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"Don't get too comfortable with gasoline at $2 a gallon"

http://www.pennlive.com/editorials/patriotnews/index.ssf?/base/opinion/122669161342460.xml&coll=1

Sunday, November 16, 2008

No one should get too comfortable with $2 a gallon gasoline.

It's a welcome break from the $4 gas we saw just last summer and an impressive lesson in the power of conservation to achieve price reductions.

But what it isn't is permanent. Even with the price of gas breaking through the $2 range, the head of the International Energy Agency, Nobuo Tanaka, declared last week that "while market imbalances will feed volatility, the era of cheap oil is over."

Historically, the IEA has tended to be optimistic in its annual long-range forecast of oil supply and consumption. But this year it did something new. It conducted "an unprecedented field-by-field analysis of the historical production trends of 800 oil fields." It found that the rate of decline in oil- field production is projected to be such that by 2030 the world needs to find and produce 45 million barrels of oil a day -- four times the current capacity of Saudi Arabia. And that's just to stay even to meet current demand, about 87 million barrels of oil a day.

It also projects oil consumption to grow to 103 million barrels a day in 2030, which would require finding the equivalent of six Saudi Arabias. An interesting note here is that most of this additional oil would not come from conventional oil fields but from natural gas liquids and oil sands. This comports closely with those who argue that "peak oil" is here or will soon be in terms of producing conventional oil, although the IEA may be overly optimistic about nonconventional sources of oil.

In any event, it will be costly to keep the supply of oil sufficient to meet demand when the economy is back at full throttle. The IEA estimates that on average about $1 trillion a year will need to be invested in finding and producing additional oil. However, low oil prices, along with low prices for natural gas, discourage investment.

The Wall Street Journal reported earlier this month that in Texas "natural-gas companies have been pulling lease offers back and canceling drilling projects on land they already control. Energy jobs are drying up, as companies mothball drilling rigs and lay off the contractors who leased land on their behalf."

At least eight projects to tap Canada's oil sands have been delayed or put on hold, threatening the long-term development of the oil sands, according to ReportonBusiness.com.

Brazil, which recently announced major deep-water oil discoveries off its coast, has announced that it is putting off exploitation of the fields for a decade or more.

Energy Bulletin wrote late last month: "Hardly a day goes by without a report that investment in new oil production projects is being delayed, postponed or canceled. A combination of falling oil prices, declining demand, the unavailability of loans, and fears of a global economic meltdown are more than enough to stop many projects."

Low oil prices not only are hindering development of future supplies of oil, they also represent a serious threat to the advancement of alternative forms of energy as, for the moment, they become less cost effective. In short, it would be very easy to fall back into the bad habit of ignoring energy and resuming overconsumption.

But low oil prices, for all intents and purposes, are a mirage. They are here but they could be gone in a flash, once we pass through the economic doldrums. That makes it all the more critical that the Obama administration push hard to advance the development and expand the application of alternative energy sources, especially hybrid, electric and other vehicles not dependent on oil.

Not only will investing in alternative energy create new industries and good jobs, it will serve to facilitate the inevitable transition from fossil fuels to renewable forms of energy that are critical to addressing oil depletion, energy independence and climate change.

This is no time to become complacent about energy.