Analysis: Two New Studies See Oil Price Shocks, Point to Growing Need for Renewable Fuel, by Fuels for the Future

Washington, D.C. -- February 1, 1996 -- If present trends continue, future oil price shocks appear likely -- as early as 2000 -- with the world facing permanent increases in the price of oil, two new studies have concluded.

The first -- "The World Oil Supply 1930-2050" from Petroconsultants, a prestigious Geneva, Switzerland-based organization -- deals with the realities of the statistics:

They point out that the world is finding only about seven billion barrels of oil each year in a falling trend, while producing 23 billion barrels a year in answer to rising demand, which is described as a recipe for bankruptcy.

The second report, prepared by Oak Ridge National Laboratory for the Office of Transportation Technology of the U.S. Department of Energy, suggests that the OPEC nations, in control of two-thirds of the world's reserves, will soon have the ability to regain monopoly power in world oil markets.

"Price shocks can be very profitable to oil producers, and consuming nations appear to have developed no adequate defense against them," the report warns.

The Petroconsultants study concludes that while the world may not be running out of oil, it is running out of cheap oil. And nothing, it states, contributes more to the high cost of living than high energy prices.

The study emphasizes that a country's peak oil production comes at the midpoint of depletion -- when half of its oil has been produced. Then oil production declines to zero at its depletion rate.

North American production peaked in 1974, and the world will hit its midpoint around 2000, the consultancy estimates. By 2050 world oil production will be reduced to what it was in 1960 -- an obvious call for the stepped-up development of alternatives to oil.

The crux of the problem is that all other producing countries but the five Persian Gulf states will peak before 2000. The Oak Ridge report points out that by the turn of the century only OPEC will have the capability of developing and producing energy in the quantity required. The report says the problem is not one of the United States running out of oil, but that a handful of nations, which control two- thirds of the world's reserves, will have the monopolistic power of a cartel as early as the turn of the century.

During the 1970s the OPEC cartel was able to raise prices dramatically, extracting billions of dollars from consuming nations. But higher prices spurred drilling activity worldwide, and newer technologies reduced consumption to the point that the world had excess capacity for more than a decade. Now supply and demand are nearly in balance and the advantage is swinging to the oil producers. With world demand increasing at twice the rate of the world to produce, the OPEC cartel with its many resources appears ready to control the market for oil during the early days of the new century, the Oak Ridge analysts reported to the Department of Energy.

The Oak Ridge report, in emphasizing the problem, points out that while farm commodities can increase production within a year, it takes 10 to 20 years to develop and produce oil, lending far greater power to an oil cartel's monopoly in the short run.

The Petroconsultants study suggests that few new petroleum sources will be found in the future. Most oil production will have to come from existing fields. Established oil well reserves have been set at about one trillion barrels, but the report does not make the error of dividing this figure by current production to suggest wrongly an extended period of supply-demand balance. The scene, the researchers conclude, is set for another major oil price shock. With a chronic shortfall in supply, the world faces a permanent increase in the price of oil.

The data supplied by Petroconsultants lend support to the conclusions reached in the Oak Ridge report that deal largely with economic consequences to the United States and its standard of living in having to deal with a cartel and its pricing power.

Such studies appear to provide a clear explanation as to why both political parties, though dedicated to budget-cutting, lend support to the research, development and production of alternative fuels. The studies provide a virtual mandate.

One of the factors that has brought about the increased demand for oil -- estimated to increase by more than two million barrels per day over the next seven years to more than 80 million barrels per day -- is transportation.

The growing demand for automobiles in China, India, South Korea and other Asian nations pinpoints the fact that oil production provides 97 percent of the fuel used in transportation. The 600 million motor vehicles worldwide will eventually consume as much as 60 percent of the world's oil.

Simply put, demand for oil is outpacing the world's ability to produce it. Nations unprepared to handle the shortfall will be paying a significantly higher price for oil.

CO: Fuels for the Future; Petroconsultants; Oak Ridge National Laboratory; U.S. Department of Energy ST: District of Columbia IN: OIL SU: EXE

CONTACTS:

Fuels for the Future
Dean Reed
202-223-3532