PARIS, Feb. 17 -- Oil prices should hover around $80-95/bbl this year, supported by expected economic growth in emerging countries, said IFP Energies nouvelles Pres. Olivier Appert last week at the annual Panorama conference in Paris.
In a bearish economy impacted by the debt rate in Western countries, the risk of a financial bubble in some emerging countries, and inflation controls in China, oil prices could fall back to $70 bbl in the short term. But the markets are banking on increasingly higher oil prices in the years ahead with peaks above $100/bbl, Appert said.
North Sea Brent crude closed above $101/bbl on Jan. 31 and Feb. 1 in the UK market. But Appert claims that high a price will not have the same impact as did $100/bbl oil in early 2008 when market tensions were stronger. He noted the Organization of Petroleum Exporting Countries now has additional production capacity of 5-6 million b/d, primarily in Saudi Arabia. Moreover, crude and product inventories are historically high. In addition, he said, the dollar now rates higher to the euro than it did then.
Appert also noted the falling supply of non-OPEC oil, which would increase dependence on OPEC from 40% currently to 50% by 2020.
In addition, the price spread between WTI and Brent widened to a record $11.75/bbl Jan. 27, prompting speculation the higher priced Brent should replace WTI as the market’s usually quoted benchmark. Currently the benchmark in Europe is a mix of Arabian Light and Brent, indicated Appert.
Concerning the oil-gas relationship, Appert said the markets anticipate a significant gap between England's National Balancing Point (NBP) and long-term contracts hitched to oil prices. In 2010 Europe's spot gas prices reflected actual market prices while long-term contracts reflected oil prices with a gap of 35%.
While unconventional gas production will continue to soar in the US with its influence on gas prices and the LNG market worldwide, Appert sees the gap between England's NBP spot prices and long-term contract prices reducing to around 24% this year as pressure on the LNG market relaxes. He even sees a possible convergence of NBP and long-term prices if coal prices increase in 2011 to $170/tonne and the oil price hovers around $90/bbl.
Qatar is striving to re-orient part of its LNG exports to China and India on more favorable terms. And as demand for gas continues to grow by 1.8-2%/year through 2020, available LNG capacities will fall, partly compensated by increasing gas line capacities in Europe.
Appert acknowledges little is known about the world potential for unconventional gas development as it relies on old studies largely based on extrapolating American data. There also remains much uncertainty over the cost of drilling, environmental problems, and the social perception of such drilling.
Whatever the case, Appert indicated unconventional gas, including coal-bed methane and tight gas, could account for 18% of world production by 2030 up from the current 12%, thereby redirecting gas supply trends.
In this context, IFP Energies nouvelles, besides being engaged in the 3-year GASH project— Europe’s first interdisciplinary shale gas research initiative—is also assessing France's potential. With already extensive knowledge of France's sedimentary basins, it is about to inventory the country's various non-conventional resources, assessing also the technical and economic impacts of production start ups.
The institute is launching Evalias, a 3-year joint industry-funded project for which IFP Energies nouvelles will be the sole research and development operator with industry providing the financing. Thus unconventional oil could be found in the Paris basin and gas in the south-east, an area that has already drawn the attention of a number of oil companies.