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By Robert Rapier on Apr 3, 2006 with no responses

Demand May Outpace Saudi Oil Capacity

An AP story came out today warning (again) that the Saudis will probably not be able to keep up with our oil demand . You know things are bad when the Saudis are telling us we need to conserve. A few excerpts from the story:

“The current out-of-control demand is not good for us,” Ghazi Al-Rawi, head of private equity at Gulf One Investment Bank, said in a recent interview. “When you have this kind of demand, you’re forced to supply beyond the optimal rate. That’s not a positive thing.”

Most urgently needed is energy conservation, especially in the United States, which now burns up a quarter of the oil sold to the world, said Saddad al-Husseini, the former head of production at state-owned Saudi Aramco.

“The crunch is already here. It’s not five years down the road,” Ghalib said. “There is no thought being given in the U.S. to raising gasoline taxes or increasing mileage on U.S. cars. In China, automobile use is skyrocketing.”

Get ready for ever higher oil and gas prices. Without a swing producer who can step into the gap, any global hiccup is going to make the price of oil skyrocket. Combined with several other factors (MTBE phaseout, low-sulfur gasoline specs, more expensive summer gasoline blends) gasoline looks to get very expensive this summer. However, this is a very positive thing in the long run. Another quote from the story:

Keeping prices high is the best way to meet demand over the next decade or two, said Leonardo Maugeri, an executive with the Italian energy company ENI. High prices give investors incentive to spend the billions needed to boost oil production and develop alternate fuels, Maugeri wrote in the current issue of Foreign Affairs.

Keeping prices high will help meet demand because it will force consumers to start conserving. We are already seeing a mild drop in demand. As oil goes to $80 or higher, a larger number of consumers should start making some choices that will further drop demand. I will be writing an essay on this soon, but this is why I don’t believe the world is coming to an end because of Peak Oil. I believe we are in for some hard times (like we have never seen before), but since it looks like we are opening up a supply/demand imbalance before we reach Peak Oil, we can count on higher prices to stem demand and delay the peak. This will give us more time to make the adjustment, which indeed would be disastrous if we peaked and immediately started declining at 4% a year. Higher prices give us hope.

However, if you have the attitude of this person who posted this to the Billings Gazette:

The Point is people shouldnt have to change there life style just because the price of gas is high.

Then you should prepare for very expensive times ahead. People like this will learn, but they will learn the hard way.