–Still Expects Developing Economies To Lead World Energy Demand Growth
–CGES: No Matter How Dire Global Econ Outlook, Oil Prices Will Not Fall

By Brai Odion-Esene

WASHINGTON (MNI) – The U.S. Energy Information Administration
Monday raised its expectations for both long-term oil and natural gas
world demand growth and predicted that world oil prices will continue to
rise, although by slightly less than it had previously forecast.

Also Monday, the London-based Centre for Global Energy Studies
warned that despite a slowing in global oil demand, “Oil prices are
likely to remain high unless, or until, the supply shortage eases.”

According to the Reference case in the EIA’s 2011 International
Energy Outlook, world crude prices are expected to be at $95 per barrel
in 2015, $108 in 2020, and $125 by 2035. In last year’s report the
agency also estimated world oil prices would be $95 in 2015, but
expected $109 in 2020 and $134 by 2035.

At time of writing, WTI NYMEX crude was trading at $85.66 and in a
range of $85.50 to $87.75 so far Monday. Brent crude was trading at
$110.02. OPEC said its daily basket price stood at $110.69 a barrel
Friday, Sept. 16, compared with $109.58 the previous day.

From 2008 to 2035, the EIA projects total world energy consumption
to rise by an average annual 1.6% in the Reference case. By comparison,
the EIA’s 2010 report projected total world energy consumption to rise
by an average annual 1.4% between 2007 and 2035.

In terms of world liquids consumption, the 2011 report said this
will increase from 85.7 million barrels per day in 2008 to 97.6 million
barrels per day in 2020 and 112.2 million barrels per day by 2035.

Strong economic growth among the non-OECD nations — particularly
China and India — drives the increase. The EIA said non-OECD energy use
should increase by 2.3% per year between 2008 and 2035, vs. just a 0.6%
per year increase in energy use by OECD countries.

“The Reference case represents EIA’s current best judgment
regarding exploration and development costs and accessibility of oil
resources outside the United States,” the EIA said. “It also assumes
that OPEC producers will choose to maintain their share of the market
and will schedule investments in incremental production capacity so that
OPEC’s conventional oil production represents about 42% of the world’s
total liquids production.”

To retain that share, the EIA said OPEC would have to increase
production by 11.3 million barrels per day from 2008 to 2035, or 43% of
the projected total increase in world liquids supply.

The EIA said non-OPEC conventional supplies — including production
from high-cost projects and from countries with unattractive fiscal or
political regimes — account for an increase of 7.1 million barrels per
day of the projected increase, and non-OPEC production of unconventional
liquid fuels provides the remaining 8.2 million barrels per day of the
increase.

The EIA warned, however, that “Projected petroleum consumption and
prices are very sensitive to both supply and demand conditions. Higher
economic growth in developing countries coupled with reduced supply from
key exporting countries result in a High Oil Price case.”

Under that scenario, real oil prices would be $146 in 2015, exceed
$169 per barrel by 2020 and approach $200 per barrel by 2035.

On the other hand, lower economic growth in developing countries
coupled with increased supplies from key exporting countries would
result in a Low Oil Price case in which real oil prices fall to about
$55 per barrel in 2015, $53 by 2020 and then gradually decline to $50
per barrel after 2030 where they remain through 2035.

Natural gas has the fastest growth rate among the fossil fuels over
the 2008 to 2035 projection period, according to the EIA. World natural
gas consumption increases 1.6% per year, from 111 trillion cubic feet in
2008 to 169 trillion cubic feet in 2035. The EIA’s 2010 forecast had
world natural gas consumption increasing 1.3% per year, from 108
trillion cubic feet in 2007 to 156 trillion cubic feet in 2035.

Back in the present, the CGES continues to beat the drum for more
action by key oil producers, arguing the reason the North Sea benchmark
crude is still trading between $110 per barrel and $115 per barrel is a
shortage of supply. This despite the increase in Saudi Arabian
production and the strategic stock release by the International Energy
Agency of up to 60 million barrels.

Its September Monthly Oil Report noted that global commercial oil
inventories fell at an average rate of over 1.2 million b/d during the
second half of 2010 and continued to fall in the first quarter of 2011.

“Over the two Northern Hemisphere summer quarters they are likely
to rise at a rate of just 100,000 bpd, leaving commercial oil
inventories outside the former centrally-planned economies of China, the
FSU and Eastern Europe at the start of the coming winter at less than 45
days’ worth of forward demand, back at levels last seen before the 2008
financial crisis and ensuing recession,” the report said.

“While oil market fundamentals remain tight, oil prices will not
fall, no matter how dire the global economic outlook,” the CGES said.
“Without more supply, only another demand collapse will bring prices
down.”

** Market News International Washington Bureau: 202-371-2121 **

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