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The period since the last Arab Energy conference in 2006 could hardly have been more interesting and challenging for oil and gas producers. In 2006, at global level, the ‘great moderation’ appeared well established after the downturn in the early 2000s. Oil prices were firm and on the way up. Demand and supply patterns for oil had been changing, notably due to increased demand for oil in Asia and due to emerging disappointment about non-OPEC oil supplies. Geopolitical security issues and concern over climate change and policy responses to it were rising up the political agenda. The anticipation of continuing rapid growth was one of the drivers that set the scene for the very rapid rise in oil and other commodity prices, from about $25 in 2002 to their peak at $147 in July 2008. The decline in oil prices from their peak to a low of below $40 at the beginning of 2009 is hardly surprising. In fact, it may well be asked why the fall was not even greater. One reason, further discussed below, is the OPEC response. Another is that market anticipations of the future price of oil never fell below $60 per barrel. As confidence in world recovery (and continued growth in China and India) developed, spot prices rose in line with the futures, and are now trading roughly in a band between about $70 and $80. Obviously, a key set of issues concerns prospects for the world recovery and, closely related to anticipations of recovery, the likely development of oil prices, especially given recent levels of excess capacity. On the demand side, the situation in natural gas markets is broadly similar. But the supply picture is very different from oil. One of the themes of this paper is the question of whether there will be an emerging ‘disconnect’ between oil and gas developments in the medium term. Section two considers some key aspects of the global economic picture. The recovery has already confounded the dire predictions of the pessimists. But the key point is that, even if growth rates recover, there is a downward ‘level effect’ on energy demand, which will affect the supply/ demand balance for years to come. That said, there are both upside and downside risks - and expectations, which drive oil prices, are likely to be volatile. Beyond this is the question of what kind of a world picture is likely to emerge in the medium term. The consensus has it that emerging market economies will drive the world economy whilst OECD countries languish with relatively low growth, in part due to policy concerns over deficits and debt. There are forces which point both to low (real) interest rates and to restricted credit flows due to continuing problems in the financial sector (and new regulations). Section three turns to oil. There are a number of important themes which relate to supply, the dynamics of demand, volatility and possible policy responses designed (for good or ill) to limit price swings. Another theme is the increasing importance of the consumer producer dialogue. Will the last cycle lead to major changes in the way the international oil market functions? The key question is whether the recent relative consensus over oil market prospects and stability is likely to persist. Section four turns to gas - where it is argued that changes over the past four years have been particularly far reaching - posing many questions for the future. Section five considers the some of the key issues raised by all the above for the MENA region.
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