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Thierry Leperk

Thierry Leperk

Thierry Leperk: Oil Prices Will Fall to $10

2017 December 21 ( Wednesday )  10:26:03
Print version
Русский Azərbaycan

Oil is often called black gold. It's all about the value of the mineral, and the countries in the bowels of which there is oil, have always been considered one of the richest and most prosperous. True, the economies of almost all of them, with the possible exception of Norway, are tied to oil, and the growth and fall in prices for black gold can be a decisive factor.

The world experienced the last sharp drop in oil prices in 2015, when the barrel of Brent oil fell by almost 35%, from $ 55.38 to $ 36.28. Oil was becoming cheaper due to the pressure of supply surplus in the world market, as well as on expectations of the release of additional volumes of oil from Iran. Finally, the decision of the Organization of the Petroleum Exporting Countries (OPEC), which did not begin to reduce its quotas for production, and lifting of the ban on the export of oil from the USA, finally finished off the natural wealth. To date, the situation has somewhat stabilized ($ 63.87 per barrel), but two years ago the fall in oil prices caused a sharp economic crisis in its producing countries.

Azerbaijan did not stand aside either. Double devaluation, which brought with it a wave of rising prices for all types of products and general unemployment, has practically finished the country's oil economy. In the following year, the situation stabilized slightly, oil prices slowly but surely crawled up.

Against this background, the forecast of the executive vice-president of the Engie energy company Thierry Leperk in an interview with the Bloomberg agency sounded like a bolt from the blue. According to him, the oil industry will survive five "energy tsunami", which threatens the drop in oil prices to ten dollars per barrel in less than ten years. Pressure on prices will be the falling cost of solar energy and batteries, the growing sales of electric vehicles, "smarting" buildings and cheap hydrogen.

"Even if the demand for oil grows to 2025, its price may drop to ten dollars, if the markets expect a significant drop in demand," Leperk said.

The last time oil was so cheap in 1998. What is Azerbaijan waiting for if the forecast becomes a reality, given that the country has not been able to jump off the oil needle?

The economist Natig Jafarli told Turan there are a lot of forecasts about oil at the moment and oil prices are associated with the technological revolution, the creation of artificial intelligence, the widespread use of alternative energy sources, and the rapid transition to electric vehicles.

"Earlier it was predicted that by 2017 only 0.5% of cars worldwide will work on electricity, but at the moment this figure is already 7%. According to forecasts, by 2020 the number of electric vehicles will be 15-20% in the total number of cars, and by 2035 Europe and America plan to completely switch to this type of transport. China also said that in 2030 it intends to completely abandon the internal combustion engines. That is, in the world there are serious technological changes: the cost of electric vehicles decreases, and the volume of batteries from which they work increases. From next year, the batteries will be improved, and one charge will be enough for a thousand kilometers of the way," he said.

The expert clarified the question of how electric vehicles can seriously affect oil prices, because oil is not just gasoline for cars. According to him, more than 40% of the world's oil produced is used in internal combustion engines, that is, in cars.

"If there is a sharp transition of cars to electricity, 40% of the produced oil will remain unused, which will negatively affect its price," he said.

Jafarli noted that the forecast about the price of $ 10 per barrel of oil seems somewhat fantastic, because the cost price of oil varies within the range of 9-13% depending on the producing country.

"However, the probability of a decline in oil prices to 25-30 dollars is very high. Naturally, in such countries completely dependent on oil, such as Azerbaijan, Russia, Saudi Arabia, Iran, or Venezuela, the situation from the fall of oil will be very difficult, and these countries will face a sharp crisis. Azerbaijan has already experienced such a situation in 2015, after which devaluations occurred, AZN fell by half, GDP fell to 4%, unemployment increased, the state budget in dollar terms returned to the level of 2007. If oil again falls in price to 25-30 dollars, then it will threaten Azerbaijan with great economic difficulties," the economist added.

Jafarli also noted that despite the call of President Ilham Aliyev in 2015 to forget about oil and develop other areas such as tourism and agriculture, as well as industry and oil, oil continues to play a major role in the country's economy.

"To date, the dominant role of oil is natural. It is very difficult to switch to a new economic model replacing oil suddenly or in a short time. However, the fault of the current authorities lies in the fact that the transition from oil to other industries should have taken place long ago. They did not come to power two years ago, and they have been ruling the country since 1993, and are to blame for the fact that over these years they did not conduct preparatory work for the post-oil period. It has long been necessary to forget about oil, to prepare for the post-oil period and to develop the non-oil sector in the way Norway did in its time. Now the economy of Norway is only 4% dependent on oil. The country's income from the production and export of fish products is three times more than that of oil, and is about 25 billion dollars a year. In 2015, Azerbaijan was forced to take certain steps to develop the non-oil sector. However, with the new rise in oil prices, talk about the transition to alternative methods has subsided. There was an impression that the rise in price of oil slowed down the alleged reforms. From this point of view, the expected fall in oil prices in the future will force the Azerbaijani authorities to undertake reforms. The authorities do not want economic reforms for one simple reason - economic reforms are impossible without reforms in governance and the judiciary," Jafarli said.

According to most experts, comprehensive reforms will mean a weakening of the vertical of power, which it cannot agree with.-0-