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What Will Oil Prices Be Like in 2021 and 2031

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Analysts from Goldman Sachs say that oil prices will reach $65 per barrel this year. Their reasoning is based on the underfunding of the sector resulting from a dramatic revenue decline in the industry's core businesses. Is it, however, a realistic scenario? Here is what Forpost learnt on that matter.

As Jeffrey Currie, the Global Head of Commodities Research at Goldman Sachs, noted in his interview to CNBC, the oil market will experience supply shortages, pushing prices even higher. It applies to both the short-term and mid-term outlook since the pandemic is not the only reason for underinvestment in geological exploration. An equally important factor is an increase in investments in renewables, which means that money that would have otherwise been allocated to the oil & gas sector is being taken away.

Currie says the drop in demand for hydrocarbons, and consequently, a slump in prices on them, will not happen anytime soon - at least not until the green infrastructure is fully operational. Yet he did not mention the possible timelines.

"The situation we're seeing this year on entering the winter field season is tough. The pandemic, which caused a sharp fall in oil and gas prices, has demotivated most market players. Many companies lowered their budgets and reduced exploration activities, with large oil & gas corporations postponing them for unknown periods. To put it differently, the process of replenishing the hydrocarbon resource base, which is a cornerstone of sustainable development of the global economy, is at risk," says Vladimir Tolkachev, President of Geotech Seismic Services, Russia's largest exploration company.

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Tolkachev at the same time affirms that the enterprise considers the price environment non-threatening and intends to implement all of the scheduled projects, including those being carried out in Ukhta, Yamal and Kazakhstan.

According to Vladimir Litvinenko, Rector of Saint Petersburg Mining University, a leading expert in fuel & energy, the mineral resources sector will be lacking investments even after the pandemic comes to an end. He notes that lack of funds does not stem from the coronavirus but the attitude of highly developed post-industrial states, currently the primary oil & gas consumers.

Vladimir Litvinenko: Most post-industrial nations cannot ensure raw materials, energy sources included, on their own. Therefore they decided to switch instead to renewables, allowing them to overcome the raw material dependency. The problem here is that renewable power sources cannot compete with natural gas - either in terms of price or efficiency. Because of that, national governments subsidised their integration. As the share of renewables in the energy mix increased, electricity costs for households and businesses increased, too.

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Meanwhile, a public opinion was being shaped through planting an idea that green technologies will soon replace hydrocarbons, a key reason for global warming, as a primary source of fuel. This point of view has nonetheless nothing to do with what industry professionals say. The agenda is being formed by politicians, whose understanding of how to ensure the fuel & energy sector's stability is vague at best.

As a result, upon entering adult life, today's youth from Western countries take the above statement as an axiom. They think it will be possible to abandon oil & gas tomorrow, or at worst the day after tomorrow, and the only reason why it is not happening is because 'bad Russians', living off the imports of raw materials, interfere.

Reality differs. Regardless of how badly we want it, in the next few decades, renewable energy sources alone will not suffice to ensure the fuel & energy sector's sustainability. After all, there are no ready-for-use technologies which can accumulate electricity generated by wind turbines and solar panels on an industrial scale. It means a back-up solution is needed if the wind suddenly dies down and the sun disappears behind a cloud. Otherwise, we will be facing constant blackouts.

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A couple of years ago, the EU authorities stated that natural gas was their safety net. When burning gas at CHPPs, much less hazardous substances enter the atmosphere compared to coal burning, but the coal's share remains significantly high in the energy mix of Germany, Poland, and some other countries. Now the EU's official discourse has changed, and gas suddenly turned into an energy source generating even more CO2 emissions than coal. Hence, prospects of gas cannot be any longer discussed. At any conference, the only power source being talked about is hydrogen, yet a little-studied topic of safety of its transportation and storage is deliberately left out.

Banks are forbidden from investing in the oil and gas sector; adoption of a carbon tax is an actual matter of consideration. In other words, enormous efforts are being made to force the energy transition. Suppose Germany can make it and becomes a climate-neutral country by 2050. It will nevertheless require vast financial investments, eventually leading to a substantial price increase in almost all German-made goods, deriving from higher electricity costs. But what will happen to Bulgaria, or Greece? How badly will their national economies be affected?

We are thereby creating a paradoxical future in which the demand for oil & gas will continue growing, mostly thanks to Asian and African countries and the petrochemical industry's development, but the supply will be gradually declining. The outcome of such will be a shortage of raw materials and skyrocketing prices, and prerequisites for this already exist. For example, annual capital expenditure in oil extraction has fallen from $900 bln to $400 bln in the last six years, meaning the amount invested is about 40% less than necessary.

Unless the role of hydrocarbons in sustaining the global economy is reconsidered, we will see oil prices reach their all-time highs within the next 5 to 10 years.

I also want to emphasise that humanity has faced the need for forming a new energy strategy at the beginning of this century. Tomorrow's global energy setup should focus on a step-by-step introduction of alternative energy sources and environmentally friendly technologies, instead of placing above all abandonment of hydrocarbons. With that said, the demand for hydrocarbons will be growing. Global economies are developing, but the market cannot offer a working alternative for hydrocarbon fuels. As for the level of CO2 concentration in the earth's atmosphere, this is the least dangerous consequence of technogenesis.

The Role of Hydrocarbons in the Global Energy Agenda: The Focus on Liquefied Natural Gas