Cheap oil, natural gas gone, says forecaster
United States stands at 'the end of an era,' producers are told
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By BILL WOLFE
bwolfe@courier-journal.com
The Courier-Journal
The United States is at "the end of an era" of cheap natural gas and oil, energy analyst and forecaster Henry Groppe told representatives of Kentucky's oil and gas industry yesterday.
Rising worldwide demand is running headlong into an oil and gas market that is at or near top output, said Groppe, a partner and founder of Groppe, Long & Littell, a Houston consulting firm.
"We think we're probably at about a peak for total world oil production, and we'll see slowly declining long-term production," he said. Prices will rise "high enough to constrain consumption to match that supply," Groppe told the Kentucky Oil & Gas Association, which ends its three-day meeting today at the Seelbach Hilton.
Kentucky has about 29,300 oil wells, producing 8,000 barrels a day, or about 1 percent of U.S. crude oil production, according to 2001 numbers from the Energy Information Administration. The federal agency counted 14,370 natural gas wells in the state in 2001.
The price of natural gas — which has doubled in the past year to about $6 per thousand cubic feet — has raised economic concerns. Federal Reserve Chairman Alan Greenspan said this month that the high prices could weaken some key American industries' ability to compete.
The Kentucky Public Service Commission warned at the same time that the state could face a winter of high heating bills.
The world is not running out of fuel, Groppe said, but a long-term price rise is probably unavoidable. "Early in my career, I bought 5-cent (natural) gas ... we ran out of 5-cent gas. Some years later, we ran out of 15-cent gas, and we ran out of 25-cent gas. Basically what we've done now is we've run out of $2 and $2.50 gas, and we're going to be moving up to the next level."
Groppe disagrees with U.S. Department of Energy forecasts that anticipate increased production of oil and gas.
"As a career forecaster and a student of forecasting, my central observation is that nearly all forecasting, no matter what it is — interest rates, automobile sales, oil production — always turns out to be an extrapolation of the trend most recently experienced. And therefore, it's always wrong," he said.
Groppe sees oil production flagging as world demand grows.
In the United States, discoveries of oil peaked in the mid-1930s, "and then our production peaked about 35 years later," then began declining, Groppe said. "The discovery rate for the whole world peaked in the mid 1960s, and we are now approaching 40 years after that peak."
The United States is using less petroleum than it did in 1977, [Edit: This is obviously misquoted !] but developing third-world countries are driving up demand — especially as they buy more cars, Groppe said.
"Next year, China is likely to become the sec ond largest country in the world in terms of automobile purchases," Groppe said, "second only to the U.S., bypassing Germany."
Oil from Iraq eventually may help meet demand, but no one should look for help there soon, Groppe said. "Problems there are going to be much greater than had been anticipated by the authorities," he said, "and we think it's unlikely that they will be able to resume their prewar production capacity" for two to three years.
Natural gas production is also headed for a drop, Groppe predicted. "In the ' 80s , we ran out of our ability to produce enough gas to meet our demands. For many years now, Canada has been solving our problem" with exports.
But Canada's supplies aren't inexhaustible, he said. "Last year was the first time in history when Canada's total gas production declined, and their exports to us declined."
Ultimately, industrial users will switch from expensive natural gas to a cheaper fuel, such as coal or nuclear energy, easing pricing pressures and saving gas for uses such as home heating, Groppe said.
Contrary to many forecasters, he sees a big role for nuclear energy in coming years. It may be the only feasible power source for the populous Northeast, where Groppe says it is logistically impractical to move large volumes of coal or build extensive new power lines to bring in electricity from other regions.
A switch to nuclear energy is not inevitable, he said, but is "highly probabl e as the most economic long-term solution" for the Northeast.
He sees the Bush administration's call for a new "hydrogen economy" as "a political smokescreen."
"Based on today's current technology" for making hydrogen, he said, "it takes more energy to produce it than you get out of it." |
