Energy doomsday could strike in coming decade

By Morris Bechloss
Special to The Desert Sun
October 17th, 2004
With the debate over the supply/demand ratio of global oil supply
reaching heightened levels, a new report warns that the world may face
catastrophic shortages before the end of the next decade.

It should be remembered that even the redesign of a new type of
automobile can take more than a decade.

Despite the recently reported Mexican find in the Gulf of Mexico, the
Canadian tar sands potential, and increasing offshore discoveries, the
aforementioned report by the Washington-based PFC Energy group
supports its doomsday scenario with unsettling projections. This is
still a minority view; although it seems to be have become more
popular as oil production has increasing difficulty in keeping up with
demand, while prices keep rising.

PFC Energy claims that world oil production will eventually top out at
100 million daily barrels, only 20 percent over today's full capacity
production of 82 million barrels. Fears are that even that level
cannot be maintained for long due to the accelerating depletion of
global oil reserves.

This energy consulting group is fearful that a continuation of the
present production/demand ratios will hasten a feared energy
Armageddon. Such demand projections predict a target surpassing a 100
million barrel-per-day level by the end of this decade.

With much of the Third World rapidly developing automotive and other
gas-guzzling sectors, the demand side of the equation could easily
surpass the 50 percent increase forecast within the next decade.

Placing blame

The PFC consulting firm blames the supply/demand disparity on the fact
that consumption has outstripped new discoveries in ever larger
numbers since the 1970s. Despite some major new finds, global economic
growth has led to unexpected depletion.

What has caused other energy analysts to disregard these projections
is the cyclical nature of oil shortages and gluts over the past 30
years. These naysayers have pointed to previous exploration and
production technologies that have always been able to smooth over the
periodic upward demand bumps during the recent global expansion.

However, not reckoned with has been the latest impact of China, India
and other new, super-heated growth economies. According to the latest
data from the Paris-based International Energy Agency, this year's
global demand is on track to grow by 3.18 percent to 82.16 million
barrels a day.

The PFC study indicates that non-OPEC countries, which make up almost
two-thirds of the world's oil production, are relatively stagnant,
with production headed on the downward slope before the end of this
decade. Within this group are Russia, and the other former Soviet
Republics. This group will reach 14 million barrels produced by 2010,
up from today's 11 million barrels. However, Russia will absorb an
ever greater percentage of this total for its own internal growth.
Other non-OPEC nations' production will also level out and eventually
decline with this decade.

Even OPEC, sitting on the world's largest oil reserves, will not be
able to keep up with worldwide demand, which is projected to
accelerate at the rate of 2.4 percent annually, claims PFC. But even
if that rate of growth falls short of the projected targets, global
consumption is still likely to outstrip supply later in this century's
second decade.

Technological failings

The Persian Gulf States, such as Saudi Arabia, Iran, Iraq, Kuwait, and
the United Arab Emirates, which make up the core of OPEC, have fallen
behind in oil extraction technology. Even if their inflated reserves
prove valid, it'll take huge investments to bring their extraction
capability up to snuff.

Despite the dramatic impact of such statistics, they have as yet not
convinced the energy industry's major decision makers. Fearful of the
volatility of previous oil cycles, global energy syndicates are loath
to commit their record cash flows to exploring whatever reserves are
still available. One rationale for this hesitation is that these
reserves are found at increasingly deeper offshore levels, making the
extraction costs prohibitive, even at a $40 a barrel oil price.

Major energy syndicates certainly aren't prepared to support the vast
expenditures necessary to develop massive new alternative energy
initiatives, without open-ended government subsidies. Based on past
performance, it is highly unlikely that the U.S. government will now
pitch in with the massive financing needed to get such programs under
way.

As things now stand, it will take major supply disruptions and
exorbitant consumer prices to wake up the world. Hopefully, it won't
be too late to take the necessary steps for the Sunday, Oct. 17,
2004resultant shortages and prices to create a global catastrophe.

Morris R. Beschloss of Rancho Mirage is an international economist and
financial writer. He can be reached at (760) 324-8166. His column on
global economic issues will appear weekly in The Desert Sun's Business
section.

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