IPC: WEC foresees problematic near-term future for oil, natural gas
The impressive gains of natural gas in the world's energy supply will falter as the century moves toward 2050, according to Gerald Doucet, secretary general of the World Energy Council.
Warren R. True
Chief Technology Editor—Pipelines/Gas Processing
CALGARY, Oct. 3 -- The impressive gains of natural gas in the world's energy supply will falter as the century moves toward 2050, according to Gerald Doucet, secretary general of the World Energy Council, speaking Wednesday in Calgary to the International Pipeline Conference.
He based his comments on recent and ongoing research by the WEC into market drivers for energy sources, especially oil and natural gas.
Decline to continue
Unless the US opens federal lands to exploration and unless global natural gas prices rise significantly, he said, there will be no "magic potion" to alter the coming "plateau and eventual decline of natural gas supplies in North America and some other key markets."
The WEC is studying whether gas prices can be decoupled from oil prices, with a rise in prices in North America and growing interest in LNG trade, and whether the volatility of natural gas and oil markets can be effectively managed over the long term.
Doucet believes unconventional gas could remain a stable source of supply for several years, but the overall size of this source at higher price levels "does not offset the overall decline in US gas production."
Canadian gas production, he said, is more difficult to analyze, but WEC research suggests that production from this source is also poised for decline. Additional WEC research is looking at gas potential in Mexico, Europe, Russia, Middle East, Central Asia, and Africa.
"It will take higher natural gas prices to bring reserves into new production but, at the same time, these higher prices will encourage a switch to other energy sources," he said. "New infrastructure to move natural gas to key markets "will also add to the upward price pressure."
Doucet said that central to WEC's work on energy drivers is less what the reserve base for oil, coal, or natural gas is than where those reserves are and how much it will take in terms of higher prices for energy (from diesel fuel to electricity) to "trigger the investments in production and infrastructure to overcome the regional and global bottlenecks between supply and demand."
In other words, said Doucet, WEC's concern "is not the size of the tank but the size of the tap; this is most true for oil."
He said the council believes that, where oil is concerned, there are two new drivers:
-- Setting aside the important but short-lived results in deepwater production, oil production from outside the Organization of Petroleum Exporting Countries reached a plateau in 1997.
-- OPEC might face "an unsustainable call on its oil both from within its markets and abroad."
These forces, he said, suggest a possible "new break in the long-term downward trend in real oil prices."
Doucet noted that, from early on, oil markets were volatile unless managed by a dominant "actor or actors." This feature resulted from a combination of "high fixed costs calling for high prices to launch new investments and for full utilization after new discoveries come on stream, and [from] low variable costs pushing prices down as long as overcapacity exits."
He said this "interplay of cost pressures" is one of the primary forces in the "stop-and-go" episodes of energy prices that the WEC foresees.