DESPITE rising crude oil prices and a public perception that reserves are few in number, “we've gotten nothing fundamental to worry about,” was the message at the Atlantic Region Energy Expo in Atlantic City, New Jersey, in May.
Timothy Evans of Citigroup said that high prices, in fact, stimulate supply, and at the rate of the US consumption of oil in 2004, there remains about 40 years of supply, not including the oil sands now being developed in Canada.
The $70-per-barrel price of oil (up from $12-per-barrel in 1990) has made it financially feasible for the oil sands to be developed. Major oil companies are investing $12-billion to $15-billion in the prospect, expecting three to five years for full development, he said.
In addition to development in Canada, the higher prices for crude have stimulated companies' investment in worldwide exploration and production, which has increased the overall supply. Typically, that means prices should go down. But the price hasn't dropped.
Unrest in the world has made the market nervous, Evans said, naming unrest in Iraq, Iran, Nigeria, Venezuela, and Saudi Arabia. The perception of risk drives companies to want to hold more of their petroleum supply in the event of a worsening situation.
Another part of the picture involves more natural gas coming on line. Gas is less expensive to produce than crude, although the price can be more volatile. In addition, by 2025 about 20%-25% of the total US supply will be in liquefied natural gas sources. “Qatar is the Saudi Arabia of the natural gas world,” Evans said.
The crude refinery situation appears positive because companies have enlarged existing facilities equal to the number that have been closed, and government environmental regulators are more likely than earlier to agree on constructing new ones. “There is not really a bottleneck now,” he said. “It's more of a question with gasoline than fuel oil and jet fuel.”
Meanwhile, the United States is the largest single consumer in the oil market — as an example, using 9.5 million barrels per day in the summer months of 2005. However, projections indicate a slowing of US demand in 2006, he said.
As for the future, crude oil prices will not rise much higher than the current price — “eventually this bubble is going to break.” If it does, prices may drop to $28 per barrel to $30 per barrel, he ventured.