West Waking Up to Dangers of Oil Addiction
October 08, 2004 - By Andrew Mitchell, Reuters
LONDON - Controlling growth in fuel consumption may become a
strategic imperative for the West, as explosive demand growth in Asia
threatens a damaging tussle for world supplies.
Industrialized nations must improve energy efficiency if they are not
to leave themselves exposed to far more dangerous oil price spikes
than this year's 60 percent run-up, energy analysts are warning.
"Consumers have been led to believe that price increases experienced
over the last few years are due not to the natural forces of supply
and demand but rather the actions of the energy industry," said
Philip Verleger, a senior fellow of the Institute for International
Economics. "This mistaken belief has discouraged conservation,
particularly in the automobile sector, and created the foundation for
a very large price increase to come."
Last weekend, finance ministers from the Group of Seven
industrialized nations called on consuming nations to use energy more
efficiently. They also made a more typical appeal for the OPEC cartel
to increase production.
Coaxing more oil out of the Organization of the Petroleum Exporting
Countries has been the main plank of consuming nations' policy in
recent years, as cautious spending by the international majors and
barriers to investment in the Middle East restrict development of new
supply.
Looming Battle
Surging Chinese consumption has stretched world supplies to the limit
and sent U.S. crude prices rocketing to record peaks above $52 a
barrel - potentially just a foretaste of things to come, analysts
said.
The West may look to curb its own appetite for oil to ward off a
looming battle for OPEC's crude as Asia expands and oil provinces
outside the Middle East fade, they warned.
"Every year, in every region (including OPEC), the world produces
more oil than it finds. It is only logical to conclude that
inevitably this will lead to dwindling supplies," said a recent
report by Washington D.C.-based PFC Energy.
As the West's own oil sources reach maturity in regions like the
North Sea, more and more will need to be sourced from remote and
politically unstable regions.
The International Monetary Fund's deputy research director David
Robinson said on Thursday that tight oil supplies could leave the
global economy worryingly vulnerable for years to come. Most exposed
will be the United States, consumer of more than 20 million barrels
each day, one-quarter of world supply and importer of 60 percent of
its needs.
"The United States will face more competition from emerging strategic
players to secure access to oil. Managing demand will become a key
strategic issue for the United States," said the PFC Energy report.
Public Appetite
Just as the '70s oil shocks forced consumers to use energy more
efficiently, so this year's price surge may bolster the public
appetite for steps to curb consumption, such as imposing tougher fuel
standards on gas-guzzling sports utility vehicles.
"There has been a widening of the political spectrum in terms of who
sees this as an important issue," said PFC Energy's Seth Kleinman.
"In terms of gasoline it's a relatively simple matter: It's a matter
of increasing fuel economy standards. The trouble is the big
automakers in Detroit are very opposed to it."
Governments could also encourage companies to hold fuller stocks to
cushion against disruption to supply, the analysts added. Over the
last decade, oil firms have run down commercial inventories to free
up capital.
"The United States and other consuming countries need to take steps
to remove the barriers that are artificially elevating prices," the
Institute for International Economics' Verleger said. "These steps
include development of measures that assure better overall inventory
management, aggressive advocacy of conservation, and promotion of
greater flexibility in environmental standards."
The array of grades of U.S. gasoline created by different states in a
bid to reduce pollution has helped fuel the price surge by making it
harder to ship supplies between regions.
And while high gasoline taxes in Europe have helped control
consumption, such policies have proved a political taboo in the
United States.
The need to control consumption will strengthen the case for
alternative technologies, such as hybrid gas-electric cars, or fuel
cells - electric vehicles powered by combining hydrogen from a fuel
source and oxygen from the air.
While hybrid cars still account for just a tiny fraction of the car
pool, sector leader Toyota has targeted annual global sales of
300,000 vehicles by 2005. Some U.S. buyers will wait up to six months
for their cars to arrive.
"There is no alternative to dependence on Middle Eastern oil, but
there will be alternatives to oil," PFC Energy said.
Source: Reuters
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