Good Article on the Energy Outlook

Jack Z. Smith: Oh, believe me, it can get worse


The energy picture is scary and depressing, with the U.S. average price for regular gasoline soon expected to top $4 a gallon -- nearly quadruple the level of less than seven years ago. The days of Tod and Buz merrily cruising Route 66 in their fuel-guzzling Corvette appear long gone.

But the long-term energy outlook perhaps is even more frightening for America, the world's biggest energy consumer and largest importer of oil. Here's why:

The world's population, approaching 6.7 billion, is growing by 75 million annually and will hit 9.2 billion by 2050, a 37 percent increase, according to United Nations projections. That means 2.5 billion additional energy consumers, an increase more than eight times the current U.S. population of 304 million. India alone is expected to gain 300 million people between now and 2025.

The population increase will be largely in developing nations, where per capita energy consumption is rising rapidly as millions of people buy cars and other fossil-fuel-consuming goods for the first time. China's vehicle fleet is expected to reach 270 million by 2030, a stunning sevenfold increase from 2005. The International Energy Agency projects that China's annual vehicle sales will exceed those of the car-crazy U.S. by about 2015.

The IEA forecasts that world energy consumption will rise more than 50 percent by 2030, if current government policies continue. Approximately 74 percent of the increase will come from developing nations, with China and India accounting for 45 percent.

Global demand for crude oil, the raw product for today's increasingly precious gasoline, is projected to soar to 116 million barrels per day by 2030, a hefty jump of about 30 million barrels over current consumption levels. The more that demand rises, the greater will be the upward pressure on fuel prices.

Some developing nations are encouraging oil waste by heavily subsidizing gasoline. In Iran, the government has raised fuel prices more than 25 percent--to the equivalent of 38 cents a gallon.

U.S. control over world oil supplies will continue to diminish. Western oil giants such as Exxon Mobil, BP, Shell, Chevron and Conoco Phillips control only a small and steadily shrinking fraction of the world's oil reserves. In general, the big national oil companies -- such as those in Saudi Arabia, Russia and Venezuela -- are providing only limited access to Western oil firms and are demanding increasingly large chunks of production revenues. That bodes poorly for America's long-term energy security and its ability to avoid paying a king's ransom to foreign oil producers in the future.

The U.S. must ensure a more stable energy future by greatly increasing conservation (think small, fuel-efficient cars, expanded mass transit, greener buildings and homes, and development patterns that shorten work and shopping commutes); diversifying its energy supply (more nuclear, clean coal, wind, solar, geothermal, biomass); and expanding domestic oil and natural gas exploration, production and infrastructure (opening up more offshore areas and a limited portion of the Arctic National Wildlife Refuge to drilling, building an Alaskan natural gas pipeline and using improved technology to milk more production from existing fields).

Perhaps most important, we must develop new engine technologies (think gasoline-electric hybrids, plug-in hybrids, hydrogen fuel cell vehicles and electric cars).

New York Times columnist Thomas Friedman wrote this week, "Ultimately, we need to move our entire fleet to plug-in electric cars."

I'm not sure I agree 100 percent, but that's clearly the direction we must move in.

Otherwise, America could become far more vulnerable in the precarious energy world of the future -- to the point that $4 gasoline would be viewed nostalgically as a relic of the "good ol' days."

....a local viewpoint

BOWIE (Special) — Texas economist Ray Perryman is scared of Tata, the Indian company that announced Monday it had completed acquisition of the Jaguar and Land Rover Lines from Ford Motor Company.

It’s not that the foreign company has taken over two luxury models — it’s that the same company is working on a low-end automobile design.

“We should all be scared to death of a $2,500 car,” Perryman recently told a gathering of oil industry and education leaders in Bowie.

“Why be scared of that?” Perryman asked. “Because it will accelerate by 15 years the point at which a lot of these countries have people who will be able to afford a car. It used to take much longer, but as they emerge and grow, it is totally changing the matrix of how we consume energy.”

He was talking about emerging countries with huge populations, such as India and China, where growing numbers of automobile owners will put further pressure on the world’s already-stretched oil supply.

In 2001 the average person in China used one barrel of oil per capita, compared to about 30 in America. Perryman said today that has grown to two barrels, or about 10 percent growth a year.

“It is not the amount, but the rate at which they are increasing. Why do we care? Multiple that by 1.3 billion, which is the population there. Energy is going to be expensive for a long time. It may not be $135 a barrel like it is today, but in the long run it will be more expensive,” he explained.

Perryman said he has traveled around the world and seen first-hand the uncontrollable factors that will impact the future of energy: From the growth of emerging countries, to political unrest that threatens supplies, to human nature as its reacts to the world where things are moving quickly.

He said the No. 1 question he’s asked now is why prices are so high for oil and gasoline. He said if one could take all the uncertainty out of the world, the price of a barrel of oil would be in the mid-$40s instead of three times higher.

“Permanent uncertainty, some never goes away. Interruption of supply is a big factor and centers around political uncertainty of the main suppliers. There hasn’t been peace in the Middle East for 7,000 years. Odds are that it won’t happen tomorrow,” he said.

From Iran, which is rattling its sabers, to Indonesia, Venezuela and Nigeria, which are all on the verge of civil war, these major suppliers, if threatened, could cause oil interruptions. Perryman also said where there is oil underground, there is unrest above the ground; and everyone worries and watches the headlines.

He said people are also reacting to storms differently now than they did years ago.

“Odds of a storm knocking out a bunch of rigs is pretty remote, not much different than they were 50 years ago. Get a five-mile gust in the gulf and speculators start thinking it will start looking for rigs to knock down, and when it gets tired of that it will head to shore to look for a refinery. In that environment, price is bid up just because we had a storm recently,” he said.

The weak dollar, which is the currency for oil, is also coming into play as suppliers want the same amount of purchasing power they had last month for the same amount of oil.

Despite all the variables, supply and demand is still the motivator for energy prices. Perryman said supply is tight with only a one percent cushion.

“Every thing that might impact it (oil supplies) is blown out of proportion. An explosion at a small refinery, a pipeline break, every little thing gets people stirred up. They also overreact to weekly supply numbers. It is a crazy environment,” Perryman said.

He believes higher prices will be the signal that makes things happen in the energy industry, as companies find better ways to drill, new technology, alternative energy and ways to use less energy.