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World Oil Prices in AEO2007 |
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Over the long term, the AEO2007 projection for world oil prices—defined as the average price of imported low-sulfur, light crude oil to U.S. refiners—is similar to the AEO2006 projection. In the near term, however, AEO2007 projects prices that are $8 to $10 higher than those in AEO2006 [59]. The AEO2007 reference case remains optimistic about the long-term supply potential of non-OPEC producers. In the reference case, increased non-OPEC and OPEC supplies are expected to cause a price decline from 2006 levels to under $50 per barrel (2005 dollars) in 2014. After that, a gradual rise in oil prices, averaging 1.1 percent per year in constant dollar terms or about 3.0 percent in nominal terms, is expected through 2030. The AEO2007 reference case world oil price in 2030 is $59 per barrel in 2005 dollars, or about $95 per barrel in nominal terms. Any long-term projection of world oil prices is highly uncertain. Above-ground factors that contribute to price uncertainty include the extent of access to oil resources, investment constraints, the economic and other objectives of countries where major reserves and resources are located, the cost and availability of substitutes, and economic and policy developments that affect the demand for oil. Below-ground factors contributing to oil price uncertainty include the extent of reserves and resources and the physical and engineering challenges of producing oil. The three world oil price paths in AEO2007 are shown in Figure 10. Compared with the reference case, the world oil price in 2030 is 69 percent (about $41 per barrel) higher in the high price case and 40 percent (about $23 per barrel) lower in the low price case. As a result, world oil consumption in 2030 is 14 percent lower in the high price case and 9 percent higher in the low price case than in the reference case. Prices in the low price case decline from 2006 levels to $34 per barrel in 2016 and remain relatively stable in real dollar terms thereafter, rising only slightly to $36 per barrel in 2030. In the high price case, the world oil price dips somewhat in 2007 from 2006 levels, then increases steadily to $101 per barrel (2005 dollars) in 2030. The AEO2007 high and low oil price cases illustrate alternative oil market futures, but they do not bound the set of all possible outcomes. The high and low oil price cases in AEO2007 are based on different assumptions about world oil supply. The AEO2007 reference case uses the mean estimates of oil and natural gas resources published by the U.S. Geological Survey (USGS) [60]. The high price case assumes that the worldwide crude oil resource is 15 percent smaller and is more costly to produce than assumed in the reference case. The low price case assumes that the worldwide resource is 15 percent larger and is cheaper to produce than assumed in the reference case. The AEO2007 reference case represents EIA’s current best judgment regarding the expected behavior of key members of OPEC. In the reference case, OPEC members increase production at a rate that keeps world oil prices in the range of $50 to $60 per barrel (2005 dollars) over the projection period, reflecting a view that allowing oil prices to remain above that level for an extended period could lower their long-run profits by encouraging more investment in non-OPEC conventional and unconventional supplies and discouraging consumption of liquids worldwide. The prices in the reference case are high enough to trigger the entry into the market of some alternative energy supplies, including oil sands, ultra-heavy oils, GTL, CTL, and biomass-to-liquids, which are expected to become economically viable when oil prices are in the range of $30 to $50 per barrel. The same price range also increases the likelihood of greater investment in unconventional oil production. Several non-OPEC countries, including Russia, Azerbaijan, Kazakhstan, Brazil, and Canada, are expected to increase production over the projection period, pursuing projects that are economically attractive with oil prices at or somewhat below those in the reference case. In Russia, oil production has recovered from a low of 6.0 million barrels per day in 1996, reaching 9.6 million barrels per day in 2006 [61]. While the Russian government has sought to increase its control of oil exploration, development, and production and recent actions have resulted in a markedly less desirable climate for foreign investment in Russian petroleum—a development that does not bode well for higher levels of petroleum production in the future—higher world oil prices have allowed the government to invest in additional exploration and production (E&P), which suggests continued production growth. The recent investments are projected to add 1 to 2 million barrels per day to Russia’s oil production by 2030. The Caspian Sea nations of Azerbaijan and Kazakhstan control large deposits of oil and natural gas. Because the two countries are landlocked, however, there was little incentive to develop their resources until pipelines began to be built. With the opening of the BTC oil pipeline in 2006 between the Caspian and Mediterranean Seas, production in Azerbaijan’s Caspian offshore is expected to rise quickly, to 1.2 million barrels per day in 2010 [62]. Azerbaijan’s production already has begun to surge, rising by more than 40 percent from 2005 to 2006, with similar volume growth expected in 2007 [63]. Production is expected to decline slowly in the future, however, to 1.0 million barrels per day in 2030. Kazakhstan produced 1.4 million barrels per day in 2005 [64]. Recent access to the BTC pipeline is expected to lower its total production and export costs. The Kazakh government has stated goals of producing 3.5 million barrels per day by 2015. Kazakhstan’s geology and economics might support that production level; however, uncertainties with regard to regulatory and tax policy could slow the rate of production growth. In addition, its success in reaching the stated target depends on access to export pipelines and adequate investment. In the AEO2007 reference case, Kazakhstan’s production is projected to reach 3.3 million barrels per day in 2030. Brazil produced 1.7 million barrels per day of crude oil in 2006. Its production is expected to continue growing, based on proven reserves of more than 11 billion barrels, clear government policy objectives to increase production, and an increasingly competitive production market following the 1999 reforms that began to allow foreign oil companies to compete with the national oil company, Petrobras [65]. More than one-half of the country’s oil reserves are in deepwater fields, and Brazil has long been a leader in developing deepwater production technology. Total liquids production from Brazil is projected to reach 4.6 million barrels per day in 2030. Canada’s conventional oil production is projected to remain relatively constant at 2.0 million barrels per day through 2015, but oil sands production is projected to grow rapidly. In recent years, net growth in production from Canada’s oil sands has averaged 150,000 barrels per day [66], and production is projected to reach 2.3 million barrels per day in 2015 and 3.7 million barrels per day in 2030. The production outlook for the countries highlighted here informs the three EIA world oil price cases. Sustained higher oil prices support the development and production of oil from more remote, technically challenging, and unconventional resources. Oil prices are significantly affected by assumptions about the ultimate size of world resources. Smaller resource estimates strengthen OPEC producers’ influence over prices and raise their profits; however, the resulting higher prices encourage more extensive development of non-OPEC oil supplies, limiting the extent of OPEC’s influence on prices. Oil production around the world over the next 25 years will also depend on the stability of government regulations and tax policies, access to export pipelines and ships, and adequate investment. The projections for world petroleum production in 2030 are 101.6, 117.3, and 128.1 million barrels per day in the AEO2007 high price, reference, and low price cases. The projected market share of world petroleum liquids production from OPEC in 2030 is about 33 percent in the high price case, 41 percent in the reference case, and 43 percent in the low price case. Because assumed production costs rise from the low price case to the reference case to the high price case, the differences in net profits among the three cases are smaller than they might have been if the underlying supply curves for OPEC and non-OPEC producers had remained unchanged. In the absence of tighter resources and higher costs, an OPEC strategy that attempted to pursue the output path in the high price case would subject OPEC to the risk of losing market share to other producers, as well as to alternatives to oil. The AEO2007 projections for world oil production are shown in Table 3. Further discussions of the three world oil price cases and their implications for energy markets appear in the “Market Trends” section.
Contact: Nassir Khilji |