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The New Economy of Oil: Episodes and Trends in Oil Prices

Explore the fluctuating trends in oil prices and the concept of "episodes" guided by competition from other fuels and reduction of oil production capacity. Discover the impact of political events and economic crises on price volatility. Learn about the projected growth of natural gas consumption and its potential to drive the future energy market. Identify the challenges in developing a spot market for natural gas.

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The New Economy of Oil: Episodes and Trends in Oil Prices

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  1. 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.

  2. 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.

  3. 1950 - 1970

  4. 1970 - 2000 1970 – 1985: Arabian Light, 1986 – 2000: Dubai Source: Energy Information Administration - DOE

  5. 06/67 - 08/67 2 2 Six Day War October Arab -Israeli War, Arab Oil Embargo 10/73 - 03/74 6 2.6 11/78 - 04/79 6 3.5 Iranian revolution Outbreak of Iran - Irak War 10/80 - 12/80 3 3.3 Iraqi invasion of Kuwait/Storm ofDesert 08/90 - 10/90 3 4.6 04/99 - 03/00 12 3.3 OPEC cuts production Source: Energy Information Administration - DOE In the WORLD

  6. 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 Global Oil Supply Disruptions To avoid the potential impact of oil supply disruptions consumer countries have reacted in different way:

  7. World oil Stocks

  8. World oil demand/supply balance Source: OPEC

  9. Political events Balance between OPEC decissions and importing countries Economic Crisis Concluding remarks Price volatility in oil markets is driven by a wide range of factors. Because of these issues long term planning is almost difficult

  10. World Natural Gas Consumption TCF 1999 2000 Growth Rate(%) TOTAL WORLD 84.5 87.9 4.1 Source: CEDIGAZ

  11. DOE estimates 2000 87 TCF 2020 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 Natural Gas Demand

  12. 250 200 1015 BTU 150 100 50 0 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Coal Oil Natural Gas Renewables Nuclear GROWTH OF WORLD ENERGY CONSUMPTION BY FUEL 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

  13. Reserves/Production Ratio Natural Gas Oil R/P (years) 61 39.9 Source: BP 2001, Statistical Review of World Energy Natural Gas will be the major driver of the energy development in the next 15 years

  14. Price Envinronmental concerns Fuel diversification and/or energy security issues Market deregulation (for both gas and electricity) Natural Gas use increasing Gas use is increasing, around the world, for a variety of reasons:

  15. LNG trade will grow in the future but it will depend on the development of a spot market Natural Gas Future Consumption Future consumption will require bringing new gas resources to market with LNG

  16. Algeria Arzew Libya Marsa El Brega Malaysia Bintulu Qatar Bintulu Oman Oman LNG Abu Dhabi Das Island Indonesia Bontang Trinidad Atlantic LNG U.S.A. Kenai Brunei Lumut Indonesia Arun Australia North West Shelf Qatar Rasgas Algeria Skikda Nigeria Bonny Island

  17. 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 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. Exports Imports

  18. LNG demand Asia - Pacific (million t/y) 1999 2000 2005 2010 TOTAL 68.5 73.5 93.9 115.6

  19. Long Term US Price Projections, Henry Hub EEA $US/MMBtu NPC EIA CERA WEFA PIRA

  20. 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 Concluding remarks There is no spot market for natural gas. Gas price depends on long term contacts signed between supply and demand.

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