The Future of Energy

Right now the US, with 4% of world’s population, consumes 25% of the world’s oil.

But the rest of the world is catching up. The U.S. Energy Information Administration recently predicted that over the next 20 years, global energy demand will increase by 50%. The EIA also projects that Chinese oil demand alone will reach 5.7 billion barrels per year by 2030 (compared to just 2.4 billion in 2005).

Based on these projections, established prior to the recent spike in oil, demand is expected to increase as follows:

*Source: International Energy Outlook 2008

*Source: Cambridge Energy Research Associates, Inc.

When one takes this low penetration rate combined with the fact that China and India have:

           — 1/3 the world’s population (with 2 billion people),
           — booming industrial economies,
           — rapidly growing middle-classes,
           — and a new class of cheap cars (like the Tata from India, which            is priced at only $2500/vehicle)

then we have the formula and the basis for the vastly growing expected demand for oil.

Even worse, there is no sign of any increase in production to match this demand. In fact, global production has fallen off over the past two years. Many experts believe that the world’s oil producers are already producing at or close to peak capacity.

Even with newly found reserves, capacity likely will be in large part offset by falling production at existing sites, political instability, demand constraints imposed by OPEC, and inefficiencies caused by nationalization of oil assets.

CONCLUSION: The increasingly large gap in supply will only be mitigated by much higher energy prices.

In the short-run, the problem is just as serious.

In the U.S., for every 1000 eligible drivers, there are 1148 vehicles. That is a ratio of just slightly more than 1 car for each 1 potential driver.

In China and India, there are currently an average of only 10 cars per 1000 eligible drivers.

THE PROBLEM IS GETTING WORSE

SOLUTIONS >

We can only achieve “demand destruction” if we know how the U.S. uses its annual 7.5 billion barrels of oil:

— NOT in the electrical grid: only 2% of electricity in the U.S. is generated by oil.

— Of that oil in the transportation sector, 74% is consumed by cars and light-duty vehicles.

"Asian demand is still there. China and India are growing at an astounding rate," said Sander Cohan, an oil-market analyst with Energy Security Analysis Inc."
To curb rising crude prices over the long run, consumers need to permanently reduce their demand for oil products, said Arjun Murti, an analyst at Goldman Sachs. Mr. Murti, who is known for his prediction of oil's "super-spike" to as high as $200, said that such a decline hasn't yet occurred.
The cycle of rising prices will only end, "when you have true demand destruction...when demand doesn't come back," said Mr. Murti, speaking at a conference in London.

– Wall Street Journal, June 5, 2008; Page C14

>We are already oil-independent at the electrical grid.

— The transportation sector accounts for almost 70% of U.S. oil use: