Month: July 2009

The oil recovery factor (expected ultimate recovery divided by original oil-in-place) indicates what percent of the total resource can be recovered. Ultimately, the actual percentage recovered is significantly driven by complex economic and technological considerations. Recoverable resources include cumulative production, proved reserves, undiscovered reserves, and reserves growth in discovered fields.

Namely, the price of oil will recover for instance when world economy regains its footing or upon indication that the Organization of Petroleum Exporting Countries is planning to reduce production quotas

The cause of the decline in prices is partly due to the economic crisis and subsequent drop in energy demand, but other structural factors were already at work softening oil markets. the main reasons for the change in prices can be attributed to 4 factors: (1) spare capacity for a few years; (2) short term market forces that predict bearish market for a few years (supply, demand, inventory, weather and level of economic growth); (3) milder politics and geopolitics perceived for next few years; (4) Flow of funds out of commodity investments. Revenue losses due to lower oil prices from the end of 2008 create major challenges to the domestic and foreign policies of Iran, Russia and Venezuela where lower income impedes the achievement of fundamental foreign policy objectives that require use of funds; while lower prices present opportunities for the US, Europe, China, Japan and others which may be difficult to recognize and achieve.

Natural gas and oil prices are influenced by a number of issues, partially psychological in nature (speculative investments, perceived risks, government interference in oil and gas markets in the form of subsidies) and partially due to economic, political or technical factors (higher demand, tight capacity along the whole chain of supply – transport – storage – refining and the threat of interruptions). Issues on the supply and demand side that influence pricing also include weather (hurricanes that reduce supply, summer that increases road transport and the use of air-conditioning), geopolitical events in energy exporting countries, higher GDP in energy consuming countries and a host of other factors. In 2000, as natural gas was first made available in Israel at approximately $2.5 mmbtu, the price in Europe and the US averaged $3.2 and $4.2 mmbtu respectively. By 2007, the price of natural gas had increased to between $7 – $9 in the US and EU respectively, having peaked shortly to $15 mmbtu after the devastating hurricane season hit the Gulf coast of the US in the summer of 2005. During the same time period LNG costs have also shown a fourfold increase, from $2 billion to $8 billion a train. Brent crude oil which was $28.5 a barrel in 2000 hurtled past the $100 psychological barrier for the first time ever at the beginning of 2008 peaking on 11th July 2008 to $147.27 a barrel and decreasing after that to just above $100 a barrel by September 2008 and down 50% from its peak to below $70 in October of the same year. Russian Urals [crude] historically trades at a few dollars discount to [North Sea] Brent; in July 2008 the spread widened down [by] $6/bbl…. In July 2009 Urals traded almost at par to Brent. >

Gas price parity is defined (as a percentage) as the relationship between gas prices compared to oil prices.

Parity = Gas Price divided by oil price * conversion factor

When oil is at $100 a barrel, gas price parity with oil would equate to around $17.2 per million British thermal unit of natural gas.

Some gas exporting countries believe that natural gas is too cheap and should be the same price as oil. These entities explain that gas is often more expensive to produce and has added qualities, such as environmental, to oil. Already the market for Asian long term LNG contracts is trending towards oil-price parity.
During certain periods, natural gas prices have been seen to follow the price of crude oil very closely, so that for instance in July 2008 when oil was $144/bbl the price of natural gas reached a peak of $13.69 mmbtu and when oil came crushing down within six months, thus natural gas fell to $3 mmbtu, a fall of 80%. However, over the last couple of years this link has been severed and oil and gas trade based on their own unique fundamentals

A subsurface oil accumulation. An oil field can consist of one or more oil pools