The View Ahead: Not So Good

Deep inside today's New York Times is an article by James Kanter. The main point is that global oil demand is increasing, not decreasing, at 2.2 percent per year for the period between now and 2012. In the developed nations, people have become accustomed to the higher energy prices so they are buying. In the developing world, which now comprises nearly half the total market demand, use of petroleum is accelerating from prior low levels because their economies are booming making products for the developed nations. The problems faced by the industry are these: insufficient refining capacity; reductions in production from the non-OPEC nations as their fields mature; insufficient conservation policies in some of the developed nations. Our reductions, wherever they are, are too small to offset the increases in the developing nations.

What to do? An oil market analyst remarked that the world market needs 3 million barrels a day just to offset the falling production in non-OPEC fields. That is a lotta oil. More than the current daily output from Iraq. New refineries will be needed but it takes about 7 years to get one built from scratch so a new commitment now wouldn't help. Finally, the analyst predicted that the US is quickly coming to a point where "there would be a landmark change in fuel-efficiency policies." Are any ABG readers surprised?

As for biofuels, only about 2 percent of global energy demand is expected to be covered by them in 2012. I hope that estimate is low but it is based on the current high prices of biofuel feedstock which, take it from me, does depress demand for the product.

Notice, this story only covers the energy side, not the environment/ global warming side, of the issue. Oil prices yesterday were $72.19 a barrel for August delivery. That is not a spike. That is just the now normal range for oil these days.

So the old adages apply: smaller, more efficient cars, hybrids, less annual auto mileage, use of alternative vehicles like bikes or mass transit. The truth is we live in a finite world.

[New York Times]

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