Sveriges Landtbruksuniversitet Uppsala Torsdag 8. mai 2008 Ole Gunnar Austvik Høgskolen i LIllehammer oga.no

1. 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

2. Tentativt program • Global energi – oljemarkedet • Prisdannelsen på olje • Det europeiske gassmarkedet • Diskusjon, spørsmål, meninger, innlegg….

3. Global Energy Use Since 1860 Million tons of oil equivalent gas End of WW2 oil coal Source: www.manicore.com

4. 18 000 16 000 14 000 Oil 12 000 10 000 Mtoe 8 000 Gas 6 000 Coal 4 000 2 000 Other renewables Nuclear Hydro 0 1970 1980 1990 2000 2010 2020 2030 1971 World Primary Energy Demand Oil, gas and coal together account for 83% of the growth in energy demand between now and 2030 in the Reference Scenario Source: IEA

5. World Energy Use by Region 1970-2025

6. Energy Consumption per Capita USA and China 1975-2015

7. …. Energy usage and the environment in conflict

8. CO2- emissions and economic development End of WW2 Source: www.answers.com

9. 40 000 35 000 30 000 25 000 2 20 000 Mt of CO 15 000 10 000 5 000 0 1971 1980 1990 2000 2010 2020 2030 Coal Oil Gas World Energy-Related CO2 Emissions Kyoto target Global emissions grow more than 50% between 2003 and 2030, but fuel shares hardly change Source: IEA

10. …. The global oil market

11. Top Oil Consumers and Importers 2005 * * * Sources: EIA, BP

12. Vehicles per 1000 people for USA and China

13. The largest oil producers and exporters in 2006 Incl. NGL/condensate) Exports Production Norway has a R/P-ratio < 10 år, Saudi-Arabia > 100 år Source: Petroleum Economics Ltd.

14. 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 Source: IEA

15. Oil in The Middle East | Hormuz 18 mb/d

16. World Crude Oil Flows 2008 2028

17. US Oil Imports by Source Million Barrels per Day Source: Energy Information Administration, Annual Energy Outlook

18. Oil Prize Developments 1861-2006 1978-80: 2d Oil Shock ”OPEC II” 1985/86: Oil Price Callapse 2004: 3d Oil Shock 1973/74: 1st Oil Shock ”OPEC I”

19. Whatever the main motive for the invasion of Iraq, the conflict has major oil political and geoeconomic consequences.

20. 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-1990s… .. long before G.W. Bush took office …

21. .. 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…): • All consuming countries - 110 billion $ • OECD - 80 “ • EU - 30 “ • USA - 30 “ • All producing countries + 110 “ • Saudi Arabia + 30 “ • Norway + 10 “ • OPEC + 80 “ • There are huge economic interests at stake!

22. Possible outcomes of the conflict- as seen from the Bush Administration... • ”Best case” • 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” • 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.

23. PETRO - NORGE Net government cash flow from petroleum activities 1971- 2006 High oil prices ”Worst” case ”Best” case

24. Coffee break

25. 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…

26. Oil Price Prognoses From the 1980s 1998 - $/bbl Average price prognoses (month/year) ? Actual prices Source: Manne & Schrattenholzer 1987

27. Natural resource economics

28. Price path with a backstop technology price Price of backstop technology p0 Scarcity rent b time T*

29. Property rights

30. Privatization: Nationalization of international oil companies was a necessary condition to create a strong OPEC National vs. international oil companies within OPEC 1960-1981 Property Rights...

31. Property Rights Model Price Supply - 2 Supply - 1 P2 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 P1 Demand Q2 Q1 Quantity

32. Target revenue

33. Target Revenue Theory: Lower prices give higher production Price Negative supply elasticity.. Supply curve Quantity

34. US Energy Department:Low oil prices gives higher OPEC production.. Million Barrels per Day Source: Energy Information Administration, Annual Energy Outlook Target Revenue...

35. Price – capacity relationship

36. 2007

37. OPEC production and production capacity 2007

38. OPEC Surplus capacity 2007

39. Price - Capacity Analysis Capacity Price Price Reaction curve Quantity

40. Peak Oil

41. Peak Oil (Now)? Or it will pass …? -Thomas Malthus 1798.. -”Limits to Growth” 1970s..

42. Running Out of Cheap Oil Mr. King Hubbert, Shell Oil 1956 Source: Energy Bulletin 2.4.2006

43. 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

44. ASPO: The Association for the Study of Peak Oil and Gas 2005 model Source: Energy Bulletin 2.4.2006

45. 12 EIA Scenarios for Conventional Oil The peak depends heavily on economic growth Source: Energy Information Administration, US Department of Energy 2004

46. Political approaches

47. The Oil Prize and World Geopolitics 1980: Iraq-Iran War 1978: Iranian Revolution 1974: The IEA Established 1967: 6 Day War 1990-91: Kuwait War 1973: Yom Kippur War 1960: OPEC Foundation 2003: Iraq War

48. Effect of a supply distruption The role of the IEA Price S1 S2 S0 1 2 3 P1 2 P2 3 P3 1 P0 D0 D1 Quantity

49. Coffee break

50. The European Unionas big energy consumer..