Oil And Gas Projections Put Paid To Unrealistic Demand Forecasts
Posted: 04 July 2005
A data report available from Energyfiles in association with Douglas-Westwood will revolutionise the analysis of future oil trade balances and potentially rewrite oil price forecasts advocated by such luminaries as the CEOs of Shell and BP. Having predicted, and now witnessed, the first oil price surge Energyfiles has decided to publish its comprehensive ten-year dataset, forecasting oil and gas production, consumption and trade in every producing country in the world.
Energyfiles Director Dr Michael R. Smith, and lead analyst, says “the ten-year data demonstrate that it is no longer appropriate to accept glib demand forecasts from oil companies, financial institutions and governments that predict, with wishful thinking, ever-growing demand levels, contrary to observations on oil supply. Suggestions that oil consumption will grow to up to 120 mm bbls per day by 2020 and that automobile and airline traffic will increase at extraordinary rates are futile and damaging to policy makers.”
“Such forecasts, divorced from reality, fail to take account of tight supply conditions and rising prices. We will be unable to produce oil at these rates without unbelievable step changes in technology. After 2010, and for periods before this, oil supply limitations and prices will seriously subdue energy demand unless suitable liquid alternatives are developed.”
Surging oil price
For example Lord Browne of BP has said that oil prices are likely to remain above $40 a barrel but only until new supplies come onstream in a few years. Albert Bressand, a vice president of Shell, offers a scenario coherent with a long-term price range in the $30 to $40 range, whilst the CEO of Shell said in early June that energy demand in the next 30 years will grow faster than in the past three decades. Meanwhile Geoff Curry, head of commodity research at Goldman Sachs recently said, "the real problem is a lack of refining capacity."
Careful forecasts of supply data do not support such speculations. “ Pr ojections in ’Oil and Gas 2006’ are consistent with rapidly rising prices after 2010 accompanied by painful conservation,” Smith says. “Sufficient new supplies will not come onstream to replace the inexorable depletion of existing fields, especially those old, 100 or so, giant fields responsible for around 65% of global supply, such as Ghawar (1948) and Safaniya (1951) in Saudi Arabia , and Burgan (1938) in Kuwait .”
Some commentators are less sanguine than BP and Shell. John Westwood, MD of Douglas-Westwood, and publisher of ‘The World Oil Supply Report’ now in its 3 rd edition, said that, “over the longer term a sustained increase in oil prices is likely as a global energy supply gap develops and real cost increases materialise.” This report is by the same author as ‘Oil and Gas 2006’, but its 0% to 3% demand scenario has recently been reproduced by the Economics, Industry & Finance Ministry of the French Government. The Ministry comments on the likelihood of a production plateau sooner rather than later, a subject seldom brought up by government ministries and never by financial departments.
“Many of the technologies to find and produce onshore oil were developed early in the 20 th Century,” says Smith, “and with offshore operations appearing in the 1950s increases in demand have easily been met by supply. Of course oil exporters, especially The Texas Railroad Commission in the 1930s and the OPEC alliance after 1973, have artificially created upward pressure on price by collaborating to restrict output.”
“However at the end of 2003 times were changing. Exceptional demand growth in Asia , coupled with flagging levels of output from non-OPEC countries, has created a new capacity-constrained environment. At such a critical time, with oil and gas still uniquely important to the health of the global economy, it is important to take a global and integrated long-term look at supply and demand levels of oil and gas, both onshore and offshore.”
Plan B - gas
Gas too is a versatile fuel, and is even more geologically widespread. However it is unsuitable for use in transport except when expensively converted into a liquid or used to create a fuel substitute such as hydrogen.
Smith points out that “with rapid growth of the LNG industry, a global gas market is now developing, which is in turn kick-starting new local and regional gas markets, allowing the commercialisation of remote, undeveloped or wasted gas accumulations. Gas is now replacing oil wherever it can. However gas supply needs an infrastructure, which takes time to install and may not immediately be cost-effective, and hardly ever for private transport. As an example Russian gas is expected to support growing UK needs but projections show that Russia will actually have less gas to export westwards over the next decade. Output will only pick up after 2015 as new volumes appear in Arctic Russia.”
A global imbalance
Until 2010 oil supplies will struggle to keep up with demand causing intermittent upward pressure on prices as the supply/demand ratio swings in and out of balance. After 2010 upward pressure will be permanent. The near term effect on the economies of countries will differ depending on their level of development, location, dependence on imported oil, and availability of other raw energy materials and/or infrastructure to produce fuel alternatives. Gas, the best short-term substitute, will be available only if investment in infrastructure, above all long distant pipelines and LNG conversion and receiving plants, is well advanced.
US Federal Reserve Chairman Alan Greenspan said in 2005 that oil markets might stay turbulent "for some time to come," but he predicted that, “high prices will spur the use of cheaper alternatives well before the world's oil reserves are depleted”. “ Pr ojections in ‘Oil and Gas 2006’ show that gas will be this key alternative fuel,” Smith says, “but not without the transport industry revolutionising itself. Increasing investment in public electrified systems and reduction in aircraft and automobiles is inevitable, as is fierce global competition and painful conservation.”
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