[R-G] Despite Warnings, Oil Usage Expected to Increase

[Yoshie Furuhashi]

<http://www.iht.com/articles/2007/07/09/business/oil.php>
Despite warnings, oil usage expected to increase
By James Kanter
Monday, July 9, 2007

PARIS: Despite four years of high prices and increasingly dire
warnings about climate change, a new report Monday predicted that
world oil demand would rise faster than previously expected over the
next five years while production slips, threatening a supply crunch.

"Demand is growing and as people become accustomed to higher prices
they are starting to return to their previous trends of high
consumption," said Lawrence Eagles, the head of oil markets analysis
at the Paris-based International Energy Agency. "It's important that
we have more investment and a greater emphasis on energy efficiency."

The pressures on fuel supplies are growing because booming Asian
economies are using more fuel to power their prospering manufacturing
industries and to supply growing numbers of automobiles amid a spurt
in consumerism.

Rapid growth of the petrochemicals sector and low-cost airlines are
other important factors lifting demand.

Supplies are being squeezed by a scarcity of modern oil refining
facilities as well as sufficient staff to operate them. Supplies also
are a concern because of deteriorating production of oil from
countries outside the Organization of Petroleum Exporting Countries,
the price-setting cartel operated by the world's biggest producers.

The world "needs more than three million barrels per day of new oil
each year to offset the falling production in the mature fields
outside of OPEC," Eagles said.

Analysts said that behind the overall numbers were signs that the
energy habits of the planet were moving in two distinct directions.

In developed countries, and in particular in the European Union,
obligations agreed to by governments to conserve energy and use
renewable sources of energy - both to reduce carbon dioxide emissions
and to maintain energy security - are expected to ease pressure on oil
supplies.

But that trend is being offset by rapidly developing nations. While
they still consume far less energy per capita, they also are
manufacturing goods for rich countries and increasingly are adopting
heavily energy-consuming lifestyles, including air conditioners,
refrigerators and cars.

"My view is that energy consciousness will figure strongly in Western
countries and could contribute to demand decrease, but it's not at all
sure that we will see the same trends in China and India," said
Colette Lewiner, global leader for energy at Capgemini in Paris.

In its report, the International Energy Agency, which advises 26
industrialized countries, said that global oil demand would rise by an
average 2.2 percent a year from 2007 to 2012, up from a forecast in
February 2007 of 2 percent annually from 2006 to 2011.

Developing world and emerging industrialized economies will see their
share of world oil consumption rise from 42 percent of global oil
demand to 46 percent by 2012, the report said.

Eagles welcomed progress in Europe and Asia, where governments are
mandating more efficient cars. He said that the "United States is very
clearly coming to the point where there would be a landmark change in
fuel efficiency policies."

He also welcomed ramped up investment in refining capacity across the
world, saying that could help exert some downward pressure on prices
over the next three years. But those effects are likely to be
short-lived, Eagles said.

Beyond 2010, Eagles warned, "tightness in OPEC's spare capacity will
reassert itself."

And by 2012, he said, there would either have to be limits on demand
or additional supplies in order to avoid price increases.

Eagles also gave a stark warning that biofuels - a renewable source of
energy produced from plants - were unlikely to be a quick,
silver-bullet solution.

Factories to make biofuels are becoming commonplace but agricultural
products that are the basis of the fuels are - like crude oil in some
parts of the world - becoming scarcer.

Prices of this feedstock including corn, sugar, soybeans, wheat and
palm oil have risen sharply, making the production of biofuels
increasingly expensive.

"Although we have a lot of policy statements on biofuels in many
countries, the policies and mandates aren't fully in place at this
point so we are not sure that this supply is going to be there,"
Eagles said.

By 2012 biofuels will still only account for only 2 percent of global
oil supplies, the International Energy Agency said.

Yet another factor weighing on fuel supplies is periodic but severe
problems in supplies of cleaner-burning natural gas, which has
supplanted fuel oil in many industries over the past quarter-century.

But natural catastrophes such as Hurricane Katrina and Hurricane Rita
in 2005, which knocked out U.S. gas production, and political
decisions such as when Russia turned off gas supplies to neighboring
countries in 2006, have led to renewed demand for fuel oil - putting
yet more pressure on oil supplies.
--
Yoshie