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With oil supplies rising, price crunch easing

The $70-a-barrel level was a "psychological price," Qatar's energy minister says. But with demand rising, what are the alternatives?

DOHA, Qatar--The worst could be over for oil prices.

Supplies of oil have crept up in the last several months, creating conditions for an oversupply, Abdullah Bin Hamad Al-Attiyah, second deputy prime minister and minister of energy and industry for Qatar, said at the International Petroleum Technology Conference taking place here this week.

"There are a lot of tankers out at sea and not a lot of buyers," he said. If supplies keep increasing, prices could continue to slide. The industry, though, is always subject to a large number of variables.

Abdullah Bin Hamad Al-Attiyah
Abdullah Bin
Hamad Al-Attiyah,
Qatar minister

If anything, oil prices won't hit the $70-a-barrel level again as they did in late summer--at least not in the near future. "That was not a real price. That was a psychological price," he said. Oil is currently trading at about $57 a barrel.

The three-day conference revolves around trying to better marry technological developments with the oil and petroleum industry. Despite the current oversupply, demand for oil and gas is expected to grow over the next few decades, in part due to the rise of China and India.

"Demand for oil and gas could increase by half in 20 years," said Malcolm Brinded, executive director of exploration and production at Royal Dutch Shell Group. "By 2030, 60 percent of the world's energy will be based on oil and gas, and the world will increasingly depend on the Middle East, which has over half of the proven reserves."

Unfortunately, the industry isn't nearly as efficient as it could be. Only about 35 percent of oil in general gets pumped out of a reserve, Brinded said. Getting more of the oil out will require improvements in technologies like so-called 4D modeling, which simulates how an oil reserve may behave over time. It will involve extracting more materials out of wells than now is possible.

Sheikh Hamad Bin Khalifa Al-Thani
Sheikh Hamad Bin
Khalifa Al-Thani,
Qatar emir

Another hot area of research revolves around pumping gas byproducts back into the ground to create pressure to bring the liquids up and then sequestering the gasses underground. Several countries have passed laws that forbid oil companies to burn these gasses off. Thermally assisted recovery, which uses heat, effectively does the same thing. It is being tried out in a few oilfields.

Petroleum companies also pledged to continue to perform research into alternatives. In Qatar, a thumb-shaped nation on the Arabian Peninsula, "alternative energy" means liquefied natural gas, or LNG, which can be used to run industrial equipment and cars while polluting less than gasoline.

The nation's Oryx project, being developed with Shell and others, will allow Qatar to pump out 77 million tons of LNG a year by 2010, making it the largest producer in the world. Global LNG demand per year is expected to grow 300 percent to 400 percent by 2030, Brinded said.

"Qatar was facing a big challenge due to being far away from the gas-consuming areas. It was imperative to apply the best methods for changing gas to liquids and transporting it at the lowest cost," said Sheikh Hamad Bin Khalifa Al-Thani, Qatar's emir. Sheikh Hamad opened the conference on Monday.