The world has moved into an irreversible era of high oil prices in which crude prices are expected to climb continuously and possibly hit US$100 (Bt3,900) a barrel by the middle of the next decade, a US energy expert told an oil industry audience in Bangkok this week.

Dr Fereidun Fesharaki, president of FACTS Inc, also warned Thai policymakers to keep their promise to eliminate within the next two years the Oil Fund's Bt65-billion debt, incurred by recent fuel subsidies, and he said PTT Plc should reconsider its multi-billion investment in a network of natural gas for vehicles (NGV) filling stations.

"We're not in a cycle, but in a changed paradigm," he said. "Oil prices will continue to go up."

Fesharaki's base-case scenario is for the price of Dubai crude to increase to $80 a barrel in real terms by the middle of the next decade, resulting in a demand loss which will then see the price settle at about $60 a barrel. The upcoming peak in prices is expected to occur in about 2014. The lowest-case scenario projects a price of $50 a barrel and the highest case, $100.

Over the next few months, he said oil prices were likely to decline, thanks to an extraordinarily high output this year from non-Opec producers. But output will drop next year.

Speaking at a public lecture on "The New Paradigm in the Global Oil and Gas Industry: Challenges for Thailand", hosted by the Petroleum Institute of Thailand on Tuesday, Fesharaki said that due to an expected convergence in the prices of oil and natural gas, gas will no longer be a cheap fuel and electricity producers will need to diversify to coal and eventually to nuclear power.

Answering a question regarding PTT's huge investments in a network of NGV filling stations, Fesharaki said compressed natural gas was not a sustainable solution, although it may work well as a propaganda tool for governments. "You must ask why the US or Europe hasn't done this. Compressed natural gas is only good in those countries where there are low gas prices, like Saudi Arabia or Qatar," he said.

Khunying Thongtip Ratanarat, a senior consultant and adviser to the Petroleum Institute of Thailand, argued that there is "policy pricing" for natural gas in Thailand and there are also other benefits from using gas, such as helping the country save foreign currencies and oil import bills.

Fesharaki suggested that PTT Exploration and Production Plc should spend between $5 billion and $10 billion to acquire small and medium-sized US or European oil companies that it can use as a 'vehicle' to take it forward on its next step.

He said oil prices would keep going up because supply will soon be unable to keep up with demand, which has been increasing by 1.5 million barrels annually. Conversely, the oil refining industry will see its refining margin reduce year after year due to an increased capacity and an oversupply is likely to reoccur sometime between 2010 and 2012.

Feshraki is a senior fellow of the East-West Centre, as well as being a former energy adviser to the prime minister of Iran and an adviser to a number of energy companies and governments.

His presentation to the PTIT

can be downloaded at http://www.ptit.org/pl/Presentation_Fesharaki.pdf

Pichaya Changsorn

The Nation