World oil prices will rise to $100 a barrel in three years if demand continues to grow at the rate it has this year, an expert on the global oil market predicted Tuesday during a trip to New Orleans.
Global demand for crude oil has grown at a rate of about 2.5 million barrels per day this year, up from 1.3 million barrels per day in 2003, said Fereidun Fesharaki, a senior fellow specializing in energy research at the East-West Center in Honolulu. With little increase expected on the supply side, the market will remain tight for the foreseeable future, Fesharaki said.
“There is no scenario that the prices will go down,” Fesharaki said. At best, he said, they will stay relatively flat.
A former energy adviser to the prime minister of Iran and president of the International Association for Energy Economics, Fesharaki was part of a delegation visiting New Orleans this week from the East-West Center, a think tank established by Congress in 1960 to promote understanding and dialogue between the United States and the nations of Asia and the Pacific Rim.
Fesharaki, who previously represented Iran at OPEC meetings, offered a sobering view of the global oil market. Fields in OPEC nations are declining; the biggest new discoveries are often in remote regions far from pipelines; and the oil fields of the Gulf of Mexico have been picked over by exploration and production companies, he said.
All of this adds up to a global situation in which “there are no easy finds,” he said.
With supplies tight and major discoveries hard to find and exploit, the price of oil could go as high as $100 a barrel in two or three years if demand growth continues at its current pace, he said. For prices even to stay flat, Fesharaki said, global demand growth would have to return to levels of 2003.
He disputed the notion that oil is “too expensive.” If it were, people would curtail use of it, he said. But demand continues apace.
Oil prices declined Tuesday for the second straight day, but analysts expect prices to rise again as U.S. demand for home heating oil increases. Light crude for November delivery settled down 38 cents to $53.29 per barrel on the New York Mercantile Exchange, after the $1.26 per barrel slide in prices the day before. Futures prices had fallen as low as $52.59 in overnight electronic trading.
In London, December Brent crude futures on the International Petroleum Exchange fell 14 cents to $48.77 per barrel.
Although prices are up about 75 percent from a year ago, they are still about $26 below the all-time highs — in inflation-adjusted terms — of February 1981.
A factor often cited as driving prices is demand in China, which is undergoing rapid economic growth. However, Christopher McNally, a China specialist with the East-West Center, said that while China’s growth has been responsible for driving world demand for a host of commodities — including iron ore, nickel, copper and gold — China has not been the lone driver of oil prices.
“For oil,” he said, it is growth “all over Asia.”
In fact, Fesharaki said, growth in China’s demand for oil has decreased from 16 percent earlier this year to 6 percent for the second half of this year.
Against a backdrop of high demand in Asia and the United States, several factors have combined to push oil prices higher in recent months. They include worker strikes in the oil-rich nation of Nigeria, and damage to production facilities in the Gulf of Mexico caused by Hurricane Ivan. About one fourth of the oil normally produced in the Gulf each day has gone untapped because of equipment damage from Ivan; in total 22.1 million barrels of oil, or a little more than the amount the U.S. consumes each day, has been shut in since Ivan hit the Gulf Coast on Sept. 16, according to the U.S. Department of the Interior’s Minerals Management Service.
Fesharaki also pointed to natural gas prices as a subject of concern. Natural gas is used not only to heat homes but also to fire power plants as a cleaner-burning alternative to coal and as a raw material to make certain chemical products, such as some fertilizers. High demand against relatively small supply in the United States has caused prices to rise from less than $2 per thousand cubic feet of gas in 1999 to the $5 to $6 range this year. This trend has caused some chemical plants in Louisiana to curb operations or shut down.
To take advantage of the strong prices, several energy firms have proposed terminals in the United States for the importation of supercooled liquefied natural gas; many of the proposed facilities would be in the Gulf of Mexico off the coast of Louisiana. But Fesharaki said he thinks regulatory burdens, environmental concerns and financing challenges will block the vast majority of the 31 projects proposed in the United States.
“If they build more than three of them, I’ll eat my hat,” he said.
One factor that could ease energy prices in the United States, at least the prices of gasoline and other fuels made from oil, Fesharaki said, is the development of more refineries in the United States. Allowing more refineries, he said, would have a greater impact on gasoline prices than almost any other policy decision. Even opening Alaska’s Arctic National Wildlife Refuge for oil and gas exploration would not increase supply enough to result in lower prices, he said.
“Building refineries, that’s a different story,” he said. “If you build refineries in the U.S., it would have a big impact on price — much greater than an ANWR opening.”
The experts spoke Tuesday at a luncheon at the World Trade Center hosted by the World Affairs Council.
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Stewart Yerton can be reached at [email protected] or (504) 826-3495.
The Associated Press contributed to this report.