Transcript Geopolitical Aspects of Energy Resources

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
Tentativt program
Global energi – oljemarkedet
Prisdannelsen på olje
Det europeiske gassmarkedet
Diskusjon, spørsmål, meninger,
innlegg….
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Global Energy Use Since 1860
Million tons of oil equivalent
gas
End of WW2
oil
coal
Source: www.manicore.com
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World Primary Energy Demand
18 000
16 000
14 000
Oil
Mtoe
12 000
10 000
8 000
Gas
6 000
Coal
4 000
2 000
0
1970
1971
Other renewables
1980
1990
2000
2010
2020
Nuclear
Hydro
2030
Oil, gas and coal together account for 83% of the growth in energy
demand between now and 2030 in the Reference Scenario
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Source: IEA
World Energy Use by Region
1970-2025
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Energy Consumption per Capita
USA and China 1975-2015
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…. Energy usage
and the
environment in
conflict
CO2- emissions and economic development
End of
WW2
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Source: www.answers.com
World Energy-Related CO2 Emissions
40 000
35 000
Mt of CO 2
30 000
25 000
Kyoto
target
20 000
15 000
10 000
5 000
0
1971
1980
Coal
1990
2000
Oil
2010
2020
2030
Gas
Global emissions grow more than 50% between 2003 and 2030, but fuel
shares hardly change
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Source: IEA
…. The global oil market
Top Oil Consumers and Importers 2005
*
*
*
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Sources: EIA, BP
Vehicles per 1000 people for
USA and China
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The largest oil producers and exporters
in 2006 Incl. NGL/condensate)
Production
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Norway has a R/P-ratio < 10 år,
Saudi-Arabia > 100 år
Exports
Source: Petroleum Economics Ltd.
Oil Development Costs
O E C D E uro p e *
US o ffs ho re *
W o rld *
UA E
A lg e ria
“Petrolist”
States
Iran
Iraq
K uwait
S aud i A rab ia
0
5
10
15
20
d o llars (2 0 0 4 ) p e r b arre l
E xp lo ratio n and d e ve lo p m e nt
L ifting
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
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Source: IEA
Oil in The Middle East
World Crude Oil Flows 2028
2008
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Million Barrels per Day
US Oil Imports by Source
Source: Energy Information Administration, Annual Energy Outlook
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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”
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Whatever the main motive for the
invasion of Iraq, the conflict has
major oil political and geoeconomic
consequences.
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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 …
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.. 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!
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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.
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PETRO - NORGE
Net government cash flow from petroleum activities 1971- 2006
35 0
High oil prices
30 0
B ill N O K 2 0 0 6 v a lu e
25 0
T ax es
Ro y alty an d a re a fe e
CO2
Stato il d iv id en d
SDF I
State n e t ca sh flo w
”Worst” case
20 0
”Best” case
15 0
10 0
50
0
19 71
19 74
-5 0
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1 97 7
1 98 0
1 9 83
19 86
19 89
1 99 2
1 99 5
1 99 8
20 01
20 04
Coffee break
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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…
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Oil Price Prognoses From the 1980s
1998 - $/bbl
Average price prognoses
(month/year)
?
Actual prices
Source: Manne & Schrattenholzer 1987
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Natural resource economics
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Price path with a backstop technology
price
Price of
backstop
technology
p0
Scarcity rent
b
time
T*
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Property rights
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Privatization:
Nationalization of international oil companies was a
necessary condition to create a strong OPEC
National vs. international oil companies within OPEC 1960-1981
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Property Rights...
Property Rights Model
Price
Supply - 2
Supply - 1
P2
P1
Demand
Q2 Q1
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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
Quantity
Target revenue
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Target Revenue Theory:
Lower prices give higher production
Price
Negative
supply
elasticity..
Supply curve
Quantity
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US Energy Department:
Million Barrels per Day
Low oil prices gives higher OPEC
production..
Source: Energy Information Administration, Annual Energy Outlook
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Target Revenue...
Price – capacity relationship
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2007
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OPEC production and production capacity 2007
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OPEC Surplus capacity 2007
Table 3c. OPEC Petroleum Production (million barrels per day)
Energy Information Administration/Short-Term Energy Outlook - September 2007
2006
1st
2nd
2007
3rd
4th
1st
2nd
3rd
4th
Crude Oil
Surplus Crude Oil Production Capacity
Algeria ......................................
0,00
0,02
0,01
0,03
0,06
0,06
n/a
n/a
Indonesia ..................................
0,00
0,00
0,00
0,00
0,00
0,00
n/a
n/a
Iran ...........................................
0,00
0,00
0,00
0,03
0,05
0,05
n/a
n/a
Kuwait ......................................
0,04
0,07
0,05
0,10
0,17
0,20
n/a
n/a
Libya .........................................
0,00
0,00
0,00
0,03
0,02
0,02
n/a
n/a
Nigeria ......................................
0,00
0,00
0,00
0,00
0,00
0,00
n/a
n/a
Qatar ........................................
0,00
0,00
0,00
0,03
0,06
0,06
n/a
n/a
Saudi Arabia .............................
1,09
1,28
1,30
1,72
1,85
1,90
n/a
n/a
United Arab Emirates ................
0,00
0,00
0,00
0,07
0,11
0,10
n/a
n/a
Venezuela ................................
0,00
0,00
0,00
0,00
0,09
0,03
n/a
n/a
1,13
1,37
1,36
2,01
2,41
2,41
n/a
n/a
Angola ......................................
0,00
0,00
0,00
0,00
0,00
0,00
n/a
n/a
Iraq ...........................................
0,00
0,00
0,00
0,00
0,00
0,00
n/a
n/a
1,13
1,37
1,36
2,01
2,41
2,41
2,17
2,02
OPEC-10 Total .......................
OPEC-12 Total .......................
Notes: The approximate break between historical and forecast values is shown with historical data printed in bold; estimates and forecasts in italics.
Historical data: Latest data available from Energy Information Administration databases supporting the International Petroleum Monthly; and International Energy Agency,
Monthly Oil Data Service, latest monthly release.
Minor discrepancies with published historical data are due to independent rounding.
Projections: Generated by simulation of the EIA Regional Short-Term Energy Model. Source: EIA
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Price - Capacity Analysis
Capacity
Price
Price Reaction curve
Quantity
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Peak Oil
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Peak Oil (Now)?
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Or it will pass …?
-Thomas Malthus 1798..
-”Limits to Growth” 1970s..
Running Out of Cheap Oil
Mr. King Hubbert, Shell Oil 1956
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Source: Energy Bulletin 2.4.2006
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
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ASPO: The Association for the Study
of Peak Oil and Gas 2005 model
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Source: Energy Bulletin 2.4.2006
12 EIA Scenarios
for Conventional Oil
The peak depends heavily on economic growth
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Source: Energy Information Administration, US Department of Energy 2004
Political approaches
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The Oil Prize and World Geopolitics
1980: Iraq-Iran
War
1978: Iranian
Revolution
1974:
The IEA
Established
1967:
6 Day War
1960: OPEC
Foundation
1990-91:
Kuwait War
1973: Yom
Kippur War
2003:
Iraq War
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Effect of a supply distruption
The role of the IEA
Price
S1 S2
S0
1
2
3
P1
2
P2
3
1
P3
P0
D0
D1
Quantity
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Coffee break
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The European Union
as big energy consumer..
Primary energy demand and
“negajoules” for EU-25 1971-2005
“Negajoules”:
Energy savings calculated on the basis of 1971 energy intensity
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Source: Action plan for energy efficiency: Realizing the potential, COM (2006)545 final 19.10.2006
EU (25) Gas Demand Projections to 2030
75 % of incremental demand is for power
+70 %
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Source: WEO 2004 (IEA)
Gas Resources for the European Gas Market
Reserve size and transport distances to the EU
Cccc
hh
Barents Sea
Russia
Caribbean
Pipeline to nearest
European market
LNG to nearest European
regasification terminal
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Source: Statoil
Rapid Growth of the European Natural Gas Grid
1970:
2007:
- Relative Price Stability and Long-Term Contracts
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Gas resources for the Eurasian market
- will a “gas-OPEC” be created?
The “Gas ellipse”
?
?
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Liberalization of the EU gas market
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European Gas from Producer to Consumer
EXPORTERS/
PRODUCING COMPANIES
IMPORTERS/
CUSTOMERS
Consumers
Distributing nework
?
Norway
Russia
Transmission network
in producing countries
Algeria
A
Distributing network
Transmission network
in consuming countries
B
Distributing network
Gas Power plants
Holland
Storage
Storage
Storage
Large industrial users
Others
End users
Brokers and marketers
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Competition
Natural monopolies
Competition
Unbundling
Regulation
Unbundling
Natural
monopolies
Regulation
Example: Norwegian Gas to Europe
- No Perfect Liberalization So Far
GasLed:
Third Party Access,
Regulated Tariffs
Germany:
Third Party Access,
Negotiated Terms
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Source: Norwegian Ministry of Petroleum 2000
Decreasing average costs in a natural gas pipeline
”Tariff” (s = pt - pp)
Average revenue (AR)
Demand curve
A: monopoly
Smon
G
A
Average cost (AC)
F
E
B: regulation
B
Sac
J
H
Smc
I
D
X
qmon
L
qac
C: state company / subsidization
C
qmc
Marginal revenue (MR)
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Marginal cost (MC)
quantity
An optimal portfolio of competition, tariff
structure and unbundling is difficult to find.
1. What a reasonable tariff?
Tariff should decrease with increased demand…
2. How to distribute a possible excess demand beyond pipeline capacity?
A pro rate system - prioritize customers . Firms vs interruptible service etc.
How to price new transport capacity?
“Roll-in” costs of the new pipeline in the tariffs for all transportation or individual tariffs?
How large should capacity be.?
Social vs private optimization.
What are the alternatives to regulation?.
Competition, alternative pipelines with new owners.
1. What about property rights?
Private vs government ownership, or that distributors and/or producers owns the transmission companies
with a share which is so small that they do not want their profit to accumulate in the transmission
sector. The GasLed system on the NCS take account of this aspect.
Market conditions change over time.
A politically controlled liberalization process must contain a dynamics in order to change optimally over
time.
-> EASY TO ARGUE AGAINST AND FOR MOST ARRANGEMENTS!
Principle – agent problem
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Old Gas Contracts:
Gas Prices Set in Relation To and Lower
Than Substitute Prices
$/bbl
$/mmbtu
60
END USER PRICES (ii)
ON FUEL OILS
(substitute price)
10
PRICES ON
NATURAL GAS
40
Gas taxes
5
20
LDCs
Costs
.
Transmission
Producer
n
p i  f i (   j  p ej )
j 1
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Here pi = pc, pd, pt, pp (prices at different levels in the gas chain)
The factor j expresses which weight energy carrier no. j is given in the price,
while pej is the price on alternative energy carrier no. j (j=1…n).
The function fi expresses the link between the price of the alternatives and gas
throughout the gas chain.
Oil Prices to Producers and Consumers 1981-1998
OECD-Europe
$/bbl (1998-value)
100,0
80,0
60,0
Oil product taxes
40,0
20,0
0,0
1981
Refining,
transportation,
marketing etc
Crude oil price
1983
1985
1987
1989
1991
1993
1995
1997
Source: Austvik 1996 with updated data until 1998
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Effects of Market Liberalization - 1
Contracts



More short term
Fewer long term - long term shorter than before
Initial pressure for renegotiation of old TOP contracts
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New Gas Contracts:
Increased Price Volatility Due to Liberalization.
Oversupply Gives Lower Prices in the Short Run
Lack of Gas Gives Higher Prices in the Long Run
NATURAL GAS
PRICES
Oil product price
$/bbl
$/mmbtu
”equilibrium prices”
Short and medium
term
END USER PRICES
ON FUEL OILS
Weak
market
Tight
market
Gas taxes
LDC
?
Gas taxes
LDC
Gas taxes
Transmission
.
Costs
Transmission
Producer
LDC
?
Transmission
Producer
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Producer
Historical U.S. Annual Average Natural
Gas Wellhead Prices 1978-2005
Source: California 2006, Appendix 1
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U.S. Natural Gas Production Capacity
1985-2001
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Source: ”Natural Gas Productive Capacity for the Lower-48 States”, EIA 2001
Average Gas Prices to US Customers 1967-2000
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Source: Historical Natural Gas Annual, EIA 2002
Effects of Market Liberalization - 2
-Prices
More volatile
Possibly lower in the short and medium term higher in the long run.
Move from taxes on labor to taxes on energy
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Taxes as per cent of
end user prices
on natural gas to
European
households
-The EU (2003) Introduced
Higher Taxes on Gas Usage
Across the Community...
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Gas to households
Country
1984
1994
1999
2006
Austria
16.7
16.7
27.7
27.8
Belgium
14.5
20.9
21.3
n.a.
Czechia
n.a.
4.8
18.0
16.0
Denmark
18.0
20.0
58.1
49.9
Finland
1.7
28.0
31.8
25.1
France
15.7
15.7
15.9
15.0
Germany
12.3
19.0
23.7
n.a.
Great Britain
0.0
5.7
4.8
4.8
Hungary
n.a.
9.1
10.7
14.3
Italy
13.4
42.6
46.5
n.a.
Neth.lands
16.0
19.1
35.0
32.9
Spain
1.5
14.3
15.1
13.8
USA1
n.a.
n.a.
n.a.
n.a.
Canada
n.a.
n.a.
n.a.
n.a.
Japan
0.6
2.9
4.8
n.a.
New Zealand
8.1
15.0
13.8
12.7
Source: IEA Energy Prices and Taxes, Quarterly
Price Effects of an Increase in
Excise Taxes on Gas Consumption
Supply Inelastic With respect to Price in the Short and Medium Term?
$/bbl
Gas price
$/mmbtu
NATURAL GAS
PRICES
END USER PRICES
ON FUEL OILS
”Equilibrium price”
With gas taxes
increased
Short term
Gas taxes
Medium and
long term
Gas taxes
Gas taxes
LDC
LDC
.
Costs
LDC
Transmission
Transmission
Transmission
Producer
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Producer
Producer
Demand more elastic in the long
than in the short run
Price Long term effect
Short term effect
P2
P1
Demand
long run
Demand
short run
∆Q
Q2
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Q1 Q0
Quantity
Price Effects of Liberalization and
Increased Excise Taxes on Natural Gas
NATURAL GAS
PRICES
$/bbl
Without gas
taxes
Before
liberalization
END USER PRICES
ON FUEL OILS
After
liberalization
Short
term
Gas
price
$/mmbtu
With gas taxes
Short
term
Medium and
long term
More gas
taxes
Medium and
long term
Gas taxes
LDC
LDC
LDC
.
Costs
Transmission
Transmission
Gas taxes
Gas taxes
LDC.
LDC.
Transmission
Transmission
Transmission.
LDC
Transmission.
Production
Production
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Production
Production
Production
Production
+ Volatility for
Consumers and
Producers
Effects of Market Liberalization 3
Security-of-Supply



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Improved in the short and medium term
because customers can buy gas from
more sellers, alternative routes for
transportation, storage capacity.
Detoriated in the long term because new
capacity in huge and remote fields will
not be realized.
Liberalization will be easier as the market
matures
What is Security-of-Supply?
Interdependent market actors

Reciprocal but not necessarily symmetrical
 Can change over time

Security-of-Supply vs. Security-of-Demand
Risks:


Short term: Disruptions to existing supplies
Long term: Not enough supplies provided at
“reasonable” prices.
Physical vs economic (i.e. price change)
dependency

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Ability to domestic adoption
Policy depends on schools of thought:
Is oil and gas economically a scarce
or an abundant resource?
Scarce
(peak Oil)
?
abundant
2015
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2030
Prices may fall in the long run.
price
Scenario: The case of continuos upgrading of reserves, more elastic demand,
decline in economic growth and/or introduction of more efficient technology
time
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Renewable Energy Cost Trends
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Alternative strategies to improve security-ofsupply for the consuming countries
More and safe non-renewables (oil, gas, coal)
More renewables
Improved energy efficiency
Energy savings
…
All can be influenced by both economic and political means and by
market mechanisms.
Optimization can be based on short or long-term considerations
PRESENT:
FOR THE EU:
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STRONG EMHPASIS ON MORE OIL AND GAS;
MORE NATURAL GAS.
Two Possible Price Paths for Natural Gas as an
Exhaustible Resource for the European Market.
Illustrated long run marginal costs (LRMC) for large and smaller fields (assumed constant for each).
price
Increased supply now, depletion of smaller fields,
reduced investment in large and remote fields
Less supply from smaller fields,
investment in large and remote fields
LRMC for large and remote fields
LRMC for smaller fields
SRMC
T1
time
T2


MR / MR  r
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or
p/ p  r
G a s S u p p ly C o s t* C u rve to E U 3 0 fo r 2 0 2 0 (a d d itio n a l vo lu m e s )
N IG E R IA -L N G
IR A N -L N G
T R IN ID A D & T O B A G O -L N G
Y E M E N -L N G
R U S S IA -(B aren ts S ea )-B altic
U A E -L N G
Q A T A R -L N G
L IB Y A -L N G
T U R K M E N IS T A N -v ia R u ssia /U krain e
A L G E R IA -L N G
E G Y P T -L N G
N O R W A Y -(N orw egian S ea )
R U S S IA -(N ad ym P u r T az-B elaru s)
N O R W A Y -(N orth S ea )-S atellites
L IB Y A -P ip e to S icily
IR A N -P ip e to T u r key
A L G E R IA -G M E
A L G E R IA -S ard in ia -C orsica
R U S S IA -B lu e S tream
OME,
October
S ou rce:
O M E 2001
* exclu d in g p rod u cer cou n try ’s roy alty
390
300
200
100
A L G E R IA -T ran sm ed
A Z E R B A IJA N to T u r key
10
20
20
IR A Q -p ip e to T u rkey
16
A L G E R IA - M ed gaz
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10
0,5
2,8
2,5
Increased uncertainty
2,0
5 4 1 9 19
25
1,0
2,7
2,7
Import price 1990 & 2000
9
25 10 4 10 20
45
30
1,2
2,0
Import price 1999
34
25
30
1,4
1,5
1,7
1,6
1,6
5
1,3
1,1
2,2
?
1,3
1,1
2,4
2,5
$ /M B T U
2006
D iagram 2.6
3,0
2,9
3,0
Gas Supply Cost Curve to EU30 for
2002 (additional volumes)
B cm
Russian oil and gas for Europe
Few transit
routes to
the West
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50%
80%
Nordstream – North European Gas Pipeline
.. An alternative corridor..
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SKANLED
navn på planlagt gasstransport-system (se også Grenpipe), som skal sikre gassleveranser til Øst-Norge, Vest-Sverige og Danmark. 13
selskaper har signert avtaler om bruk og eierskap, mens det polske olje- og gasselskapet PGNiGs vurderer å delta i prosjektet. PGNiG ønsker å
føre gass fra norsk sokkel gjennom Skanled til Danmark, for deretter å bygge en egen rørledning fra Danmark til Polen. PGNiG kjøpte nylig en
15 prosent eierandel i Skarv-lisensen i Norskehavet. Også det store tyske gasselskapet E.ON Ruhrgas vurderer å ta del i Skanled.
• Skanled planlegger investeringsbeslutning i 2009 og oppstart av gassleveranser
i 2012. Anslått investering for Skanled er 7 milliarder kroner. Det planlegges også å bygge et separasjonsanlegg for etan i Grenland i
tilknytning til transportsystemet. Separasjonsanlegget har et investeringsanslag på 2 milliarder kroner. Gassco har sammen med brukerne
etablert en arbeidsgruppe for å lage en forretningsmodell og sikre finansiering av anlegget, etter anmodning fra Olje og energidepartementet.
Skanled eies av: Skagerak Energi (20 prosent), E.ON Ruhrgas (15), PgNiG (15), Energinett dk. (10), Hafslund (19), Østfold Energi (10),
Gøteborg Energi (8), Agder Energi (5), Swedegas (5) og Preem Petroleum (2 prosent).
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A possible Shtokman development
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Source: Hydro
Possible Transportation Routes for
Natural Gas from the Barents Sea
1
3
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2
Gazprom
• OJSC Gazprom, (Russian: Газпром; long version: Открытое
Aкционерное Oбщество Газпром; is the largest Russian company.
• Gazprom is the biggest extractor of natural gas in the world.
•With sales of US$31 billion in 2004, it accounts for about 93 percent
of Russian natural gas production;
•with reserves of 28,800 km³, it controls 16 percent of the world's gas
reserves (as of 2004, including the Shtokman field.)
•After acquisition of the oil company Sibneft, Gazprom, with 119 billion
barrels (18,900,000,000 m³) of reserves, ranks behind only Saudi
Arabia, with 263 billion barrels (41,800,000,000 m³), and Iran, with
133 billion barrels (21,100,000,000 m³), as the world's biggest owner
of oil and oil equivalent in natural gas
• Gazprom's Board of Directors as of December 2006:
• Dmitry Medvedev (Chairman, First Deputy Prime Minister of
the Russian Federation), coming President in Russia in May
2008.
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• Alexei Miller (Deputy Chairman)
Source: en.wikipedia.org
Gazprom increasingly stronger
-at home and abroad…
Source: Gazprom
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The stone age did not end because
there was a lack of stones!
……
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OIL AGE
MAN
Thank you for your
attention!
Ole Gunnar Austvik
www.oga.no
www.oga.no
E-mail: [email protected]
Tel: +47- 612 88246 Mob: +47- 906 77251
Coffee break
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Norway
.. The small country with big
supplies
Total Norwegian Petroleum Production
and Start-Up of Important Fields 1971-2030
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Oil peak in 2004
Macroeconomic indicators for the
petroleum sector 1970-2005
60
Sh a re o f G DP
50
Sh a re o f in v e s tm e n ts
Sh a re o f e x p o rts
p e rc e n t
40
Sh a re o f s ta te re v e n u e s
30
20
10
0
1970
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1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
Sources: Statistics Norway, Ministry of Finance
Net Norwegian government cash flow from
petroleum activities
High oil prices
(= ca. 70 Bill USD)
1996: First money into the Fund
Thank you China, Iraq war, and all others not mentioned
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Source: MPE Fact Sheet 2007
The size of the Government Pension Fund – Global (The
Petroleum Fund) at 31.12.2006, as share of GDP, and official
forecast for 2010.
?
120%?
3000 (= Ca. 550 Bill USD)
• Returns on
investments
increasingly more
important!
(= Ca. 360 Bill USD)
2010
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Sources: Fact Sheet MPE 2007, NBIM
SWF: Foreign investors
by end 2007…
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A sea territory
7 times larger
than mainland
Norway
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Russia
… The big country with the big
supplies
Russian Total Liquids
Production and Consumption 1992-2008E
www.eia.doe.gov
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Ca. 700 BCM
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?
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Source: CIA
“Resource nationalism”?:
High prices gives more gvt involvement.
Nationalized
Industry
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State – private industry
combinations
Competitive
industry
regulated as
any other
economic
activity
Russia
Dominates the Eurasian High North
Needs transportation alternatives
Wants to control the petro-sector


Gazprom important instrument commercially as well
as politically
But needs foreign technology
Integration into international economics and
politics

WTO, EU, US, China
The world energy super-power


www.oga.no
But: ”Locked in”
”Imperial energy overstretch”?
Winter time in the Barents area….
Source: Sevmorneftegaz
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US Geological Survey expects 25 %
of world unproven reserves to be in
the Artic Area..
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North Pole ice extentions average 1978-2002
February
September
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The polar ise is reduced in depth and area
January 1990
January 1999
These images show decreasing thickness and extent of Arctic sea ice
from January 1, 1990, and January 1, 1999, respectively. The images
were created using data from the Defense Meteorological Satellite
Program's Special Scanning Microwave Imager. (Courtesy NASA)
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Iraq, the oil and OPEC
The U.S. (and all oil consuming nations) must do something to
secure oil supplies from PG in the long term.
The alternative is high oil prices, energy diversification,
development of alternative energies, conservation measures
and in the medium term slower economic growth.

Change in way of life - but: Less dependence on PG oil.
On the other hand: An ‘unsuccesful’ post-Saddam regime may
contribute to a destabilization of the region.

Unstable political situation, oil market and world economy.
Until the situation of more clear, prices must be expected to
remain reasonably high and UNSTABLE.

Only if the conflicts spread dramatically prices should be expected higher than
this, and only for a period of time (but economic slowdown or recession will
follow).
It will be necessary for the US (and other countries) to be
diplomatically and military present in the area for a long time
(if they can)

www.oga.no
Reactions in the Arab world in the long run?
Demand more elastic in the long than in
bthe short run
Price
P2
P1
Demand
long run
Demand
short run
∆Q
Q2
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Q1 Q0
Quantity
•(as08/06
in 73/74!)
Oil Prices and
World Capacity Utilization
1975-200
Price Change
50%
50%
•00
•80
•79 •99
40%
30%
•87
20%
•89
•90
10%
0%
•83 •82
-20%
81• •
•78
•75
•
84
•85
-10%
77
-30%
-40%
•76
•
40%
50%
60%
30%
20%
•01
-10%
10%
0%
93
•88
•97
•86
40%
•02
•96 •
•95 03
•92•94, 98
PG Security Premium
-50%
•04
91
•
Gulf War
1990-91
-20%
-30%
-40%
-50%
70%
80%
90%
100%
Capacity Utilization
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Is the price reaction curve being moved back now?
Scenarios – a possible holistic
approach?
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Economic
Limits
to Political
Oil PricesLimits
2002-2012
Economic
and
- Politics to
Modify
Prices
Oil Prices
2004-2014
Strategic Petroleum
Reserves (SPR)
modify temporary price
hikes?
Real 2002 prices
Long run substitute price /
Macroeconomic
sustainable price
?
2000
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Long run marginal cost of
production (Persian Gulf)
2004
2007
2012
Prices should over time be kept
at or above long run marginal cost
of production outside Persian Gulf
Limits to Oil Pricing:
A Window for Oil Prices 2004-2014
More oil, other energies,
conservation, lower growth;
SPRs
Real 2002 prices
Upper Limit?
1990s
1990s
Lower Limit
Less oil; OPEC, Norway++
2004
2009
Developed from Austvik 1992 (Energy Policy)
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2014
Oil and the conflict in Iraq..
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HI GUY’S!
….
I want more oil !
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The Holdup!
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Our questions now:
Is oil a scarce or an abundant resource
in economic terms?

Implications for planning and investments
Long vs short term
Does policy matters?
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Future changes?
The availability of substitutes
Efffiency gains


Production
Consumption
Incremental or radical change?f
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