The Global Thirst for Crude Is Set to Rise  

(MENAFN - Arab News) Syed Rashid Husain

DAMMAM, 20 July 2007 — The world has changed immensely and so has the energy world. Seventy-five dollars a barrel no more boggles the mind. Some even predict that triple figure prices are only a matter of time.

Goldman Sachs is already pointing out that the price of US crude oil is to top $90 a barrel this autumn, increasing to $95 by the end of the year, if OPEC (the Oil and Petroleum Exporting Countries) keeps oil production capped at current levels. Despite all this, the global thirst for crude is set to rise.

The International Energy Agency (IEA) now predicts the global demand to go up by an average of 2.2 million barrels a day next year — up from 1.5 million barrels a day this year. The total global consumption is set to touch 95.8 million barrels a day by 2012, from 86.1 million bpd in 2007, assuming an average global GDP growth of 4.5 percent per annum.

This means that "either we need to have more supplies coming on stream or we need to have lower demand growth," said Lawrence Eagled, head of the IEA's Oil Industry and Markets Division. Lowering market demand growth would mean slowing the global economic growth. No one would seem ready to compromise on that. The other option is to increase supplies. And here is the logjam. Let's consider the following too:

According to the IEA, additional refining capacity over the next five years will lag earlier expectations as rising costs and a shortage of skilled manpower put brakes on rapid new developments in the sector.

In the meantime, the US National Petroleum Council — a board of high-level US oil industry executives — released its study, entitled "Facing the Hard Truths About Energy," which was conducted at the behest of US Energy Secretary Sam Bodman. As per the report's executive summary, though the world is not running out of oil, there are "accumulating risks" to securing supply through 2030.

In a draft letter to Bodman outlining its findings, the National Petroleum Council says: "The world is not running out of energy resources, but there are accumulating risks to continuing expansion of oil and natural gas production from the conventional sources relied upon historically."

Those risks include "political hurdles, infrastructure requirements and availability of trained work force," according to the findings of the panel, which included executives of oil companies such as ExxonMobil and Chevron.

On the other hand, the issue of having energy from sources other than fossil fuel, for a host of reasons, is still not very promising, when seen in the overall perspective. "Regarding non-conventional oil supply and bio-fuels, the most significant growth is expected to come from Canadian oilsands" (Source: OPEC World Oil Outlook 2007).

Earlier, the Canadian Association of Petroleum Producers (CAPP) in its report also said that Alberta's oilsands will increase output to five million barrels per day by 2030 and Leo Drallas, the chief economist at the London-based Center for Global Energy Studies, believes it to be a "reasonable target" that can be reached. "Currently oilsands production makes up roughly half of western Canada's total crude oil production and is expected to grow from about 1.1 million bpd in 2006 to 3.4 million bpd in 2015 and 4.4 million bpd in 2020," the CAPP report said.

In the meantime, the global production of bio-fuels would reach 1.75 million bpd by 2012 — more than double the 2006 levels. All this leads us to one major conclusion: Irrespective of the wishes of some, fossil fuel would continue to dominate the energy mix by far and the contribution of resources other than fossil would still be marginal at best, when seen in the perspective of the total global energy requirements. The world would continue to depend on fossil fuel to meet its requirements.

Where will this additional capacity come from? The IEA expects less supply to come form non-OPEC producers, indicating a greater reliance on OPEC — the source of more than third of global crude currently. This is something that needs to be underlined in bold words. The IEA has trimmed its forecast for supply from non-OPEC producers by 800,000 bpd in 2011. Consequently, OPEC may be asked to raise its production to 34.7 million bpd in 2011, IEA says, much higher than its previous projection of 1.3 million bpd.

OPEC's current production is around 31 million barrels a day. The IEA projects its capacity could rise to 38.36 million barrels a day over the next five years. It is here that the energy fraternity needs to stop by and ponder!

With the global reliance on OPEC growing, is it worthwhile and beneficial to continue with the political rhetoric of reducing dependence on oil or specifically on the oil from this energy-rich region?

"Today's policy announcements (about reducing dependence on oil) could translate into scarcity of supplies in the future," warns Mohammad Al-Hamli, OPEC president and UAE oil minister. If the demand is unclear, it would be unwise and wastage of badly needed funds for the developing nations of OPEC with limited resources to invest heavily in oil production, he underlined at an energy conference. "Security of demand is key issue for us," he stressed.

In fact, it is not a key issue for OPEC member states alone; it is an issue of global importance, of shared responsibility. The growth of this fuel-driven civilization depends on continued availability of fossil energy resources, for many more decades to come.