Business | Oil & Gas
Channel Sponsor
Seeking a more stable oil market
exploring new resources and improving recovery methods are crucial as global reserves deplete fast
- By Saadallah Al Fathi, Special to Gulf News
- Published: 00:05 April 3, 2008
Volatility in oil prices has been persistent in the last few years, but the trend has pointed upwards. The reasons have included healthy economic growth and demand, especially in China and India, in addition to limited spare capacity, increased speculation, weak dollar, limitations of the global refining industry and the fear factor created by the geostrategic situation around the world. There are also the trouble spots engulfing some of the producing countries as exemplified by the invasion and occupation of Iraq.
In the long run, there are many factors that will determine the evolution of the oil market. The economic growth rates of recent years are expected to moderate to an average of 3.5-4 per cent due to higher energy prices and the recent problems in the financial markets. However, growth rates in developing countries, particularly China and India, could be more than five per cent.
Long-term outlook
Current prices have not yet caught the attention of long-term researchers. The Organisation of Petroleum Exporting Countries (Opec) assumes the price in 2030 will be in the range of $50 to $60 a barrel. The International Energy Agency (IEA) assumes the price will reach $62 a barrel by 2030, in constant 2006 dollars. Of course, it is possible for prices to moderate as new capacity comes on stream or if the economic prospects worsen, but the projected levels seem to be low.
The recent doubts about the resource base may be hyped a little, but they created a perception of shortage as there is no doubt that the world is consuming more oil than it is finding. However, if the peak oil theory is correct, the world will approach peak production sooner than some of us would like and a decline will set in thereafter. There is therefore a need for an intense search and development of new resources, including but not limited to, heavy oil and an improvement in recovery from existing fields.
On the policy side, researchers usually assume the continuation of current policies of consumers and producers, unless there are foreseen changes, in addition to reasonable improvement in energy efficiency and technological evolution. However, policies are changing and especially with respect to environmental regulation where most countries are trying to reduce carbon emissions by reducing dependence on fossil fuels but very few expect the world to meet its objectives according to current commitments and wishes of environmental agreements. Nevertheless under different scenarios one must allow for more strict policies and higher achievement rates of emission reductions.
Oil demand is expected to reach 118 million barrels a day (mbd) in 2030, which is much lower than previously forecast due to the impact of higher oil prices.
The supplies from outside Opec in 2030 are forecast at about 59 mbd as the production from this group has been more resilient than previously thought and is likely to continue growing albeit at lower rates.
To balance the market, Opec production in 2030 is forecast at 59 mbd, an increase of some 24 mbd considering current production of some 35 mbd. By that time, Opec production is likely to include about 10 mbd of condensate, natural gas liquids and gas to liquid products which are related more to the natural gas industry.
For Opec to increase production so much is a huge undertaking that will require cumulative investment in the upstream industry of as much as $680 billion, as compared to total world investment of about $2.4 trillion. The Opec investment is expected to go ahead as the total is only a small fraction of the expected cumulative revenue at today's oil prices.
To convert the oil to usable products, adequate refining industry is necessary. World refining capacity at the end of 2007 stood at around 85 mbd and therefore it has to increase by about 30 mbd by 2030 if the demand for petroleum products is to be met. No wonder that only up to 2020, Opec estimates the required investment in the refining industry to be around $455 billion for additional refining capacity of 13 mbd only.
Obviously, there are a lot of uncertainties surrounding the oil market leading up to 2030. The market remains vulnerable due to the state of the economy and the political situation. Therefore, producing countries might become more concerned about the security of demand and be reluctant to invest in capacity to the detriment of the world economy.
Cooperation between nations and a real attempt to solve outstanding problems of peace and security around the world is absolutely necessary to advance the stability of the oil market.
The writer is the former head of the Energy Studies Department, Opec Secretariat, Vienna.
Share this article
Popular in Business
-
Budget travel
Airlines in the region
Take a pictorial look at some of the budget airlines in GCC
Business Editor's choice
-
Credit swaps... a fair trade
Would you swap an unbuilt unit at the Lagoons for an apartment at JBR?
-
New face of safety
Volvo reveals a sleeker S60, ready to hit the roads early next year
-
When the Web lives worldwide
Cutting-edge firms are building massive data facilities all over the globe
