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US petroleum industry draft sees energy demand soaring

World

World oil and gas supplies from conventional sources are unlikely to keep up with rising global demand over the next 25 years, the US petroleum industry says in a draft report of a study commissioned by the government.

In the draft report, oil-industry leaders acknowledge the world will need to develop all the supplemental sources of energy it can – ranging from biofuels to nuclear power to oil extracted by unconventional means from the oil sands of Canada - to meet soaring demand. The surge in demand is expected to arise from rapid economic growth in such fast-developing countries as China and India, as well as mounting consumption in the US, the world’s biggest energy market.

The findings suggest that, far from being temporary, high energy prices are likely for decades to come. “It is a hard truth that the global supply of oil and natural gas from the conventional sources relied upon historically is unlikely to meet projected 50% to 60% growth in demand over the next 25 years,” says the draft report, titled “Facing the Hard Truths About Energy.”

“In geo-economic terms, the biggest impact will come from increasing demand for oil and natural gas from developing countries,” said the draft report. “This demand may outpace timely development of new supply sources, thereby pressuring prices to rise.” The study, which was requested by US Energy Secretary Samuel Bodman in October 2005, was conducted by the National Petroleum Council, an industry group that advises the secretary.

The conclusions appear to be the first explicit concession by the petroleum industry that it alone can’t meet burgeoning global demand for oil, which may rise to as much as 120 million barrels a day by 2030 from about 84 million barrels a day currently, according to some projections. These conclusions follow hard on the heels of a medium-term outlook by the Paris-based International Energy Agency this month, which suggested a supply squeeze will hit by 2012.

The fact that the American petroleum industry is warning of a crunch could have an even greater impact on the debate over energy policy. The draft report proposed that the US work not only to increase output of oil, gas and other fuels, but to cut energy use by improving car and truck mileage standards and implementing stricter building and appliance requirements.

“Whether we are effort-constrained or resource-constrained won’t become clear until it is too late,” said Larry Goldstein, director of the Energy Policy Research Foundation, an industry-funded, non-profit research organization based in Washington. Policy makers must assume supply constraints, Goldstein said, declining to comment directly on the study. The National Petroleum Council has about 175 members, picked by the energy secretary, with extensive participation by the energy industry and other industries and government officials and with help from foreign countries and institutions.

The NPC is slated to vote on adopting the draft, which runs more than 400 pages, including annexes, at a meeting this week in Washington chaired by Exxon Mobil Corp. former Chairman and Chief Executive Officer Lee R. Raymond. Some people who participated in the report declined to comment on the findings until the results were published. Besides Raymond, leaders of the study included David J. O’Reilly, chairman and chief executive of Chevron Corp.; Andrew Gould, chairman and CEO of Schlumberger Ltd. and Daniel H. Yergin, chairman of Cambridge Energy Research Associates.

Michael Lynch, president of Strategic Energy and Economic Research, said this is perhaps the first time the NPC, which was founded at President Harry Truman’s request in 1946, has taken a global overview. The conclusion seems to be “the situation is serious, but not critical,” Lynch said. Still, drastically increasing the supply of oil and gas could be difficult. “The oil industry was gutted between 1985 and 2000 because of low prices,” said J. Robinson West, chairman of PFC Energy, an industry consulting concern in Washington. “It will be difficult now for it to meaningfully increase its production capacity.”

“The fact is there is lots of oil in the world, but the industry and international capital can’t reach it,” West said, noting limits imposed on Western companies by holders of oil reserves in the Mideast and elsewhere. Houston investment banker Matthew Simmons takes a pessimistic view. He believes the world should be preparing for sharply lower oil production. He points out the NPC study didn’t squarely address one important issue raised by Bodman in requesting the study: the point at which global oil production will plateau and then begin to decline, often referred to by the shorthand term “peak oil.”

“We should be preparing for a time when, in 10, 15 or 20 years, oil production is likely to be 40 million barrels a day to 60 million barrels a day, not 120 million,” he said. The NPC study noted that total global endowment of fossil fuels appears to be huge, but only a fraction of those estimated volumes can be produced because of technical constraints. It said the Earth’s underground stores of oil were estimated at 13 trillion barrels to 15 trillion barrels. (petrolplaza.com)

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