© Shawkat Hammoudeh
|
What are currently the main factors which are determining prices in the energy market?
Let us first explore the price of oil. This price has five components:
1) Production cost;
2) Cost of depletion for an exhaustible resource;
3) Global oil supply and demand OPEC's market power;
4) Geopolitical fear premium; and
5) Speculative premium.
Each one of these components has factors that affect them, and some factors may command more impact on the price of oil at certain times than others. Currently, there is a bearish fundamental factor that is at conflict with a bullish fundamental factor and another bullish special factor. The negative fundamental factor is the fiscal cliff in the United States and the occurring recession in the euro-zone. The bullish fundamental factor is the new economic recovery in China and South East Asia, and the bullish special factor is the tension in the Middle East. As the price of oil hangs out close to $90 a barrel, the bullish fundamental and special factors are gaining more impact on the bearish fundamental factor.
In the natural gas market, the price is currently affected largely by the supply of shale natural gas, which has been yielding downward pressure on this price.
What is a role of developing economies in global energy consumption?
Most of the recent increases in demand for oil come from developing countries, particularly those in the Asia-Pacific region. Excluding Japan, this region increased its oil consumption by nearly four million barrels per day over the period 2005-2010, even in the face of rising oil prices. Over the last decade, oil consumption in the Asia-Pacific region rose by about seven million barrels a day, which is equivalent to a 50% increase in their consumption. Countries in the Middle East, particularly Saudi Arabia, had increased their oil consumption by 56% over the same decade.
In Africa (particularly Nigeria) and South America (e.g., Venezuela), oil consumption grew by 36% and 26%, respectively, over the same period. If we subtract the decline in oil consumption in developed countries from the increase in consumption of developing countries, the net oil demand increased by about 11 million barrels a day over the last decade.In terms of global energy consumption, non OECD countries account for 93% of global energy demand. China is the world's largest energy consumer after overtaking the United States in 2009. Its energy demand has spiked over the past decade and is likely to rise by 78% by 2035 to account for 36% of the projected growth in global energy consumption.
OPEC expects world energy demand to climb by 54% over the 2010 to 2035 period, with oil remaining the energy type with the largest share. What is your forecast for future developments within the energy market?
The most prominent future development in the energy market is the projected increase in future production of shale oil and natural gas in the United States. The United States is highly likely to overtake Saudi Arabia as the largest oil producer between 2017 and 2020, if it has the adequate policy and infrastructure. The U.S. should also become a net natural gas exporter in 2020 given the right policy. The U.S. is highly likely to become self-sufficient in energy by 2035.
Global demand for fossil fuels is expected to account for more than 50% of the increase in total primary energy demand between now and 2035. Oil is expected to remain the dominant fuel in the energy mix and its consumption will increase in absolute terms over this period.
Global demand for natural gas is likely to increase by about 44% or at 1.4% a year up to 2035. Most of the increase in world demand for natural gas will come from China which will account for 20% of the increase in the world demand for natural gas.