Before we get deep into the coming year, I would like to share some views on potential global energy shifts in 2009. Today, I’ll start with our biggest energy source — oil.
Looking back at 2008, oil has been perhaps the wildest ride. Most analysts had no clue oil could rise to its July record ~$147 per barrel and then were equally caught off guard by the recent lows below $40. It is projected that 2008 will be the first year with a global demand decrease since the early 1980s. So, what shifts can we try to anticipate in the year ahead?
Bloomberg reported today that the median projection from a roundup of oil analysts is a rebound in oil’s price to ~$60 per barrel (50% higher than today). I find this guesstimate to be reasonable, but think the range of possibility spans from as low as $30 and as high as $80. If the recession continues to deepen beyond the first quarter then OPEC would be forced to continue to lower its production but may not be able to do so enough to get prices out of the $30s. But if OPEC is disciplined in the cuts it committed to by January 1st (December numbers show they cut even further than their December commitment and may have the resolve to follow-through next month), then price may begin to rise toward the cost of marginal non-OPEC production of $70-$80. For the latter scenario, the economy will probably need to show signs of life in the second half of ’09.
Outside of OPEC, the supply side may be a bullish or bearish pressure on prices. The lower oil prices may curtail many marginal oil projects and enhanced oil recovery efforts — accelerating the natural decline in old fields. This could send production down sharply in Mexico, Russia, the UK, and Norway. The tight credit market may exacerbate this delay in new production, and send non-OPEC oil production down even more than this year’s ~300,000 barrel per day drop . But on the potentially bearish side, Brazil could send their production higher and the US is projected by the EIA to increase production more than 5% in 2009 due to a less active hurricane season and a number of large Gulf of Mexico projects ramping up.
The demand side is even more difficult to predict given the alarming economic situation. Will demand fall a huge 3+% worldwide on a continuation of the current cratering in industrial production? Such a scenario would almost certainly keep prices below $60 per barrel. Or will India, China and a few other developing countries manage to grow during this tough time and make up for some of the falling demand across the OECD. Another key question mark is whether Obama & Co. can continue to make progress toward efficient travel. If people buy more efficient vehicles and carpool/bicycle/take transit more in 2009, we can continue to reap the benefits of lower gasoline prices. But if we revert to our 2007 habits because of the temporary drop, prices could climb back above $2 per gallon.
Bottom line: This will be another interesting year for the oil market. The race will be between falling global demand and the combined forces of OPEC cuts and natural decline in non-OPEC production. The tighter credit market may also slow new projects and pressure prices to rise from their current low below $40 per barrel. While we probably won’t see summer 2008 oil prices above $100 per barrel in 2009, I guesstimate the potential range for monthly prices to be ~$30-$80. Continued advances in efficiency would allow us all to enjoy low prices and decrease our climate-disrupting carbon emissions.
Of the money we have seen thrown around thus far let me ask you this, that 168 billion that our country borrowed to give away to us in the form of an “economic stimulus package” …did it do a darn thing to create jobs or stimulate our economy? NO, nothing. And we borrowed the money from China.
This past year the high cost of gas nearly destroyed our economy and society. More people lost jobs and homes as a direct result of that than any other factor in our history.
Fannie and Freddie continue to get all the blame. Of all the homes I have seen lost in my area SW FL and believe me I have seen many, none were due to an adjustable mortgage. They were due to lack of work.
Families went broke at the pump alone. Then added to that most saw record rate hikes at their utility companies. The high cost of fuel resulted in higher production and shipping costs that were passed on to the consumer, in most cases higher prices for smaller packaging.
Consumers tightened their belts, cut back, went out to eat less or stopped totally. Drove around on tires that needed replacing longer, some even quit buying medicines they really need.Unfortunately cutting back and spending less results in even more layoffs. A real economical catch-22.
And, as we are doing the happy dance around the lower prices at the pumps OPEC is planning to cut production to raise prices. They are even getting Russia in on the cutbacks. Oil is finite. We have used up the easy to get to reserves already. It will run out one day.
We have so much available to us. Solar and Wind are free sources of energy. Of course to get the harnessing process set up is somewhat costly it is still free energy.
It would cost the equivalent of 60 cents per gallon to charge and drive an electric car. The electricity to charge the car could be generated by solar or wind at least in part and in most cases totally.
If all gasoline cars, trucks, and suv’s instead had plug-in electric drive trains, the amount of electricity needed to replace gasoline is about equal to the estimated wind energy potential of the state of North Dakota. What a powerful resources we have neglected.
Jeff Wilson has a profound new book out called The Manhattan Project of 2009 Energy Independence Now. http://www.themanhattanprojectof2009.com Powerful, powerful book! Also, if you think electric cars are way out there in some futuristic lala land please check out the web site for a company Better Place. http://www.betterplace.com/ they are setting up infrastructures in San Francisco, San Jose and Oakland as well as the state of Hawaii to accommodate electric car use.
I think we need to rethink all these bailouts and stimulus packages. We need to use some of these billions to bail America out of it’s dependence on foreign oil. Create clean cheap energy, create millions of badly needed new green collar jobs and get out from under the grip foreign oil has on us. What a win -win situation that would be for America at large