THOSE DREARY U.S. OIL FLOW SIGNS

In a period of extraordinary oil market volatility, the U.S. has received some sure signs about its energy future. While certainty is refreshing, the signs are discouraging.

The signs appeared last month at Independent Petroleum Association of America's annual meeting. First, IPAA's supply/demand committee projected further big declines in U.S. crude oil production this year and next. Then the Interstate Oil Compact Commission reported that the U.S. oil resource continues to be sealed rapidly shut by stripper well abandonments.

REASONS TO LOSE SLEEP

These trends give energy policy makers-not to mention stripper well interest owners-reasons to lose sleep. Rising dependence on foreign oil leaves the U.S. no choice but to respond militarily whenever a Saddam Hussein acts out his aggressive inclinations. And domestic production remains the best antidote for import dependency-if only it would quit falling so fast.

The production slide has momentum. IPAA's supply/demand committee expects crude oil output this year to average 7.2 million b/d, compared with a peak of 9.6 million b/d in 1970. Since 1985, when sliding crude prices went into free-fall, production has declined an average of 4%/year-about 340,000 b/d/year. This year's expected average represents a larger drop of 5.3% or 390,000 b/d. The decline rate will slow to 2.5%/year in 1991, with output averaging 7 million b/d.

Demand forecasts offer some comfort. The IPAA committee expects U.S. oil consumption to reverse a 5 year trend and decline by 1.2% to 17.1 million b/d in 1990 and by 0.7% to 17 million b/d in 1991. The declines, however, come at the cost of reduced economic activity. The committee estimates inflation-adjusted economic growth at 1.1% this year and 0.5% next year, compared with 2.5% in 1989. Some of the expected slowdown stems from the recent oil price jump.

Costly as they are, demand declines won't nearly offset production losses in 1990 and 1991. The IPAA committee expects year-average oil import dependency to reach one-half next year.

The production decline is probably impossible to reverse in the long term. If the federal government overhauled leasing policies, industry might score a giant discovery or two able to offset the base decline for a few years. The biggest hope, however, remains the resource known to be in place but producible only through enhanced recovery-a volume roughly twice what's recoverable through primary and secondary techniques.

Until crude prices rise permanently to levels well above those prevalent before the latest Middle East crisis, the EOR dependent resource will remain a future proposition. But the resource-that critical promise of future production-shrinks as the population of old wells dwindles.

DISCOURAGING SURVEY

That's why this year's IOCC stripper well survey is so discouraging. Abandonments totaled 16,107 wells in 1989, fewer than the 3 previous years but still high by historic standards. It's safe to assume that most of those abandoned wells were in old fields, the main EOR target. It's also safe to assume that, regardless of the price and absent some surprise technological advance, EOR won't be economic where producers must drill new wells rather than reenter and recomplete old ones.

So the U.S. oil production outlook is poor now and likely to worsen. Import dependency will climb further unless oil demand shrinks more than anyone now thinks it will. And as events since Aug. 2 show, oil import dependency has a dangerous tendency to become military action on behalf of someone else's desert.