Middle East will remain critical to US oil needs - Brookings study
AFX Europe, April 1
WASHINGTON (AFX) - The Middle East will remain critical to US oil needs for the foreseeable future and even if the US boosts domestic output it will not be shielded from future petroleum price hikes which are set by the international markets, according to a new study by the Brookings Institution.
The report -- Energy and the Environment -- says that the Middle East's dominance over global oil supplies will remain in place, despite the rising prominence of Russia and the Caspian Basin, because it holds between two-thirds and three-quarters of all known oil reserves.
Brookings' economists estimate that if another crisis in the Middle East were to take a large volume of oil, of up to 7 million barrels a day, off the market, that the price of world crude could spike up to 75.00 usd a barrel if no other sources were available, even if the US decided to draw down some 2.5 mln barrels a day from its national reserves.
"A big increase in US output could heighten competition for OPEC in the short to medium term, thereby moderating oil prices somewhat. But US oil production is simply too high-cost (and reserves too limited) for increases in domestic output to affect OPEC much, especially over the long haul," the report says.
"The gap between what the US now produces and what it consumes, nearly 10 mln barrels a day, is too wide to be bridged," it notes.
The report's authors also say that opening Alaska's Arctic National Wildlife Refuge to oil drilling is not likely to have a significant impact on the nation's dependence on foreign oil imports.
President George W. Bush wants to open the reserve to boost domestic output and reduce dependence on foreign imports.
"Increased ANWR output will fractionally reduce US energy security by helping to maintain a more oil-dependent economic system," the report says.
It also points out that US producers struggle to compete with foreign producers across the Persian Gulf who have lower production costs.
Most OPEC oil costs less than 5.00 usd a barrel to produce.
The authors argue that the key to increasing US energy security lays in reducing the petroleum intensity of economic activity, and that the government should use the nation's Strategic Petroleum Reserve to help iron out supply shortfalls and price hikes.
"In the past some analysts have called for treating the reserve as a publicly provided source of supplemental supply that the private sector can bid for through options contracts like those that already exist in commodity exchanges.
That approach needs to be dusted off and seriously considered, together with a small excise tax on all petroleum consumption to pay for operating the reserve," the report argues.
The SPR contains some 550 million barrels of oil.
Canada's oil exports to the US are seen increasing in the years ahead -- Canadian oil exports make up the largest share of US oil imports -- as more production from new discoveries like Newfoundland's Hibernia Field comes on stream.
US natural gas imports from Canada could also be boosted by the "vast quantities of gas, possibly several hundred trillion cubic feet, (which) remain untapped in an area stretching across the Western Canada Sedimentary Basin."
The study also highlights Russia's growing role as an energy player and says that Russia could be poised to become an energy superpower in the 21st Century, but that its future is in natural gas and not oil.
However, to do so, it will "depend on major increases in production, serious investments, both foreign and domestic, in infrastructure, and more developed gas markets in Asia."
"With 32 percent of proven world (gas) reserves, Russia far outranks Iran, 15 percent, Qatar, 7 percent, Saudi Arabia and the United Arab Emirates, 4 percent, and the United States and Algeria with 3 percent," the report says.
The report also notes that many Russian companies are seeking to expand their activities in the gas sector, and that Gazprom holds a quarter of all world gas reserves. |
