Deliverability, Sustainability Main Challenges Facing Energy Demand

Energy is a key element in the quality of life, but how is the world's energy mix going to evolve in the future?

With the cost of oil soaring over $120 per barrel on Tuesday, participants packed a discussion on "Petroleum: Energy of the Future" at the Offshore Technology Conference in Houston. Moderator Dr. Hasan Qabazard, director of the Research Division of OPEC, set the tone for the session by noting that "The global energy system sits at the heart of many things in this interdependent world." He noted that many people in the world continue to suffer from extreme poverty and that "there is a clear need to make sure everyone has access to modern energy sources for electricity and transportation."

Mohamed Hamel, head of OPEC's Energy Studies Department, said OPEC's energy outlook found many  challenges and opportunities facing the world. "Petroleum has long been the fuel of choice, yet if you look at all commodity groups since 2005, all of them have seen major price increases. In fact, coal prices have increased even more than oil prices."

Hamel said the low oil prices of the 1980s and 1990s actually did a disservice to consumers who expected low prices to continue. "OPEC is producing 4 million more barrels of oil per day since 2003, so there is no shortage of oil, but other elements are in play." He believes the top two reasons for the increase in oil prices are the fall in the value of the dollar and the increasing role of the futures market. "Significant movement in the value of the dollar is reflected in the price of oil," said Hamel. Also, there has been an exponential rise in the role of 'paper barrels' being traded which are three times higher than in 2003. "Oil has become a financial asset resulting in upward pressures on prices."

Oil and natural gas are expected to remain a leading source of energy in the future. "Resources are plentiful. Availability is not a concern, but deliverability and sustainability are," said Hamel. He expects the oil supply from sources other than OPEC crude will increase and that future OPEC crude share will not be markedly different than today. Hamel said OPEC members are investing $150 billion in more than 120 projects worldwide which will increase oil supply by 5 million barrels/day by 2012. Downstream investments of $60 billion will result in an increase of 3 million barrels/day capacity.

Other factors such as distorted price signals, rising costs and skilled labor shortages in the industy will have an effect on deliverability. "Uncertainty over future needs is the biggest deliverability issue," said Hamel. Since future world demand could vary widely, forecast prices also differ greatly.  Consuming country policies add uncertainty as well as overinvestment that wastes resources.

In regards to sustainability, Hamel said technologies need to be developed to enable fossil fuel use in the future. "Sustainability of large biofuels supply and use is questionable, and there may be unforeseen negative impacts on food, waste and biodiversity," He suggested that developed countries need to take the lead on carbon capture and storage.

"In the future we will see a more diversified energy mix with many opportunities in an evolving industry landscape," Hamel said. 

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