Volatility ensures security
Posted: 24 April 2006
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SINCE 2000, oil prices have more than doubled from about $30 a barrel to more than $70. But this high oil price scenario does not translate that the world is in immediate danger of running out of oil and gas, a senior oil and gas executive said.
 “Oil prices have risen rapidly in recent years, creating renewed interest in an old idea that the world is running out of oil, but these predictions have consistently been proven wrong” Woodside CEO Don Voelte, said at last week’s Boao Forum for Asia in China.
He added: “Energy industries have continuously increased recoverable reserves and global production capacity. But even though the market is still well supplied, today’s energy market is marked with real challenges due to the increased demand that has come on the back of a lag in investment in global upstream development throughout the 1980s and 1990s.
“It can take years before investments result in sufficient production to meet new demand and maintain a certain amount of surge capacity. So in an era which may be subject periodically to tight supply, demand and prices may see some volatility. This will be especially the case if geopolitical factors delay investments or disrupt supply,” Voelte said.
While markets bring short term volatility, Voelte said they are also the best method for ensuring the essence of energy security. “Market prices have encouraged more efficient use of resources, prompted energy companies to invest in new production capacity, and encouraged investment in research and development,” he said.
 He added: “While public attention has focused on rapid increases in oil prices – even speculation that oil may hit $100 a barrel – few people have really stopped to consider key aspects of LNG pricing and price trends.
“In this kind of energy era, LNG is an excellent choice because it will remain a competitively priced, clean energy alternative. Traditionally, LNG has been priced competitively versus oil, and under current market conditions this is still the case. For countries such as China, where many urban residents are using oil-based fuels such as liquefied petroleum gas, this is an important consideration.
“Moreover, while spot prices for LNG cargoes follow short term market trends, long term contracts for LNG are only now returning to the levels seen in the early 1990s, and are still far below the levels they were during the 1970s and 1980s. Certainly, long term contracts for clean LNG are an attractive option for Asian countries seeking to secure reliable energy supplies at prices that are competitive to oil.”
Posted by Editor Pipeline Magazine
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