『Summary and comment
Since 2003 the international oil market has been moving away from the previous 20-year equilibrium in which prices fluctuated around $25/bbl (in today's dollars). The single most important reason is that growing demand has eliminated the structural surplus of crude production capacity which had existed since the oil price shock of 1979-83.
So far, the higher oil prices since 2003, and even higher since 2005, have not induced economic recession in oil-importing countries so that oil demand has not fallen as it did in the 1980s after the second oil shock. Unless this occurs, a structural surplus will not be recreated, and prices are likely to remain ‘high’ - above $50/bbl - until longer-term reactions take effect. If the political situation in the Middle East deteriorates further prices could reach new levels, but the reaction would be quicker and stronger.
Meanwhile, supply and demand are set to expand roughly in balance over the next five years, though there are many uncertainties which will lead to short-term fluctuations. With so little controllable flexibility in supply or demand, prices will remain volatile in the short term.
Five or more years of oil and related energy prices averaging double (or more) their previous long-term average cannot fail to create a new long-term situation both in terms of economic behaviour and government policy. This will bring new competition which will simultaneously reduce the demand for energy, increase the supply of oil, and increase the substitution of other fuels for oil outside the transport sector. As these forces develop, oil prices will be unstable through the long term.
For the transport sector, there is a very large range of possibilities which do not depend on the development of new technology. Examples are a shift in US vehicle demand to vehicles with typical Japanese or European fuel efficiency (which would reduce world transport fuel demand by nearly 10%) and the opening of US and European markets to competition from Brazilian and other developing country ethanol supplies. A period of high oil prices will also lead to investment to increase the production of liquid fuels from oil sands or natural gas. Once these investments are made, they are likely to continue producing as long as their operating costs remain lower than the price of oil.
Outside the transport sector, oil has a higher share of the energy market in many countries than in the US. If other countries substituted other fuels for oil to the same extent as the US has, world oil demand would be about 25% lower. However, other countries do not have the same range of natural resources and competitive energy markets as the US has. The main uncertainty about the long-term outlook is where and how new natural gas markets will develop at the expense of oil. This in turn depends on changing the pricing system for natural gas, which has so far tracked high oil prices outside the US, and on investment to expand gas production and transport infrastructure for international trade. The business model for these projects must adapt to the trend for liberalisation of gas markets in importing countries
and specifically to rules which are often better adapted to secure competition within established markets than to the management of infrastructure expansion risks.
Power generation in centralised systems currently absorbs about 5% of world oil demand. This would reduce to 2% if the rest of the world used other fuels for power generation to the same extent as the US. There are some trends in this direction. Over half of the world's oil use in power generation is in oil exporting countries, many of which are replacing oil with domestic gas in order to free oil for export. A further third is in South East Asia, where oil is being replaced by imported coal because coal prices have not tracked the rise in oil prices, and expansion of coal imports (unlike gas imports) does not depend on massive infrastructure projects. The global oil market and price are only marginally affected by the
European use of oil for power generation (less than 1% of world oil consumption) and the promotion (for climate policy reasons) of ‘renewable’ sources of electricity generation.
The main ‘energy policy’ conclusions of this analysis are:
1. In transition
1.1 Has there been a failure to invest?
1.2 Balance of supply and demand to 2010
Demand: no recession yet?
What next for prices?
Instability is certain
Chart 1: History of crude oil prices
2. The long term
2.1 Demand destruction
2.2 Economic activity and energy demand
Chart 2: US Energy use per unit of GDP
The tranport sector
2.3 Liquid fuels in the future
Heavy oil, shale oil and tar sands
Gas or coal-to-liquids (GTL or CTL)
Ethanol in Brazil and the US
The EU bio-fuels policy
Hydrogen and fuel cells
2.4 Substitutes for liquid fuels
Chart 3: Oil price and market share
Chart 4: Oil for transport
Chart 5: Sectors with a higher use of oil than in the US
Gas: the challenge to oil has not materialized
Chart 6: Gas versus oil prices
Trends towards more competitive gas markets
Project-led expansion of gas markets
Key uncertainties in gas
The power generation sector
Chart 7: Coal versus gas prices
Source: BP Statistical Review 2006.
〔Mitchell,J.V.(2006): A New Era for Oil Prices. Chatham House (the Royal Institute of International Affairs), August 2006, 32p.から〕