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Australian Institute o f Energy

Leadership in Energy

Interesting and useful articles

 Japan's Oil and LNG Price Evolution on the Path To Transparency - Oil and LNG special report with foreword by the Institute of Energy Economics, Japan.

S&P Global Platts, Takeo Kumagai, Eriko Amaha, Jonty Rushforth and Shelley Kerr, September

Japan's oil industry feels that it is time to establish transparent pricing mechanisms as it faces a future of declining domestic demand and a restructuring of the refining sector. This has also affected LNG. In , the spot and short term LNG imports into Japan already accounted for % .The global LNG market is forecast to have a surplus manufacturing capacity of some  million mt by , leading to severe price competition.

This has implications for the Australian LNG industry in terms of lower revenue (volume and price) and the domestic gas market (lower prices despite the embargo on onshore exploration for gas in NSW and Victoria).

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Adjustment in the Oil Market: Structural, Cyclical or Both?

Bassam Fatouh, The Oxford Institute for Energy Studies, May

The assumptions made about crude oil price movements determine the prospects for the Oil & Gas and LNG industries. The rapid fall in oil prices has divided the analysts as to the nature of this latest price cycle. There is now a high degree of uncertainty in the market, which raises some important questions: has there been a structural shift in the adjustment mechanism, is the cycle different this time and, if different, how? Clearly we have a supply/demand imbalance exacerbated by high stocks ,though there are other factors too. For example: the balancing role now played by US shale oil, new players in the business model, lack of OPEC cohesion, rebalancing of the Chinese economy and the changing nature of the geopolitical risk.

This excellent article sheds new light on the problem and is a useful contribution to an informed debate of this subject.

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Examining Barriers to More Efficient Gas Markets

Productivity Commission Research Paper, March

With the commencement of exports of LNG from Gladstone, the eastern Australian gas market will undergo profound changes brought about by higher gas prices, new unconventional sources of supply and a significant disruption to the market. New opportunities will be presented to earn a higher return from non-renewable resources which will result in a net benefit for the community. However, consideration must be given how gas exploration and production rights are to be allocated in an optimal manner. Community concerns about the environmental and health risks of coal seam gas (CSG) need to be addressed better and the expected benefits of CSG moratoria in NSW and Victoria must be weighted against their expected costs for gas users and governments.

This Report should be essential reading for all in the gas industry.

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Oil and Gas Industry Cost Trends

An independent report prepared by EnergyQuest for the Australian Petroleum Production & Exploration

There is probably no industry more driven by economics than the oil & gas industry. This excellent report puts in context cost trends since , in Australia and overseas and their implications. As the oil and gas industry is a global industry, costs reflect global as well as local developments, as well as the changing price of crude oil. Global Finding & Development costs for new reserves have increased six-fold, upstream costs have more than doubled and operating costs nearly doubled. There is no comprehensive time series of Australian industry costs, however, it was possible to deduce general trends. Australian CSG projects are now at the very top of the cost curve.

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Light Vehicle Emissions Standards for Australia , Research Reports

Climate Change Authority, June

Following the announcement of the closure of the three Australian vehicle manufacturers, one perceived barrier to the improvement of fuel efficiency by regulation of the vehicles sold in Australia has now been removed. The objective of these proposals by the Climate Change Authority (and also noted in the recent government's Energy Green Paper ) is to align Australia with the targets already introduced in the United States, though still lag those of the European Union . Australia is behind many developed countries in the efficiency of its light vehicle fleet.

This standard would start in  -. Mandatory fleet fuel efficiency standards had been successfully introduced in the mid 's as a means of reducing fuel consumption, but that momentum was subsequently lost. This proposal approaches the issue by reducing emissions of the various greenhouse gases in vehicle exhausts. The technologies to reduce fuel consumption and associated emissions are already available.

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Australia's Liquid Fuel Security, Part : A report for NRMA Motoring & Services

John Blackburn AO, February

"This second report recommends a comprehensive response to our growing import fuel dependency that considers a full range of plausible scenarios and assesses the contribution to be made by changes to both demand and supply sides of the liquid fuel delivery chain. It also "examines the feasibility of improving our liquid fuel security".

As such, it is an important contribution to an informed debate on this critical national strategic issue and a valuable input to the forthcoming White Paper on Energy.

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Gas Market Taskforce

Final Report & Recommendations and Supplementary Report, P. Reith - Chairman, October

The Gas Market Taskforce was established to provide policy options to the Victorian Government on improving the operation and efficiency of the eastern Australian gas market. It provides a snap shot of the issues facing the eastern gas market and the proposals for addressing these issues. As such, these reports are essential reading for all who are involved, one way or another, in this market.

The Government has invited feedback on its  recommendations.

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The Great Game for gas in the Caspian

Editor Peter Kiernan, Lead Analyst, Energy, The Economist Intelligence Unit

Whilst we may be fascinated by the rapid developments in the US in shale oil and gas and their impact on Australia's future gas exports, there are equally fascinating developments in the Great Game in Central Asia, now played by Russia, the EU, the US and China.

This report assesses the outlook for oil and gas in Azerbaijan, Kazakhstan and Turkmenistan and how shifting market dynamics have affected securing access to this gas. China's emerging role in the region's energy resources, the Eurozone crisis, the US shale gas boom and Russia's efforts to entrench its supply position in the European market, as well as declining production of gas in Europe, are the key drivers for this game. 

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Independence day: A special report on North America's oil and gas boom

The Economist Intelligence Unit,

Australia is facing competition for its growing LNG exports from North America and potentially East Africa, and for thermal coal from North America as gas replaces coal for power generation in the USA. This report is a collection of recent articles and provides context for the medium to longer term prospects for the Australian gas industry.

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Engineering Energy: Unconventional Gas Production

Cook, P, Beck, V, Brereton, D, Clark, R, Fisher, B, Kentish, S, Toomey, J, and Williams, J. A report for the Australian Council of Learned Academies, May,

Many sedimentary basins are prospective for shale gas and the undiscovered resource base is very large. However, whilst shale gas will not be a cheap gas, it has the potential to become an economically important additional energy source. The manner in which shale gas is produced has the potential to impact the landscape, ecosystems, surface and groundwater, the atmosphere, the communities and may even result in minor induced seismicity. These effects can be minimised where an effective regulatory system and best monitoring practices are in place and can be remediated where they do occur. It is matter of urgency that a transparent, adaptive and effective regulatory system is now in place and implemented.

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The Draft National Harmonised Regulatory Framework for Coal Seam Gas

Standing Council on Energy Resources,

The Framework is a guidance and reference tool for federal, state and territory regulators for the coal seam gas industry. Its purpose is to provide national and global leading practices to consider and implement in the assessment and ongoing regulation of proposed projects for exploration and production. This draft was recently discussed by all Energy Ministers but a communique of that discussion is not available.

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Fossil and Nuclear Fuels- the Supply Outlook, March

Werner Zittel, Jan Zerhusen, Martin Zerta and Nikolaus Arnold -Energy Watch Group/Ludwig-Boelkow-Foundation

In  the Energy Watch Group published a report on the future of the world oil supply, presenting a scenario of declining supply in the coming decades to .This  report updates those findings, as well as providing projections for gas, coal and uranium.

Crude oil supply entered a plateau around  and started to decline in . Recent shale oil/gas developments in the US have reduced its imports and may distort the overall view of the global industry's prospects for a decade. According to this study, coal and gas will reach their production peaks around .The combined peak of all fossil fuels will occur a few years earlier and will coincide with the beginning of the decline of oil production. This decline of oil production will lead to a rising energy gap which will become too large to be filled by natural gas and/or coal.

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Australia's Liquid Fuel Security: A Report for NRMA Motoring and Services

John Blackburn AO,  February

In the Draft Energy White Paper, , it was written that: " Australia must have a mature debate about our energy sector and implications of different decisions. This means there must be a deeper community engagement in energy policy issues and outcomes." This report is a contribution towards that engagement. It makes eight recommendations.

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Report on Australia's oil refinery industry

House of Representatives Standing Committee on Economics, January,

"Despite the changes over the last decade and recent closures, evidence to the committee suggests that going forward there is a role for the Australian oil refinery industry, with groups acknowledging that some domestic refining capacity is a worthwhile complement to imports as part of having reliable, mature and diverse supply chains for liquid fuels."

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An analysis of coal seam gas production and natural resource management in Australia.

Williams J., Stubbs T., and Milligan A. October . A report prepared for the Australian Council of Environmental Deans and Directors by John Williams Scientific Services Pty Ltd, Canberra, Australia.

There has been no greater influence on Australia's energy markets than coal seam gas since production began over years ago of natural gas and crude oil. This commercial development has ensured that the East Coast again had adequate supplies of natural gas, sufficient enough to lay the foundations for a large LNG industry in Gladstone and that domestic natural gas prices will in future reflect export parity for LNG, the same concept as import parity for crude oil. In order to ensure that this development was managed well, an Independent Expert Scientific Committee on CSG is being established under COAG. This report is the most independent, disinterested nationwide analysis yet undertaken and makes two key findings: Firstly, the environmental risks, especially with groundwater, are serious, and neither decommissioning wells nor replenishing aquifers have been properly considered and Secondly, this is another land use which needs to be regulated than like all others.

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Biofuels Issues and Trends

U.S. Energy Information Administration, October

This report is about ethanol and biodiesel. In the US, gasoline has now reached the mandated % ethanol content (.% in ).The EPA has approved its increase to % for model year and newer cars and light trucks but almost no progress has been made to-date due to concerns about warranties. As a result, there has been a marked increase in exports. The federal excise tax credits for non-cellulosic ethanol expired at the end of . Biodiesel reached .% by volume in . Production of cellulosic biofuels remains far below targets.

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Ensuring Canadian Access to Oil Markets in the Asia-Pacific Region

G. Angevine, V Oviedo , Studies in Energy Policy, Fraser Institute, July,

The market todate for Canada's oil sands' bitumen (and natural gas) has largely been confined to Canada and the US. As a result of the US holding up potential growth in exports, Canada has started to look at alternative markets in Asia-Pacific. This report provides a comprehensive overview of the outlook for Alberta's crude oil and bitumen production, which would need be based upon a new oil pipeline infrastructure. It also examines unnecessary regulatory and other barriers that are inhibiting the development of pipelines and port facilities, including processes and procedures, First Nations' opposition and unwieldy environmental review processes, constraints with which developers in Australia too are well aware.

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Light vehicle CO emission standards for Australia. Key issues-Discussion Paper

Department of Infrastructure and Transport, .

The Government has decided that mandatory carbon dioxide emission standards will apply to new light vehicles from .The Department of Infrastructure and Transport has been given responsibility to develop the standards, in consultation with industry and key stakeholders, and will present recommendations for later consideration by Government. Current Australian standards lag a long way behind those in the EU and, in some cases, the US.

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Oil: The Next Revolution

Maugeri, Leonardo, Discussion Paper -, Belfer Center for Science and International affairs, Harvard Kennedy School, June

This paper makes the case that oil supply capacity is growing at a level which might exceed consumption and could lead to a glut and a steep dip in oil prices.

After taking into account risk factors on a country by country basis, the depletion rates of currently producing fields and their reserves growth (increases in crude oil, natural gas and natural gas liquids through extension, revision, improved recovery efficiency and the discovery of new reservoirs), the net addition by could be . mbd, yielding a global production capacity of . mbd, the most significant increase in any decade since . This growth assumes an oil price of $/bbl and only some % appear unprofitable at lower prices.

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The Oil Market to -Implications for Investment and Policy

Mark Finley, General Manager, Global Energy Markets & US Economics, BP.

'Oil demand is likely to continue growing. Global resources are adequate, but policies of countries that own the majority of the resources are likely to constrain the pace, leaving high cost supply options viable, as are the policies of the governments of consuming countries. Markets matter, for consumers and producers respond to price signals but markets are also hindered by subsidy regimes and restrictions on access'.

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An Anatomy of Crude Oil Pricing

Bassam Fattouh, Director of the Oil and Middle East Programme, Oxford Institute for Energy Studies, January,

There is no greater mystery for those outside the industry than the setting of the crude oil price. This article sets out to enhance the understanding of this process, for the current system has survived, more or less, for almost a quarter of a century. Although alternative pricing systems could be devised, the reality remains that market players such as the oil companies, refineries, oil exporting countries, physical traders and financial players have no interest in changing it. Whilst governments often get excited about oil price behaviour and local impacts, they too have shown little interest in the pricing system and the market structure that signalled such price behaviour in the first place.

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Keeping the home fires burning: Australia's energy security.

A. Davies , E. Mortimer, Australian Strategic Policy Institute, Strategic Insights , December

'Australia, like all modern economies, needs an assured supply of energy to function effectively. This report examines Australia's vulnerability to interruptions in the oil supply over the next few years. It also looks at mechanisms by which Australia can adjust to the new realities and concludes that current renewable energy technologies are unlikely to meet demand for a substantial proportion of Australia's needs'.

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Gulf of Conflict, A History of US-Iranian Confrontation at Sea.

David B. Crist, The Washington Institute for Near East Policy, Policy Focus #, June .

For the last thirty years, Iran and the United States have been locked in a hostile embrace and, on several occasions during the latter phases of the - Iran-Iraq war, engaged in open, if undeclared, conflict in the Persian Gulf. This study analyses the strategy, operations and tactics behind these clashes and discusses the impact of that historic confrontation on today's Iranian military.

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Transport energy futures: long term oil supply trends and projections

Dr David Gargett, Bureau of Infrastructure, Transport and Regional Economics (BITRE), Report ,

This study examines the oil production (conventional, deep water and non-conventional) prospects of over countries, including Australia, and regions, as a preliminary to delineating the scope of the oil depletion challenge. Using the method used by the author, forecasts for these countries have been produced. The study concludes that we are currently in a plateau which will commence to decline about , depending upon the demand for oil during this period.

Apart from the obvious implications for transport policy, these forecasts have an important bearing upon the economic/political prospects of countries largely dependent upon oil as the source for foreign exchange , egg Russia.

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Oil Shocks in a Global Perspective: Are they Really that Bad?

T.N Rasmussen and A. Roitman, International Monetary Fund, Working Paper WP//, August

Recent events have encouraged a number of studies about the impact of oil shocks and their conclusion vary. This study is the most recent one and concluded that "For a given level of world GDP, we do find that oil prices have a negative effect on oil-importing countries and also that cross-country differences in magnitude of impact depend to a large extent on the relative magnitude of oil imports. The effect is still not particularly large , however, with our estimates suggesting that a percent increase in oil prices will cause a loss of real GDP in oil-importing countries of less than half of one percent, spread over - years."

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President Obama Announces Historic .mpg Fuel Efficiency Standard

NHTSA July ,

President Obama has announced an agreement with thirteen automakers, the United Auto Workers and the State of California to increase fuel economy for cars and light duty trucks to . mpg by Model Year . This measure was introduced to reduce imports of crude oil and emissions of carbon dioxide. This amounts to an improvement of % per annum.

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Prospects for crude oil supply and demand

Department of Energy & Climate Change (DECC) UK, June

In order to gain an update on the views of the industry about future demand and supply of oil, DECC sought evidence in the following areas: " how oil supply and demand might change in the next one to forty years the kinds of shifts in supply and demand that can be managed and those that would present a challenge and what future oil prices are plausible." A summary of responses is attached but more details of evidence can be found at www.decc.gov.uk

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A. Future Global Need for the Increase in Iraq's Oil Production

Dr Ali Hussain, Oil Consultant, formerly from OPEC MEES, Dec

B. Reflection on the New Estimate of Oil Proven Reserves in Iraq

Ahmed Mousa Jiyad, Consultant, Scholar and Associate with the Centre for Global Energy Studies, London MEES, Dec

Even as the world has been preoccupied with a number of financial crises and the oil spill in GoM, Iraq has signed a number of contracts with oil companies with the aim of increasing its oil production from .mn b/d to mn b/d in , which will have major implications for Iraq as well as for all oil consuming and producing nations. It has raised in the process its proven reserves from bn barrels to bn barrels, thus consolidating its position as a major potential producer.Clearly more informed discussion on this vital subject is required.

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The Joint Operating Environment

United States Joint Forces Command, Feb

In recent months both the US and German military have published analyses of peak oil. To quote from the US study "Petroleum must continue to satisfy most of the demand for energy out to . Assuming the most optimistic scenario for improved production ....petroleum production will be hard pressed to meet the expected future demand of million barrels per day"

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Task Force on Commodity Futures Markets, Report to G-, June

Technical Committee of the International Organisation of Securities Commissions

The IOSCO Technical Committee created a Task Force in response to global concerns about the price increases and volatility in oil and food products.It made five recommendations, including 'continued monitoring of the futures markets in order to improve understanding of futures price formation and the interaction between regulated futures markets and related commodity markets' and 'ensure that futures markets regulators have the necessary legal framework to detect and take enforcement with respect to manipulation'.

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EPA and NHTSA Finalize Historic National Program to Reduce Greenhouse Gases and Improve Fuel Economy for Cars and Trucks

New fuel consumption standards will apply to passenger cars, light duty trucks and medium duty vehicles, covering model years through . The rules will simultaneously reduce greenhouse gas emissions, improve energy security, increase fuel savings and provide clarity and predictability for manufacturers. They will also trigger further consolidation of the oil refining industry.

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The Oil Crunch

Second report of the UK Industry Taskforce on Peak Oil & Energy Security (ITPOES), February

This report, as was the case for the first report, examines two commissioned expert opinions, as well as a number of other recent studies. It concludes that, "although the immediate slow-down in the global economy has removed short-term pressures on oil consumption, the underlying issues highlighted in the last year's report have not changed". Global peak production no higher than Mb/d may occur within the next five years.

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Waxman-Markey (H.R. ) Refining Sector Impact Assessment

EnSys Energy, prepared for the American Petroleum Institute, October

The Waxman-Markey American Clean Energy and Security Act is the US equivalent of Australia's proposed ETS. Whilst a number of studies have looked upon its impact, this study looked at the US refining industry in its interaction with the global refining industry, using EnSys WORLD Model. It thus studied the competitiveness of the domestic refining sector and impacts that could result in an increase in refining abroad at the expense of stranding US refining capacity, with consequences for US product imports and net global refinery CO emissions.

Its methodology and conclusions should be of value and interest to the Australian refining industry.

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World Energy Outlook, , Chapter , Field-by-Field Analysis of Oil Production. Is decline accelerating?

International Energy Agency

"The future rate of decline in output from producing oilfields as they mature is a critical determinant of the amount of new capacity and investment that will be needed globally to meet projected demand."

This study is based on "data for of the world's largest fields that have passed their production peak". IEA has just released its WEO, which can be bought from their web site, and in order to encourage debate on 'peak oil', released this chapter from its WEO free of charge.

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Sweden and the NEGP: A Pilot Study of the North European Gas Pipeline and Sweden's Dependence on Russian Energy.

R.L.Larsson, Division for Defence Analysis, Swedish Defence Research Agency, June

Russia has now become the world's largest producer of crude oil, as well as a major producer of natural gas. In recent years it has stopped supplies to its neighbours on occasions to achieve its political objectives and thus confirmed the effectiveness of oil/gas as a political weapon. The construction of the North European Gas Pipeline (NEGP) will further increase problems and frictions in the region. Hence one can appreciate that energy (oil and gas) security remains a priority for most European governments. But there are lessons here for Australia also.

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Global Oil Depletion, An assessment of the evidence for a near -term peak in global oil production. August

UK Energy Research Centre (UKERC)

This report has been produced by the UK Energy Research Centre's Technology and Policy Assessment (TPA) function to address the question "What evidence is there to support the proposition that the global supply of 'conventional oil ' will be constrained by physical depletion before ". Despite much popular attention, the growing debate on 'peak oil' has had relatively little impact on energy and climate policy but now there is a growing consensus that the age of cheap oil is coming to an end.

The UKERC is funded by the UK Research Councils.

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Resource Nationalism, Bargaining and International Oil Companies: Challenges and Change in the New Millenium

Dr Vlado Vivoda, Research Fellow, Centre for International Risk, School of International Studies, University of South Australia

"This paper examines the balance of power in the oil industry in the current decade, which, unlike the previous two cooperative decades, can be characterised as 'conflictual'. In this decade, due to their relative weak bargaining power, the IOCs have generally been unsuccessful in bargaining with oil-exporting countries and national oil companies"

The paper was presented at ISA's th Annual Convention in New York City, February, .

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After the $147-Barrel Bubble (Part I and Part II)

Matthew Hulbert, The Globalist , th July,

Matthew Hulbert has described the lessons producer states should have learnt from recent oil price volatility. In particular, he analyses how politics often dictate price and why real political and economic reforms in states such as Iran and Saudi Arabia are being passed over.

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Transit Troubles-Pipelines as a Source of Conflict

Paul Stevens, Chatham House

Whilst direct pipelines between a supplier and a customer create a degree of interdependence, transit pipelines can, and have, been a source of conflict. This article analyses the role of oil and gas pipelines, the sources of political and commercial conflict between the various parties and the options to improve the situation in the future.

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The Long Aftershock

Peter Jackson et al, CERA

This report has analysed the impact of recent cancellations and deferments upon future oil production capacity. It has concluded that if prolonged low oil prices persist, a new period of tight supply and strongly rising oil prices is possible. (The IEA , incidentally, shares that view).

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OPEC's Capacity and Commitment to Meeting World Oil Demand in the Medium-Term

HE Abdalla Salem El-Badri, OPEC Secretary General

Any analysis of the oil industry will be incomplete without an appreciation of the views of OPEC. In this comprehensive speech the Secretary General addresses the issues of spare capacity, expected demand and downside risks, low prices and price volatility.

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Is Oil's Future Sustainable?

Mathew R Simmons, Simmons and Company International.

Simmons is one of the most insightful American observers of the oil industry. In this presentation he addresses the issue of ageing infrastructure and shortage of skilled staff.

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The Coming Oil Supply Crunch

Paul Stevens, Chatham House

The case is made that lack of investment by both the national and international oil companies will lead to a major supply shortage.

This article is subject to Copyright.

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The Oil Crunch

First report by the UK Industry Taskforce on Peak Oil & Energy Security

This article examines the two alternative views on peak oil and concludes that supply shortages could occur sooner rather than later with dramatic effect and well ahead of any impact of implementation of rigorous emissions targets.

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Crude Oil -Supply Outlook

Jorg Schindler and Werner Zittel - Energy Watch Group/Ludwig-Boelkow-Foundation

This study provides a useful introduction to the various definitions of reserves, the methodologies for their application, the estimates of reserves by different authorities and the 'actuals' underpinning such estimates.It reflects a rigorous German approach and their perspective of the future.

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Australia's future oil supply and alternative transport fuels

The Senate, Standing Committee on Rural and Regional Affairs and Transport

This Committee made recommendations on the various oil supply and demand issues facing Australia, based on a thorough examination of the industry.

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