate implies a longer time horizon for the exploitation of the resource. Less will be produced now to the benefit of more production tomorrow Quantity

Target revenue www. oga. no

Target Revenue Theory: Lower prices give higher production Price Negative supply elasticity. . Supply curve Quantity www. oga. no

US Energy Department: Million Barrels per Day Low oil prices gives higher OPEC production. . Source: Energy Information Administration, Annual Energy Outlook www. oga. no Target Revenue. . .

Price – capacity relationship www. oga. no

2007 www. oga. no

OPEC production and production capacity 2007 www. oga. no

OPEC Surplus capacity 2007 Table 3 c. OPEC Petroleum Production (million barrels per day) Energy Information Administration/Short-Term Energy Outlook - September 2007 2006 1 st 2 nd 2007 3 rd 4 th 1 st 2 nd 3 rd 4 th Crude Oil Surplus Crude Oil Production Capacity Algeria. . . . . 0, 00 0, 02 0, 01 0, 03 0, 06 n/a Indonesia. . . . 0, 00 0, 00 n/a Iran. . . 0, 00 0, 03 0, 05 n/a Kuwait. . . . . 0, 04 0, 07 0, 05 0, 10 0, 17 0, 20 n/a Libya. . . . . 0, 00 0, 03 0, 02 n/a Nigeria. . . . . 0, 00 0, 00 n/a Qatar. . . . . 0, 00 0, 03 0, 06 n/a Saudi Arabia. . . . 1, 09 1, 28 1, 30 1, 72 1, 85 1, 90 n/a United Arab Emirates. . . . 0, 00 0, 07 0, 11 0, 10 n/a Venezuela. . . . 0, 00 0, 09 0, 03 n/a OPEC-10 Total. . . 1, 13 1, 37 1, 36 2, 01 2, 41 n/a Angola. . . . . 0, 00 0, 00 n/a Iraq. . . 0, 00 0, 00 n/a OPEC-12 Total. . . 1, 13 1, 37 1, 36 2, 01 2, 41 2, 17 2, 02 Notes: The approximate break between historical and forecast values is shown with historical data printed in bold; estimates and forecasts in italics. Historical data: Latest data available from Energy Information Administration databases supporting the International Petroleum Monthly; and International Energy Agency, Monthly Oil Data Service, latest monthly release. Minor discrepancies with published historical data are due to independent rounding. Projections: Generated by simulation of the EIA Regional Short-Term Energy Model. Source: EIA www. oga. no

Price - Capacity Analysis Capacity Price Reaction curve Quantity www. oga. no

Peak Oil www. oga. no

Peak Oil (Now)? www. oga. no Or it will pass …? -Thomas Malthus 1798. . -”Limits to Growth” 1970 s. .

Running Out of Cheap Oil Mr. King Hubbert, Shell Oil 1956 www. oga. no Source: Energy Bulletin 2. 4. 2006

When Will Oil Peak Globally? Int’l disagreement: . . From already peaked to peak in 2035. . Of the 65 largest oil producing countries in the world, up to 54 have past their peak of production. . US in 1970/71, North Sea in 2001 Source: www. peakoil. ie www. oga. no

ASPO: The Association for the Study of Peak Oil and Gas 2005 model www. oga. no Source: Energy Bulletin 2. 4. 2006

12 EIA Scenarios for Conventional Oil The peak depends heavily on economic growth www. oga. no Source: Energy Information Administration, US Department of Energy 2004

Political approaches www. oga. no

The Oil Prize and World Geopolitics 1980: Iraq-Iran War 1978: Iranian Revolution 1974: The IEA Established 1967: 6 Day War 1960: OPEC Foundation 1990 -91: Kuwait War 1973: Yom Kippur War 2003: Iraq War www. oga. no

Effect of a supply distruption The role of the IEA Price S 1 S 2 2 3 S 0 1 P 1 2 P 2 3 1 P 3 P 0 D 1 Quantity www. oga. no

Coffee break www. oga. no

The European Union as big energy consumer. . www. oga. no

Primary energy demand “negajoules” for EU-25 1971 -2005 “Negajoules”: Energy savings calculated on the basis of 1971 energy intensity www. oga. no Source: Action plan for energy efficiency: Realizing the potential, COM (2006)545 final 19. 10. 2006

EU (25) Gas Demand Projections to 2030 75 % of incremental demand is for power +70 % www. oga. no Source: WEO 2004 (IEA)

Gas Resources for the European Gas Market Reserve size and transport distances to the EU Cccc hh Barents Sea Russia Caribbean Pipeline to nearest European market LNG to nearest European regasification terminal www. oga. no Source: Statoil

Rapid Growth of the European Natural Gas Grid 1970: 2007: - Relative Price Stability and Long-Term Contracts www. oga. no

Gas resources for the Eurasian market - will a “gas-OPEC” be created? The “Gas ellipse” ? ? www. oga. no

Liberalization of the EU gas market www. oga. no

European Gas from Producer to Consumer IMPORTERS/ CUSTOMERS EXPORTERS/ PRODUCING COMPANIES ? Norway Russia Algeria Holland Distributing nework Distributing network Transmission network in producing countries A Consumers Transmission network in consuming countries B Distributing network Gas Power plants Storage Large industrial users Others End users Brokers and marketers www. oga. no Competition Natural monopolies Competition Unbundling Regulation Unbundling Natural monopolies Regulation

Example: Norwegian Gas to Europe - No Perfect Liberalization So Far Gas. Led: Third Party Access, Regulated Tariffs Germany: Third Party Access, Negotiated Terms www. oga. no Source: Norwegian Ministry of Petroleum 2000

Decreasing average costs in a natural gas pipeline ”Tariff” (s = pt - pp) Average revenue (AR) Demand curve A: monopoly Smon G A F E Sac J H Smc I Average cost (AC) B: regulation B D X qmon L qac C: state company / subsidization C qmc Marginal revenue (MR) www. oga. no Marginal cost (MC) quantity

An optimal portfolio of competition, tariff structure and unbundling is difficult to find. 1. What a reasonable tariff? Tariff should decrease with increased demand… 2. How to distribute a possible excess demand beyond pipeline capacity? A pro rate system - prioritize customers. Firms vs interruptible service etc. How to price new transport capacity? “Roll-in” costs of the new pipeline in the tariffs for all transportation or individual tariffs? How large should capacity be. ? Social vs private optimization. What are the alternatives to regulation? . Competition, alternative pipelines with new owners. 1. What about property rights? Private vs government ownership, or that distributors and/or producers owns the transmission companies with a share which is so small that they do not want their profit to accumulate in the transmission sector. The Gas. Led system on the NCS take account of this aspect. Market conditions change over time. A politically controlled liberalization process must contain a dynamics in order to change optimally over time. -> EASY TO ARGUE AGAINST AND FOR MOST ARRANGEMENTS! Principle – agent problem www. oga. no

Old Gas Contracts: Gas Prices Set in Relation To and Lower Than Substitute Prices $/bbl $/mmbtu 60 END USER PRICES (ii) ON FUEL OILS (substitute price) PRICES ON NATURAL GAS 10 Taxes 40 Taxes up 20 Gas taxes 5 LDCs Costs. Crude oil price www. oga. no Oil prices vary Transmission Producer Here pi = pc, pd, pt, pp (prices at different levels in the gas chain) The factor j expresses which weight energy carrier no. j is given in the price, while pej is the price on alternative energy carrier no. j (j=1…n). The function fi expresses the link between the price of the alternatives and gas throughout the gas chain.

Oil Prices to Producers and Consumers 1981 -1998 OECD-Europe $/bbl (1998 -value) 100, 0 80, 0 60, 0 Oil product taxes 40, 0 20, 0 1981 Refining, transportation, marketing etc Crude oil price 1983 1985 1987 1989 1991 1993 1995 1997 Source: Austvik 1996 with updated data until 1998 www. oga. no

Effects of Market Liberalization - 1 Contracts n n n More short term Fewer long term - long term shorter than before Initial pressure for renegotiation of old TOP contracts www. oga. no

New Gas Contracts: Increased Price Volatility Due to Liberalization. Oversupply Gives Lower Prices in the Short Run Lack of Gas Gives Higher Prices in the Long Run NATURAL GAS PRICES Oil product price $/bbl $/mmbtu ”equilibrium prices” Short and medium term END USER PRICES ON FUEL OILS Weak market Tight market Taxes Gas taxes LDC ? Gas taxes LDC. Costs Transmission Crude oil price Producer Gas taxes LDC ? Transmission Producer www. oga. no Transmission Producer

Historical U. S. Annual Average Natural Gas Wellhead Prices 1978 -2005 Source: California 2006, Appendix 1 www. oga. no

U. S. Natural Gas Production Capacity 1985 -2001 www. oga. no Source: ”Natural Gas Productive Capacity for the Lower-48 States”, EIA 2001

Average Gas Prices to US Customers 1967 -2000 www. oga. no Source: Historical Natural Gas Annual, EIA 2002

Effects of Market Liberalization - 2 -Prices More volatile Possibly lower in the short and medium term higher in the long run. Move from taxes on labor to taxes on energy www. oga. no

Taxes as per cent of end user prices on natural gas to European households -The EU (2003) Introduced Higher Taxes on Gas Usage Across the Community. . . www. oga. no Gas to households Country 19 84 19 99 20 06 Austria 16. 7 27. 8 Belgium 14. 5 20. 9 21. 3 n. a. Czechia n. a. 4. 8 18. 0 16. 0 Denmark 18. 0 20. 0 58. 1 49. 9 Finland 1. 7 28. 0 31. 8 25. 1 France 15. 7 15. 9 15. 0 Germany 12. 3 19. 0 23. 7 n. a. Great Britain 0. 0 5. 7 4. 8 Hungary n. a. 9. 1 10. 7 14. 3 Italy 13. 4 42. 6 46. 5 n. a. Neth. lan ds 16. 0 19. 1 35. 0 32. 9 Spain 1. 5 14. 3 15. 1 13. 8 Source: IEA Energy Prices and Taxes, Quarterly

Price Effects of an Increase in Excise Taxes on Gas Consumption Supply Inelastic With respect to Price in the Short and Medium Term? $/bbl Gas price $/mmbtu NATURAL GAS PRICES END USER PRICES ON FUEL OILS ”Equilibrium price” With gas taxes increased Taxes Short term Gas taxes Medium and long term Gas taxes LDC. Costs LDC Transmission Crude oil price Transmission Producer www. oga. no Producer

Demand more elastic in the long than in the short run Price Long term effect Short term effect P 2 P 1 Demand long run Demand short run ∆Q Q 2 www. oga. no Q 1 Q 0 Quantity

Price Effects of Liberalization and Increased Excise Taxes on Natural Gas NATURAL GAS PRICES $/bbl Without gas taxes Before liberalization END USER PRICES ON FUEL OILS After liberalization Medium and long term More gas taxes Gas taxes LDC . Costs Short term Medium and long term Taxes Short term Gas price $/mmbtu With gas taxes Transmission LDC Transmission Gas taxes LDC. Transmission. LDC Transmission. Crude oil price www. oga. no Production Production + Volatility for Consumers and Producers

Effects of Market Liberalization - 3 Security-of-Supply n n n www. oga. no Improved in the short and medium term because customers can buy gas from more sellers, alternative routes for transportation, storage capacity. Detoriated in the long term because new capacity in huge and remote fields will not be realized. Liberalization will be easier as the market matures

What is Security-of-Supply? Interdependent market actors n Reciprocal but not necessarily symmetrical w Can change over time n Security-of-Supply vs. Security-of-Demand Risks: n n Short term: Disruptions to existing supplies Long term: Not enough supplies provided at “reasonable” prices. Physical vs economic (i. e. price change) dependency n www. oga. no Ability to domestic adoption

Policy depends on schools of thought: Is oil and gas economically a scarce or an abundant resource? Scarce (peak Oil) ? abundant 2015 www. oga. no 2030

Prices may fall in the long run. price Scenario: The case of continuos upgrading of reserves, more elastic demand, decline in economic growth and/or introduction of more efficient technology time www. oga. no

Renewable Energy Cost Trends www. oga. no

Alternative strategies to improve security-ofsupply for the consuming countries More and safe non-renewables (oil, gas, coal) More renewables Improved energy efficiency Energy savings … All can be influenced by both economic and political means and by market mechanisms. Optimization can be based on short or long-term considerations PRESENT: FOR THE EU: www. oga. no STRONG EMHPASIS ON MORE OIL AND GAS; MORE NATURAL GAS.

Two Possible Price Paths for Natural Gas as an Exhaustible Resource for the European Market. Illustrated long run marginal costs (LRMC) for large and smaller fields (assumed constant for each). price Increased supply now, depletion of smaller fields, reduced investment in large and remote fields Less supply from smaller fields, investment in large and remote fields LRMC for smaller fields SRMC T 1 time T 2 or www. oga. no

2006 Increased uncertainty ? Gas Supply Cost Curve to EU 30 for 2002 (additional volumes) Import price 1990 & 2000 Import price 1999 OME, October 2001 www. oga. no

Russian oil and gas for Europe Few transit routes to the West www. oga. no 50% 80%

Nordstream – North European Gas Pipeline. . An alternative corridor. . www. oga. no

SKANLED navn på planlagt gasstransport-system (se også Grenpipe), som skal sikre gassleveranser til Øst-Norge, Vest-Sverige og Danmark. 13 selskaper har signert avtaler om bruk og eierskap, mens det polske olje- og gasselskapet PGNi. Gs vurderer å delta i prosjektet. PGNi. G ønsker å føre gass fra norsk sokkel gjennom Skanled til Danmark, for deretter å bygge en egen rørledning fra Danmark til Polen. PGNi. G kjøpte nylig en 15 prosent eierandel i Skarv-lisensen i Norskehavet. Også det store tyske gasselskapet E. ON Ruhrgas vurderer å ta del i Skanled. • Skanled planlegger investeringsbeslutning i 2009 og oppstart av gassleveranser i 2012. Anslått investering for Skanled er 7 milliarder kroner. Det planlegges også å bygge et separasjonsanlegg for etan i Grenland i tilknytning til transportsystemet. Separasjonsanlegget har et investeringsanslag på 2 milliarder kroner. Gassco har sammen med brukerne etablert en arbeidsgruppe for å lage en forretningsmodell og sikre finansiering av anlegget, etter anmodning fra Olje og energidepartementet. Skanled eies av: Skagerak Energi (20 prosent), E. ON Ruhrgas (15), Pg. Ni. G (15), Energinett dk. (10), Hafslund (19), Østfold Energi (10), Gøteborg Energi (8), Agder Energi (5), Swedegas (5) og Preem Petroleum (2 prosent). www. oga. no

A possible Shtokman development www. oga. no Source: Hydro

Possible Transportation Routes for Natural Gas from the Barents Sea 1 3 2 ne ti l Ba www. oga. no li pe i c. P

Gazprom • OJSC Gazprom, (Russian: Газпром; long version: Открытое Aкционерное Oбщество Газпром; is the largest Russian company. • Gazprom is the biggest extractor of natural gas in the world. • With sales of US$31 billion in 2004, it accounts for about 93 percent of Russian natural gas production; • with reserves of 28, 800 km³, it controls 16 percent of the world's gas reserves (as of 2004, including the Shtokman field. ) • After acquisition of the oil company Sibneft, Gazprom, with 119 billion barrels (18, 900, 000 m³) of reserves, ranks behind only Saudi Arabia, with 263 billion barrels (41, 800, 000 m³), and Iran, with 133 billion barrels (21, 100, 000 m³), as the world's biggest owner of oil and oil equivalent in natural gas • Gazprom's Board of Directors as of December 2006: • Dmitry Medvedev (Chairman, First Deputy Prime Minister of the Russian Federation), coming President in Russia in May 2008. www. oga. no • Alexei Miller (Deputy Chairman) Source: en. wikipedia. org

Gazprom increasingly stronger -at home and abroad… Source: Gazprom www. oga. no

The stone age did not end because there was a lack of stones! …… www. oga. no OIL AGE MAN

Thank you for your attention! Ole Gunnar Austvik www. oga. no E-mail: oga@oga. no Tel: +47 - 612 88246 Mob: +47 - 906 77251

Coffee break www. oga. no

Norway . . The small country with big supplies www. oga. no

Total Norwegian Petroleum Production and Start-Up of Important Fields 1971 -2030 www. oga. no Oil peak in 2004

Macroeconomic indicators for the petroleum sector 1970 -2005 www. oga. no Sources: Statistics Norway, Ministry of Finance

Net Norwegian government cash flow from petroleum activities High oil prices (= ca. 70 Bill USD) 1996: First money into the Fund Thank you China, Iraq war, and all others not mentioned www. oga. no Source: MPE Fact Sheet 2007

The size of the Government Pension Fund – Global (The Petroleum Fund) at 31. 12. 2006, as share of GDP, and official forecast for 2010. ? 120%? 3000 (= Ca. 550 Bill USD) • Returns on investments increasingly more important! (= Ca. 360 Bill USD) 2010 www. oga. no Sources: Fact Sheet MPE 2007, NBIM

SWF: Foreign investors by end 2007… www. oga. no

A sea territory 7 times larger than mainland Norway www. oga. no

Russia … The big country with the big supplies www. oga. no

Russian Total Liquids Production and Consumption 1992 -2008 E www. eia. doe. gov www. oga. no

Ca. 700 BCM www. oga. no

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? www. oga. no Source: CIA

“Resource nationalism”? : High prices gives more gvt involvement. Nationalized Industry www. oga. no State – private industry combinations Competitive industry regulated as any other economic activity

Russia Dominates the Eurasian High North Needs transportation alternatives Wants to control the petro-sector n n Gazprom important instrument commercially as well as politically But needs foreign technology Integration into international economics and politics n WTO, EU, US, China The world energy super-power n n www. oga. no But: ”Locked in” ”Imperial energy overstretch”?

Winter time in the Barents area…. Source: Sevmorneftegaz www. oga. no

US Geological Survey expects 25 % of world unproven reserves to be in the Artic Area. . www. oga. no

North Pole ice extentions average 1978 -2002 February September www. oga. no

The polar ise is reduced in depth and area January 1990 January 1999 These images show decreasing thickness and extent of Arctic sea ice from January 1, 1990, and January 1, 1999, respectively. The images were created using data from the Defense Meteorological Satellite Program's Special Scanning Microwave Imager. (Courtesy NASA) www. oga. no

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Iraq, the oil and OPEC The U. S. (and all oil consuming nations) must do something to secure oil supplies from PG in the long term. The alternative is high oil prices, energy diversification, development of alternative energies, conservation measures and in the medium term slower economic growth. n Change in way of life - but: Less dependence on PG oil. On the other hand: An ‘unsuccesful’ post-Saddam regime may contribute to a destabilization of the region. n Unstable political situation, oil market and world economy. Until the situation of more clear, prices must be expected to remain reasonably high and UNSTABLE. n Only if the conflicts spread dramatically prices should be expected higher than this, and only for a period of time (but economic slowdown or recession will follow). It will be necessary for the US (and other countries) to be diplomatically and military present in the area for a long time (if they can) n www. oga. no Reactions in the Arab world in the long run?

Demand more elastic in the long than in bthe short run Price P 2 P 1 Demand long run Demand short run ∆Q Q 2 www. oga. no Q 1 Q 0 Quantity

Oil Prices and World Capacity Utilization • (as 08/06 in 73/74!) 1975 -200 Price Change 50% • 00 • 80 • 79 • 99 40% 30% • 87 20% • 89 • 90 10% 0% • 83 • 82 -20% 81 • • • 78 • 75 • 84 • 85 -10% 77 -30% -40% • 76 • 93 40% 50% 60% 30% 20% • 01 -10% • 88 • 97 • 86 40% • 02 • 96 • • 95 03 • 92 • 94, 98 PG Security Premium -50% • 04 91 10% 0% • Gulf War 1990 -91 -20% -30% -40% -50% 70% 80% 90% 100% Capacity Utilization www. oga. no Is the price reaction curve being moved back now?

Scenarios – a possible holistic approach? www. oga. no

Economic Limits to Political Oil Prices. Limits 2002 -2012 Economic and - Politics to Modify Prices Oil Prices 2004 -2014 Strategic Petroleum Reserves (SPR) modify temporary price hikes? Real 2002 prices Long run substitute price / Macroeconomic sustainable price ? 2000 www. oga. no Long run marginal cost of production (Persian Gulf) 2004 2007 2012 Prices should over time be kept at or above long run marginal cost of production outside Persian Gulf

Limits to Oil Pricing: A Window for Oil Prices 2004 -2014 Real 2002 prices More oil, other energies, conservation, lower growth; SPRs Upper Limit? 1990 s Lower Limit Less oil; OPEC, Norway++ 2004 2009 Developed from Austvik 1992 (Energy Policy) www. oga. no 2014

Oil and the conflict in Iraq. . www. oga. no

HI GUY’S! …. I want more oil ! www. oga. no

The Holdup! www. oga. no

Our questions now: Is oil a scarce or an abundant resource in economic terms? n Implications for planning and investments Long vs short term Does policy matters? www. oga. no

Future changes? The availability of substitutes Efffiency gains n n Production Consumption Incremental or radical change? f www. oga. no