ECN publication
Long term prospects for fossil fuel prices
Published by: Publication date:
ECN Policy Studies 1996
ECN report number: Document type:
ECN-C--95-046 ECN publication
Number of pages: Full text:
95 Download PDF  

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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