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OIL PRICES
In what has been defined as “The New Economy of oil”, oilprices in the past did not follow a steady trend, and the recordshows a behavior of “episodes” guided either by a core cartel of exhaustible resources
The New Economy of OilThe Royal Institute of International Affairs-2001.
The New Concept
The new episode as defined by this concept will bedriven 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 shocksIn 1973 and 1979, restraining competition when prices are at survival levels.
The New Economy of OilThe Royal Institute of International Affairs-2001.
1950 - 19701950 - 1970
1970 – 1985: Arabian Light, 1986 – 2000: Dubai1970 – 1985: Arabian Light, 1986 – 2000: DubaiSource: Energy Information Administration - DOESource: Energy Information Administration - DOE
1970 - 20001970 - 2000
06/67 - 08/6706/67 - 08/67 22 22 Six Day WarSix Day War
10/73 - 03/7410/73 - 03/74 66 2.62.6 October Arab -Israeli War, October Arab -Israeli War, Arab Oil EmbargoArab Oil Embargo
11/78 - 04/7911/78 - 04/79 66 3.53.5 Iranian revolutionIranian revolution
10/80 - 12/8010/80 - 12/80 33 3.33.3 Outbreak of Iran - Irak WarOutbreak of Iran - Irak War
08/90 - 10/9008/90 - 10/90 33 4.64.6 Iraqi invasion of Kuwait/Storm ofIraqi invasion of Kuwait/Storm of DesertDesert
04/99 - 03/0004/99 - 03/00 1212 3.33.3 OPEC cuts productionOPEC cuts production
Source: Energy Information Administration - DOESource: Energy Information Administration - DOE
In the WORLDIn the WORLD
Global Oil Supply DisruptionsGlobal Oil Supply DisruptionsGlobal Oil Supply DisruptionsGlobal Oil Supply Disruptions
To avoid the potential impact of oil supply disruptions To avoid the potential impact of oil supply disruptions consumer countries have reacted in different way:consumer countries have reacted in different way:
Building up of oil stocks in order to mitigate Building up of oil stocks in order to mitigate price volatilityprice volatility
Development of a commodity market that Development of a commodity market that includes futures optionsincludes futures options
Starting with heating oil futures in 1978, Starting with heating oil futures in 1978, energy futures and options on the NYME energy futures and options on the NYME have grown and profoundly changed have grown and profoundly changed energy marketingenergy marketing
World oil StocksWorld oil Stocks
World oil demand/supply balanceWorld oil demand/supply balance
Source: OPECSource: OPEC
Concluding remarksConcluding remarksConcluding remarksConcluding remarks
Price volatility in oil markets is driven Price volatility in oil markets is driven by a wide range of factors. by a wide range of factors.
Political eventsPolitical events
Balance between OPEC decissions and importing countriesBalance between OPEC decissions and importing countries
Economic CrisisEconomic Crisis
Because of these issues long term Because of these issues long term planning is almost difficultplanning is almost difficult
TCFTCF1999 2000 Growth
Rate(%)
TOTAL WORLD 84.5 87.9 4.1
Source: CEDIGAZ
World Natural GasWorld Natural GasConsumptionConsumption
Natural Gas DemandNatural Gas DemandNatural Gas DemandNatural Gas Demand
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
DOE estimatesDOE estimates
20202020 162 TCF162 TCF
20002000 87 TCF87 TCF
Average growth rate 3 % Average growth rate 3 %
GROWTH OF WORLD ENERGY GROWTH OF WORLD ENERGY CONSUMPTION BY FUELCONSUMPTION BY FUEL
Source: Global Energy
With an average growth of 3.1% per annum, by 2015 the demand for Natural Gas will be greater than the oil demand
50
100
150
200
250
0
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Oil Coal Renewables NuclearNatural Gas
1015
BT
U
Natural GasNatural Gaswill be the major will be the major
driver of the driver of the energy energy
development in development in
the next the next 1515 years years
Reserves/Reserves/ProductionProduction
RatioRatio
OilOilNatural GasNatural Gas
R/P (years)R/P (years) 6161 39.939.9
Source: BP 2001, Statistical Review of World EnergySource: BP 2001, Statistical Review of World Energy
Natural Gas use increasingNatural Gas use increasingNatural Gas use increasingNatural Gas use increasing
Gas use is increasing, around the world, for a variety of Gas use is increasing, around the world, for a variety of reasons:reasons:
PricePrice
Envinronmental concernsEnvinronmental concerns
Fuel diversification and/or energy security issuesFuel diversification and/or energy security issues
Market deregulation (for both gas and electricity)Market deregulation (for both gas and electricity)
Natural Gas Future ConsumptionNatural Gas Future ConsumptionNatural Gas Future ConsumptionNatural Gas Future Consumption
Future consumption will require bringing new gas Future consumption will require bringing new gas resources to market with LNGresources to market with LNG
LNG tradeLNG trade will grow in the future but it will depend on the will grow in the future but it will depend on the development of a spot marketdevelopment of a spot market
AlgeriaAlgeriaArzewArzew
U.S.A. U.S.A. Kenai Kenai
LibyaLibyaMarsaMarsa
ElElBregaBrega
Brunei Brunei LumutLumut
Algeria Algeria SkikdaSkikda
Abu Dhabi Abu Dhabi Das IslandDas Island
Indonesia Indonesia BontangBontang
IndonesiaIndonesiaArunArun
Malaysia Malaysia BintuluBintulu
AustraliaAustraliaNorthNorthWestWestShelfShelf
QatarQatarBintuluBintulu
Nigeria Nigeria BonnyBonnyIslandIsland
Qatar Qatar RasgasRasgas
OmanOmanOmanOmanLNGLNG
Trinidad Trinidad AtlanticAtlantic
LNGLNG
World exports between 1990 – 2000 have grown at 5.99 % per annumWorld exports between 1990 – 2000 have grown at 5.99 % per annum
ExportsExports
The largest growth was in the Middle East region, 19.84 % per annumThe largest growth was in the Middle East region, 19.84 % per annum
ImportsImports
World imports between 1990 – 2000 have grown at 6 % per annumWorld 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.
Asia is, by far, the largest importer of LNG accounting for 70 % of global imports in 2000.
LNG demandLNG demand
(million t/y)(million t/y) 19991999 20002000 20052005 20102010
TOTALTOTAL 68.568.5 73.573.593.993.9 115.6115.6
Asia - PacificAsia - Pacific
$US
/MM
Btu
$US
/MM
Btu
Long Term US Price Projections,Long Term US Price Projections,Henry HubHenry Hub
EEAEEA
EIAEIA
WEFAWEFA
NPCNPC
CERACERA
PIRAPIRA
LNG will create a spot market for natural gas
Currently, markets for LNG are strongly influenced by oil and oil products markets.
There is no spot market for natural gas.Gas price depends on long term contacts signed between supply and demand.
As the use and trade of natural gas continues to grow, there is a challenge for developing price mechanisms that facilitate international trade
Concluding remarksConcluding remarksConcluding remarksConcluding remarks