Sustainable Energy Transitioner

For those that haven’t traded-in their SUVs yet, there’s some bad news coming down the pike. Though the higher price of oil has decreased demand in OECD countries, China and other emerging economies continue to increase their consumption. And the most troubling aspect of the current oil story is the deteriorating supply in non-OPEC countries.

Just as previous blogs have reported, producers outside of OPEC have had a plateau in production for the last few years. Even though the oil price is more than four times what it was just four years, production has not increased. In fact, the US Energy Information Agency’s (EIA) Short-Term Energy Outlook showed an even more worrisome trend in the first quarter of 2008: production actually fell throughout the non-OPEC world by 240,000 barrels per day. Production has been falling for several years in the US, UK, Norway, and Mexico. But the key newcomer to the decline list this year is Russia, which was the major non-OPEC source of new supply. The EIA still believes non-OPEC supplies will increase for the year, but dramatically less than they thought just a few short months ago. The EIA has already revised downward its projection of non-OPEC production growth three times this year: from 900,000 barrels per day in February to 700,000 in March to 600,000 in April and May to 300,000 in June. And they even caveat their June projection with the admission that delays in projects may decrease the number further.

Non-OPEC production may indeed be in decline now, giving more power to a cartel of producers who have an interest in withholding production to allow prices to increase much higher than their current levels. With these fundamentals, some commentators mention of an oil bubble seems ludicrous. Only an unlikely reduction of demand in China and other emerging markets would allow prices to fall significantly amidst the current supply climate. The CEO of the biggest natural gas firm in the world, Gazprom, believes oil will hit $250 per barrel in 2009. Sounds like they are betting on the emergence of non-OPEC peak oil. Being from Russia, they may have the best information.

For wind and solar producers, such an energy price would allow renewables to compete with very little subsidies, if any. I encourage all readers to consider the potential price for gasoline at $6-$10 per gallon when you buy your next vehicle or house. Planners need to consider such prices when we allocate money between projects such as highways versus public transit rail lines. The US and other oil importers have a serious transition ahead to weather this oil price storm, but we can come out of it with a healthier climate and a growing economy that provides green jobs for the domestic and the global energy revolution of 2005-2015.