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  PlanetArk 9 Jan 07
ANALYSIS - Oil Demand, Growing Now, Seen Peaking Before 2050
Story by Emma Graham-Harrison

PlanetArk 9 Jan 07
World to Struggle to Break Oil Addiction to 2050
Story by Alex Lawler and Muriel Boselli

LONDON - The world may lessen its addiction to oil by 2050 but will struggle to kick the habit entirely, keeping the heat under prices, producers and consumers say.

Production in some regions is expected by then to be past its peak, and alternative fuels and efforts to combat climate change may restrain demand. But oil's share of the energy mix will remain substantial.

"In the next several decades, 2040 to 2050, it will be very difficult to lessen our addiction to oil, but we may lessen it a little," said Fatih Birol, chief economist at the International Energy Agency, adviser to industrialised countries.

The IEA's 2006 World Energy Outlook to 2030 foresees ever-rising oil demand led by Asia met by a dwindling band of major producers, mainly in the Middle East. World consumption would hit 116 million barrels per day (bpd) by 2030 or 103 million bpd if governments adopt policies to curb use -- in either case, up from 84 million bpd in 2005.

Oil represented about 35 percent of the world energy mix in 2004 and is expected to account for around 33 percent by 2030 in the IEA's business-as-usual case. By 2050, many would assume oil consumption could still be higher than today but down from its highest ever, said Paul Horsnell, analyst at Barclays Capital in London.

"Most forecasts going that far down the curve (to 2050) would have oil use, if not lower than it is today, having passed some kind of peak," he said. An official at oil exporters' group OPEC said oil's share of the world energy mix may be smaller in 2050 than today but it would remain important.

"As OPEC we believe whatever the energy mix will be, it will complement the use of oil," said Hasan Qabazard, head of research at OPEC, source of more than a third of world supply. "Oil will continue to play an important role in developing and poor countries, as it played a very important role in the development of industrialised countries in the past."

NEW FUELS, TECHNOLOGY

Many forecasters see a greater future role for biofuels, nuclear, wind and solar power, and for so-called non-conventional oil extracted from tar sands in places such as Canada or from plentiful reserves of coal.

Non-conventional oil and measures to curb demand could delay the conventional oil supply peak, which may happen after 2030 if demand grows as quickly as in the last two or three decades, Birol said.

"If we reach a peak just after 2030, one would expect the prices would shoot up substantially," he said. "After 2030, if the prices go up and the technology improves, we can have a lot of non-coventional oil coming. We may see the oil era continue some time longer."

Oil, gas and coal reserves are enough to meet the 4.7 trillion barrels of oil equivalent of demand expected to 2050, said a British report by former World Bank chief economist Nicholas Stern last year, citing World Energy Council estimates.

The Paris-based IEA says the pace of technological change and the extent of environmental concern will determine whether the reserves are used up.

Some technology such as burying carbon dioxide underground, is important as it allows continued fossil fuel use under policies to curb emissions, said the Stern report, which called for urgent action to combat climate change. But carbon capture and storage, which can be used at power stations and at hydrogen or oil and gas production sites, needs commercially viable costs, says BP, which is using the technology at an Algerian gas field.

Other technology, such as hydrogen and fuel cells, could curb oil dependence. In the IEA's most optimistic outlook, hydrogen fuel cells could power about 700 million vehicles, or 30 percent of the global fleet, by 2050. Still, fuel cells need technical breakthroughs, huge investment, lower costs and government support, the IEA says.

PRICES KEEP RISING

Oil prices, which hit a record high of US$78.40 a barrel last year, are set to increase in future decades. The IEA's World Energy Outlook assumes oil could hit US$130 in 2030 if the billions of dollars of investment needed in new supplies falls short. OPEC's Qabazard also expects prices to keep rising in future decades.

"Prices will continue to go up," he said. "In the long run, we believe any price will go up, any cost." Birol of the IEA, while saying there is enough oil, stresses the need to get ready for the day when it does run out.

"We should make the preparations for the day we are going to leave oil," he said. "We need to one day leave oil before oil leaves us."

PlanetArk 9 Jan 07
ANALYSIS - Oil Demand, Growing Now, Seen Peaking Before 2050
Story by Emma Graham-Harrison

BEIJING - Global oil demand will peak by 2050, possibly even before world production does, as environmental policies harden, security worries speed the hunt for alternatives and technology makes other fuels cheaper.

Auto makers already pouring billions into more efficient engines are likely to be the first to sound the death knell for oil use, as motor use accounts for up to two thirds of demand. Coal and natural gas producers are rushing to find ways of replacing crude-derived fuel.

But the most powerful force over the coming five decades will be the direction of environmental policy, analysts say.

A move to crack down on high-polluting fossil fuels due to global warming could dramatically alter the demand picture. "I can see oil demand levelling out by 2050, because of alternative fuels, improvements in efficiency and ultimately new technology," said Mikkal Herberg at the Asian Energy Security Programme at the National Bureau of Asian Research.

"But the big unknown is the pollution and global warming issue. It is going to become too powerful to ignore and will affect us in ways we can't even fathom at present, particularly if you look at places like China," he added.

At least in the nearest decade or two, however, analysts agree consumption of liquid fuels will keep growing, supported by the dynamic economies of the developing world, particularly India and China, and the very early stage of development for viable substitute technologies.

Further out, shipping and aviation still will provide a firm bottom line of demand, with no viable technology on the horizon to replace refined oil in powering either. The petrochemical industry will also continue to rely heavily on oil.

NO PEAK

Although the spectre of peak oil -- the moment when crude is taken out of the ground faster than new reserves are found -- has haunted the industry and popular imagination for years, analysts say consumption is unlikely to be reined in by a supply shortage.

"Peak oil to me is a theory not competitive with another theory -- that the world has underinvested in energy for the last 20 to 30 years," said Ed Morse, chief energy economist at Lehman Brothers in New York.

Better technology to exploit existing fields, and the ability to extract oil from deeper water and more hostile terrain means crude will not run out even as demand reaches over 100 million barrels per day by 2030 alone, up from 85 million bpd this year, according to International Energy Agency projections.

Fastest demand growth rates are expected in Asia's booming giants, as China promotes its domestic auto industry, and India's population grows in size and wealth, particularly in the energy-intensive 18 to 35 year age group.

But it will take decades to dislodge the United States -- which burns a quarter of the world's oil -- from its position as number one consumer, making Washington's energy policy crucial.

The Bush administration has focused on energy security and home-grown fuel alternatives, with limited appetite for greater auto efficiency, but growing demands for a policy to combat global warming may shift priorities in the coming decades.

Long-term oil prices of at least US$40 per barrel, and reliance on often unstable producers with remaining reserves increasingly concentrated in the Middle East and Russia, is likely to speed development of substitutes in fuel and engine technology.

BIOFUELS, COAL TO LIQUID

One popular option at the moment is biofuels, which has the dual advantage of low-emissions and higher security for big crop growers like the United States and China.

However, current technology which creates ethanol or biodiesel from food crops does not have the potential to replace significant amounts of oil because of food security concerns. Environmentalists also worry about land availability.

Countries with large coal reserves -- led by top producer and consumer China -- are also investing in coal liquefaction technologies to turn the solid carbon into diesel and gasoline.

Ultimately however, global warming and pollution concerns may mean a fundamental shift in the automobile industry -- which accounts for around two-thirds of oil demand in industrialised nations -- to electric, fuel cell or even hydrogen powered cars.

This would mean energy demand previously met by oil would instead be supplied by power generation, most likely from renewable or clean coal plants.

GLOBAL WARMING

Analysts expect the experience of living in a warmer, dirtier world -- most scientists agree human activity is causing climate change -- will play a key role in curbing demand growth.

"Environmental concerns are one of the most significant factors behind my view that we are going to see a levelling off or decline of oil demand (by 2050)," said Lehman's Morse.

Poor air quality is already influencing investment in Hong Kong and causing diplomatic friction between China and its neighbours, while pollution and water scarcity have contributed to domestic unrest.

But because environmental concerns, and mechanisms like carbon emissions trading designed to address them, are only just emerging as more than a fringe concern, it is extremely hard to assess what impact they will have and when.

And there is an element of crystal-ball gazing in any effort to evaluate oil demand almost half a century in the future.

Few people 44 years ago, when oil was around US$11 a barrel, would have predicted the Arab oil embargo, the subsequent decline in prices that shelved early renewable and efficiency initiatives, or technology that would allow us to extract oil from under kilometres of sea and land.

"This all comes with the proviso that trying to look so far ahead is wild speculation," Herberg warned.
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