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Title:
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Long term prospects for fossil fuel prices
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Author(s):
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Published by:
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Publication date:
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ECN
Policy Studies
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1996
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ECN report number:
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Document type:
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ECN-C--95-046
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ECN publication
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Number of pages:
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Full text:
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95
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Download PDF
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Abstract:
This study has been carried out to enable VROM to gain insight in themost adverse impact possible on fossil fuel prices of global implementation
of CO2 reduction policies. The present supply costs and the price prospects
in Europe of fossil fuels over the coming 25 years are outlined. Projections
of minimum required prices are made on the basis of a literature review.
Incremental supply curves have been derived for oil, gas and coal. In fact,
these provide a lower bound for projections of market prices at the demand
levels considered. Estimates are presented of the resource base and the
production costs of oil, gas and coal. Incremental supply curves for oil, gas
and coal have been matched with two specific demand scenarios prepared by
IPCC in 1992. Oil is a strategically important commodity. Border prices of
crude are not only determined by the marginal production costs to meet
present demand from the cheapest sources available, but do also reflect
importantly the priority given by importing countries to diversify sources of
supply. This is a main reason why oil prices reflect the relatively high
costs to produce and transport oil from remote (Alaska) and offshore (North
Sea) areas to the market place, as compared to oil originating from vast
low-cost Middle East oil reserves. To some extent, this is also applicable to
natural gas, be it that transport costs have a much more pronounced bearing
on the price formation of natural gas. Compared to oil and gas, coal has an
enormous resource base and many sources of supply. Therefore, under varying
demand conditions the market price of sea-borne coal tends to be more stable
and closer to minimum required price levels than is the case with oil and
gas. Projections of minimum required prices in terms of marginal costs for
oil and gas under the two distinct IPCC scenarios considered, differ
considerably, reflecting large differences in demand projections for these
fossil fuels. As already set out above, the price differences for coal are
envisaged to be more moderate. 29 figs., 33 tabs., 77 refs., 3 appendices
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