The Need for Joint Supply-Demand Oil-Energy Solutions

30 05 2008

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A recent Wall Street Journal (http://online.wsj.com) article explains the current and projected petroleum production problems that the U.S. and the World are facing in dealing with oil supply-demand issues. While world and U.S. oil supplies are steady to decreasing, demand for petroleum is increasing sharply in places such as India and China. As we have experienced of late, World petroleum prices have risen sharply to attempt to ration demand.

The article discusses th concerns of both the International Energy Administration (IEA) (http://www.iea.org/) and the U.S. Energy Information Administration (EIA) (http://www.eia.doe.gov/) about the production of adequate quantities of oil to meet world energy needs. The May 22, 2008 article titled “Energy Watchdog Warns of Oil-Production Crunch” written by Neil King, Jr. and Peter Fritsch, can be accessed here. Following are a few key quotes from the article by King and Fritsch…

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Regarding the IEA’s pessimistic assessment of current oil supply-demand prospects for the year 2030…

For several years, the IEA has predicted that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. Now, the agency is worried that aging oil fields and diminished investment mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

“The oil investments required may be much, much higher than what people assume,” said Fatih Birol, the IEA’s chief economist and the leader of the study, in an interview with The Wall Street Journal. “This is a dangerous situation.”

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Here is mention of the pessimistic view of “Peak Oil,” i.e., a “topping out of available world petroleum supples, as is believed in by some…

“A growing number of people in the industry are endorsing a version of the “peak-oil” theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output. All of that has prompted numerous upward revisions to long-term oil-price forecasts on Wall Street.”

“…the IEA’s pessimism over future supplies has been building for some time. Last summer, the agency warned that OPEC’s spare capacity could shrink “to minimal levels by 2012.” In November, it said its analysis of projects known to be in the works suggested that the world could face a shortfall by 2015 of as much as 12.5 million barrels a day, unless there was a sharp drop in expected demand.”

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The political and technical realities and limitations are briefly discussed….

Meanwhile, politics and other forces are delaying projects that could bring more oil on-stream. Continued fighting in Iraq has stymied efforts to revive aging fields, while international sanctions on Iran have kept investments there from moving forward. Rebel attacks in Nigeria and political turmoil in Venezuela have cut into both countries’ output. Big non-OPEC producers such as Mexico and Russia, which have either barred or sidelined international operators, are seeing production slump. The U.S., with a legal moratorium barring exploration in 85% of its offshore waters, is struggling to keep its output steady.

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Yet, there is some reason for optimism in terms of increasing world petroleum supplies to meet demand is found in these quotes…

A study released earlier this year by the Cambridge Energy Research Associates, a consulting firm and unit of IHS (http://energy.ihs.com/), concluded that the depletion rate of the world’s 811 biggest fields is around 4.5% a year. At that rate, oil companies have to make huge investments just to keep overall production steady. Others say the depletion rate could be higher.

“We are of the opinion that the public isn’t aware of the role of the decline rate of existing fields in the energy supply balance, and that this rate will accelerate in the future,” says the IEA’s Mr. Birol.

Some analysts, however, contend that scarcity isn’t the issue — only access to reserves and investment in tapping them. “We know there is plenty of oil and gas resource in the world,” says Pete Stark, vice president for industry relations at IHS. He says the difficulties of supply aren’t buried in oil fields, but are “above ground.”

Mr. Morse at Lehman Brothers notes that there are plenty of questions about supply yet to be answered. “However confident the IEA may be about the data it has, they know nothing about the resources we’ve yet to discover in the deep waters or in the arctic,” he says.

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Question: So, what should we, in our generation and time, do to make progress on the oil-energy problem?

First, some thoughts on addressing oil-energy demand issues, then supply issues, and then an exhortation for the conservation-minded and those in favor of supply development in the short run to work together.

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Addressing U.S. Domestic Oil-Energy Demand Issues: The ideas of those who focus heavily on energy conservation measures as the solution to these impending problems are important to consider. Energy conservation will need to be a critical part of the long term solution. Transition to other energy sources will be needed at sometime in the intermediate to long run future given that world petroleum reserves dont appear to be “infinite”. So, strategies of limiting petroleum demand and/or transitioning to other energy sources for our economy, focusing on more energy efficient technology in the areas of transportation and homes/businesses, etc. certainly have to be part of the long term solution. And it would be better for the U.S. to lead in transitioning to these more efficient energy using technologies rather that to follow and suffer economically.

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However, the more extreme energy conservation-focused among us to who favor policies of no development of domestic oil supplies, preferring rather to let high petroleum / fuel prices serve as a demand rationing mechanism are either not cognizant of the economic and personal hardship these high prices will bring upon their fellow citizens, or are apparently willing to see their fellow man suffer economic and social hardship in order to achieve the “greater good” of a “renewable energy” world.

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Addressing U.S. Domestic Oil Supply Needs: Information from the International Energy Administration and the U.S. Energy Information Administration point toward critical and perhaps even catastrophic supply shortfalls in petroleum availabilty in the short to intermediate term. If the U.S. and world economy were to be severely damaged in the short to intermediate term, we may not have the financial where-with-all to be able to develop the crucially important alternative energy technologies we will need to have to survive in the long run in a petroleum-less or at least severely petroleum limited world. It is not irrelevant to ask the question “How much technical and scientific advancement is accomplished in impoverished or 3rd world countries?” Not much – those needy people are reliant on the leading world economies to provide the technical, scientific advances to help them to improve their lot in life.

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Therefore, there is a great need in the short to intermediate time frame for the U.S. to further develop and make use of available domestic oil supplies in areas that are now off limits to such development (i.e., the remaining 85% of the U.S. coastal / continental shelf area, in Alaska at ANWR and other places, through our abundant coal / oil shale supplies), etc.. Without question, this should be done in an environmentally responsible manner. The technology is available to enable safe oil supply development and utilization in the short and intermediate term, so that the U.S. economy can remain healthy enough to be in a position to develop and make use of alternative energy sources in the long run.

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The technology is not now available to quickly and dramatically reduce gasoline – diesel use without serious, serious negative impacts upon the U.S. economy, i.e., upon the economic well of our country and fellow citizens. From the above article you can see that U.S. domestic oil production needs to be enhanced and increased as soon as possible to avoid catastrophic economic impacts from severely tight oil supply-demand balances in the near future (i.e., 2015 and 2030 ARE the near future!).

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“Working Together” image

A final thought – What is needed is a willingness to come together to develop joint solutions for these and other problems in our country. To be in a position to move away from petroleum to other energy sources in the long run the country has to remain economically prosperous in the short and intermediate run. Our ideological divisions and positional inflexibility in the area of energy development, if unchanged, will cause great harm to our economy and the well being of our desendents. Workable solutions are possible to these energy problems, but they must involve action and a willingness to work together on both the supply and the demand side of the equation. The energy utilization technology is not available at this time to allow us to ignore development of supplies in the short and intermediate term. It likely will be in the long run, but we as a nation have to survive and remain economically strong long enough and be in an economic position to be able to act in the long run.

Churchlayman

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Mountain peaks of the Himalayas

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