Toronto, Ontario – Rising crude oil prices will result in skyrocketing consumer gas prices in Canada with the national average price topping $1.40 per litre this summer, according to a new energy forecast report from CIBC World Markets. The report also forecast prices of $1.80 by 2010 and $2.25 by 2012.
The pump prices are based on forecast crude oil prices of US$150 per barrel by 2010 and US$225 by 2012.
The report finds that current oil production estimates produced by the International Energy Agency (IEA) overstate supply by about nine per cent, since it counts natural gas liquids in its numbers. These liquids are not a viable substitute for oil and cannot be economically used as a feedstock for fuels.
“While natural gas liquids only account for ten per cent of total supply, they account for virtually all of the increase in petroleum liquids production since 2005,” said Jeff Rubin, Chief Strategist and Chief Economist at CIBC World Markets. “Stripping out natural gas liquids, oil production has not grown for over two years, which certainly goes a long way to explaining why oil prices have doubled over that period. In light of these developments, we have re-examined our projected supply increases. The distinction turns out to be critical. Roughly 50 per cent of the increase in expected production is likely to come from natural gas liquids, leaving only small marginal gains in petroleum supply over the next two years.”
The ratio of natural gas liquids to total oil production has been rising steadily in recent years and is likely to continue to rise for the foreseeable future. As an oil field matures, the resulting loss of reservoir pressure releases dissolved natural gas, which forms an expanding cap over many mature oil fields, resulting in a rising ratio of natural gas to oil, and hence a rising ratio of natural gas liquids to oil production.
Given this trend, Rubin said that the global oil market is much tighter than the IEA forecasts, and believes oil production between now and 2012 will rise by barely a million barrels per day.
The report also notes that while production increases are at a virtual standstill, global demand continues to grow: car sales in Russia grew by nearly 60 per cent in 2007, 30 per cent in Brazil and 20 per cent in China.
“Car purchases in Russia, for example, are exploding as U.S. sales stagnate,” Rubin said. “While in India the advent of the TATA, a car that will sell for as little as US$2,500, will allow millions of households in the developing world to own automobiles when they otherwise could not. Millions of new households will suddenly have straws to start sucking at the world’s rapidly shrinking oil reserves.”