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Demand for Oil Outstripping Supply
Published on Wednesday, January 28, 2004 by the Toronto Star
Demand for Oil Outstripping Supply
by Richard Gwyn
 

In some year ahead and by no means one necessarily that far ahead we'll go through another bout of winter weather like this one but with one critical distinction that will make all the difference, even though it will have nothing to do with the weather.

Assume that we experience the same prolonged, extreme cold and high winds and succession of snowstorms, all right across the country.

But assume, as well, that in that year the fuel by which we heat our houses, offices, factories and stores, and by which we power our cars, trucks, airplanes, trains and buses, is having to be rationed.

Rationing doesn't here mean actual physical rationing, with householders and car drivers limited to so many liters a month.

It means, instead, rationing by price. As oil supplies dwindle, not in themselves (or not for a long time) but in relation to demand, so will the price at first escalate, and then soar.

That's bound to happen. It will happen because the demand for oil is bound to outstrip the supply of oil, and of natural gas and coal and of other hydrocarbons.

The U.S. Energy Department reckons that this ``tilting point" won't happen until 2037. Its calculation is widely criticized, with its forecasts for increases in demand dismissed as far too conservative.

One well-known petroleum geologist, Colin Campbell, has put the tilting point at 2010, or little more than a half-decade away. Another, Kenneth Deffeys, forecasts that it will occur this year.

The basis facts are these: The entire world now both produces and consumes some 75 million barrels of oil a day. By 2015, or a decade away, demand is expected to increase by more than two-thirds, or by another 60 million barrels a day.

This extra demand simply cannot be met. We would have to find and develop the equivalent of 10 new North Sea oilfields in just a decade. Even if Iraq's oilfields are fully developed, with almost unlimited new investment and new technology, it could only produce an extra 6 million barrels, or a mere one-tenth of the amount needed.

Certainly, new supplies are being found in places such as Siberia, the Central Asian Republics and west Africa. But these are not net additions to the total output. At the same time, production from all existing super-giant and giant fields is contracting by 4 to 5 per cent a year.

Additional supplies could be generated from tar sands and oil shale in Western Canada and in Venezuela's Orinoco belt. But more than half as much energy is used extracting this oil as the energy value of the oil produced. Other potential supplies, such as polar oil and liquid natural gas, are horrendously expensive.

The real problem isn't supply, though. It's demand. Last year, one element of the demand equation clicked into place. In 2003, China overtook Japan to become the world's second-largest consumer of oil. The International Energy Agency describes China as "the major driver of global demand growth."

The U.S. remains the world's gas guzzler. It consumes about one-seventh of global production. (Canada, relatively, is as liberal and as wasteful in its consumption.)

A bit surprisingly, President George W. Bush, himself an oil man, has actually expressed some concern about the issue. He's said, "It's becoming very clear that demand is outstripping supply."

In fact, a lot could be done. Tax loopholes could be closed, like the one that makes SUVs artificially attractive. Regulations could mandate higher fuel-efficiency standards. Tax incentives could motivate householders to improve their heating efficiency. Other remedies could range from minimizing urban sprawl to developing alternatives to hydrocarbons, such as hydrogen cells. Energy economist Philip Verleger reckons that the U.S.'s oil imports, of some 11 million barrels a day, could be cut by half.

Bush, though, has done nothing about the problem other than to mutter that it does exist, and no Democratic presidential candidate has dared to mention the subject. The reason is obvious: the last politician to talk seriously about conservation, Jimmy Carter in 1977, was trounced in the next presidential election.

Nothing is going to happen until the crisis of oil demand outstripping oil supply is clear, unmistakable and urgent.

And by then it may be too late. Too late, that is, to avoid what former British energy minister michael Meacher forecasts will be, "the sharpest and perhaps the most violent dislocation (of society) in recent history."

So enjoy today's weather.

Copyright Toronto Star Newspapers Limited

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