- Oil and gas are likely to remain relatively expensive for years to come as a result of the energy crisis, says top economist Kenneth Rogoff.
- He also expects significant fluctuations in energy prices in the coming years.
- Global oil demand could rise by another 40 percent by 2050 in an extreme scenario, energy agency EIA estimates.
- Also read: Saudi Arabia is changing course: no more additional oil production capacity
Oil and gas prices are likely to remain relatively high for years to come as a result of the energy crisis, top American economist Kenneth Rogoff tells Business Insider.
The economy came to a standstill due to the corona pandemic. As energy demand imploded, the price of a barrel of Brent oil fell to $14 in 2020. Two years later, the same barrel cost almost ten times as much. Not only did demand skyrocket due to the rapid economic recovery, but the supply of oil also fell due to the war in Ukraine.
Gas prices have been on a similar rollercoaster ride. Although energy prices have now fallen somewhat due to fears of a recession in the United States, Rogoff expects oil and gas prices to rise in the longer term.
The professor of economics and public policy at Harvard University also expects significant fluctuations in energy prices in the coming years. “If there is an energy shock, it may take a huge price change to bring the market back into balance. And the pandemic was the biggest shock since World War II,” Rogoff said.
Demand for oil could explode in the coming years
Global oil demand rose by 2.3 million barrels per day last year, the Western energy agency IEA estimates. In an extreme scenario, global demand could increase by another 40 percent by 2050, the American energy agency EIA thinks.
Oil and gas companies are now working on new investment plans to expand production capacity. However, it may take years before these investments solve the chronic supply shortage in the sector, energy experts warn.
It is therefore not inconceivable that energy prices will remain relatively high for the time being.
European industry remains cautious with gas consumption
Meanwhile, major industrial companies in Europe remain cautious about energy consumption, even as gas prices have fallen sharply from their 2022 peak levels.
Price fluctuations on the gas market are still greater than before the energy crisis. Important customers of gas, such as steel and chemical producers, therefore remain reluctant to let their companies run at full speed again, Morgan Stanley commodity strategist Martijn Rats told Bloomberg.
“Returning industrial activity requires a certain degree of confidence that prices will remain stable,” Rats said. According to him, the strong price fluctuations that followed events in the Middle East, for example, make it difficult for companies to hedge against this. “It is not about the absolute price level, but about the expected volatility on the markets.”
Although the European industrial sector is scaling up production volumes, gas consumption is still historically low.
Demand for gas is being depressed by a number of factors, including an increase in the generation of sustainable energy and a predominantly mild winter, which means less gas is needed for heating. Many companies and households have also started looking for alternatives due to the high gas prices caused by the Russian invasion of Ukraine in 2022.