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