BP's Browne sees oil price falling to $40/barrel in medium term

London (Platts)--12Jun2006

Oil prices are "very likely" to fall from current levels of around
$70/barrel to $40/barrel in the medium term and could dip as low as $25/barrel
in the longer term as new reserves are developed, BP chief executive John
Browne predicted in an interview published Sunday.
But Browne, talking to German magazine Der Spiegel, said he expected
prices to remain high in the short term.
Asked whether he though it possible that prices, currently trading above
$70/barrel, were likely to return to levels below $40/barrel, Browne said:
"Absolutely. Prices can hardly be expected to drop sharply in the short term,
but it is highly likely that in the medium term prices will be at an average
of around $40. Very long-term, even a price of $25-30 is conceivable."
He did not define short, medium and long term.
Browne said there was no need to be concerned that global oil reserves
were set to run out any time soon. "We needn't worry. There are enough
reserves," he said.
"Today, technological progress enables us to get much more oil out of a
field than earlier. In the old days we managed about 20% to 30%, but today
it?s maybe 40% to 45%. And there's no good reason why we shouldn't reach 50%
or 60%," he added.
Browne said there tended to be a perception that market tightness was
attributable to lower oil supply. "But the fact is [that] supply has increased
- in non-OPEC countries, where investments rise by about 15% every year, and
also in the OPEC countries such as Saudi Arabia which today produces around 10
million b/d and will certainly manage 12.5 million b/d in a few years," he
said.
Current limited global surplus capacity was the result of "little
investment in new exploration projects," which in turn was a consequence of
oil prices having averaged around $20/barrel for 20 years, Browne said. "It's
just a few years since a barrel cost ten dollars, and many an observer saw the
price dropping to five dollars. So there was correspondingly little investment
in new exploration projects."
But, Browne said, "that has changed now," adding that he expected surplus
capacity to grow again "soon."
Browne noted that large fields such as Kashagan in the Caspian Sea were
still being discovered. "West Africa, too, has significant amounts. There are
large deposits in Russia," he said. "And there are also the so-called
non-conventional reserves such as the oil sands in Canada," he said. "Although
the costs are much higher there, production is still profitable. As a rule,
production costs still account for only a small part of the selling price."

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