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Energy crunch may offset recovery

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    Energy crunch may offset recovery


Energy crunch may offset recovery, experts predict

Copyright 2008 Houston Chronicle

Dec. 9, 2008, 11:24PM

When crude prices hit unprecedented highs last
summer, followed closely by gasoline and diesel, consumers reacted by
driving less and conserving more.

Then prices began an equally dramatic fall to levels not seen since 2004, exacerbated by the growing global recession.

However, increasing delays in new production
projects could create an energy crunch and choke off an economic
recovery when demand rebounds, Richard Jones, deputy executive director
of the International Energy Agency, said Tuesday in a presentation at
Rice University’s James A. Baker III Institute for Public Policy.

"We believe these developments have diverted world
attention from energy security and climate change," he said. "In times
of economic hardship, it’s all too easy to lose sight of longer-term

The IEA’s 2008 World Energy Outlook, compiled in the
first half of this year as oil marched toward the $140s, calls for
worldwide energy investments of $26.3 trillion through 2030, or more
than $1 trillion each year. It also says under current policies, global
demand will rise 1.6 percent a year, or 45 percent by 2030.

"We don’t think current worries justify backtracking
or delay," Jones said Tuesday. "Investment will be a sound way to
increase jobs and get out of the economic crisis we’re in."


Doubt about projects

The Energy Information Administration, which is part
of the U.S. Energy Department, expressed similar concern in its
Short-Term Energy Outlook, which was released Tuesday.

The agency said lower oil prices generate doubt
about the viability of expensive oil- and gas-producing projects
outside of the Organization of the Petroleum Exporting Countries,
particularly those using unconventional technology or in frontier
basins. These include Canada’s oil sands, where several companies have
delayed final decisions to move ahead on expansions or new projects.

"If problems in global financial markets lead to
delayed investment in existing and new oil fields, then even a
short-lived economic downturn could have longer-term ramifications for
world oil supply," the EIA said. "This would heighten the risk of a
return to a tight supply situation once the world economy and oil
demand growth recover."


Accelerating declines

The IEA’s outlook said accelerating declines in
current producing oil fields increase the uncertainty. The agency’s
analysis of 800 oil fields show decline rates are expected to rise over
time, from 6.7 percent today to 8.6 percent in 2030. That amounts to a
need for the equivalent of four more Saudi Arabias just to offset
decline, then another two to meet future demand.

"It’s almost like you’re on a treadmill, and you have to run faster to stay in place," he said.

Amy Myers Jaffe, an energy fellow at the Baker
Institute, said the year’s ups and downs in oil prices and demand
debunked several myths that gained strength during oil’s rise. Those
included that economies would keep growing rapidly no matter how high
oil prices rose and that American drivers were immune to high prices.
When gasoline hit $4 a gallon and higher, demand took a dive and
energy-efficient cars became a priority.

"The market has now corrected itself based on the fact that prices do cause a contraction in demand," she said.

But the lull is temporary, Jones noted. When
economies recover, demand will return, making it all the more critical
that investment continues despite the recession. He said that the IEA
outlook foresees an average oil price between now and 2015 of $100 a

"Even though it’s now down to $44 today, given the
gyrations of the last year, we’re not prepared to say the average
between now and 2015 is wrong," he said.


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