Outlook brutal for US oil and gas supply

by Nancy DeMarco

Think oil prices are high now? Five-plus years out, it’s crystal clear that energy costs will rise steeply and the North American market will be at a strong competitive disadvantage, keynote speaker Andrew Weissman of FTI Consulting told the ICIS Pan-American Base Oils & Lubricants Conference. Solutions involve using coal as a synthetic feedstock, Weissman contended, but that will take time.
“Our future success and survival depends on taking action to develop synfuels as feedstocks in the United States,” he said. “Acting now could give North America an advantage.”

“We’re at a major transition point right now,” Weissman continued. “We’ll see some stabilization of oil prices for three to four years, but not longer term.”
Climate change is becoming a central issue, and momentum for action is rising in the United States, England and elsewhere.
“Oil companies will see growing attacks, and will find it harder to develop new oil resources.”

From 2003 to 2006, oil demand outpaced supply, forcing world prices up; 2005 to 2006 have seen very tight oil markets. From 2007 to 2010, said Weissman, whose firm is based in Washington, DC, growth is expected to moderate.
“Growth will come from developing nations; there should be some global surplus capacity in this period.”

Weissman noted that new supply is expected over the next few years, and this could moderate oil prices in the short term. New crude sources include Canadian oil sands (800,000 to 850,000 bpd); the Gulf of Mexico (450,000 to 500,000 bpd); the former Soviet Union (1.5 to 2 mm bpd); Angola (800,000 to 900,000 bpd); and Brazil (750,000 to 850,000 bpd).
“But there are huge risk factors, including political instability in oil producing areas.”

Longer term, Weissman predicted that conventional crude oil production is likely to plateau around 2011. Production from existing fields worldwide is declining 6 to 8 % per year and the rate of decline could accelerate, while the best prospects for new crude sources are hugely expensive to develop. Without a major push for coal-to-liquids and plug-in hybrids, future US demand cannot be met, Weissman said, and this requires action now.
“There will be huge upward price pressures on crude oil by 2011, and true oil scarcity is likely in the longer term,” he said.

Looking at both oil and natural gas supply and demand, Weissman sees massive future supply deficits. And he blasted the US Dept. of Energy for its forecasts that are "bordering on the irresponsible, not out of ill intent but naivete and lack of resources to do a better job."
“The United States is still at the early stage of an emerging crisis,” Weissman contended. “If we do nothing, the United States will have a shortfall in natural gas that’s critical for the country, so price will ration scarce supply.”

Weissman is pessimistic about gas-to-liquids technology providing meaningful help for the shortages he foresees in US energy supply. Costs to develop the technology in Qatar have risen higher than expected, and serious questions have been raised about the size of the “stranded” natural gas reserves in Qatar and Nigeria, he noted.
“The US may become the highest-cost-energy country in the world, but the United States has huge coal reserves. Coal-to-liquids is the answer,” said Weissman, noting that 19 bn tons of recoverable reserves, amounting to 27 % of world coal reserves, are in the United States.

“Oil companies won’t develop coal-to-liquids,” Weissman concluded, "because it will undercut their primary product." Clearly, he believes someone must, immediately.
"There is no time lead. None. We're out of time to begin."