RISING OIL AND GAS PRICES IS GOOD FOR US AND

WORLD ECONOMY IN THE LONG RUN

By: Harpreet Singh

TRENDS IN OIL DEMAND & SUPPLY

-Global Demand for Oil is increasing-New discoveries of new sources of oil is decreasing-Oil supply will peak shortly but the demand will keep on rising-Upward pressure on Oil prices will persist

TRENDS IN OIL CONSUMPTION

Non OPEC EXPORTS 2001 vs 2025

0

1

2

3

4

5

6

7

8

North America 2001

WesternEurope

2001

Asia2001

Non. Indus.2001

North America 2025

WesternEurope

2025

Asia2025

Non. Indus.2025

Mill

ion

Bar

ells

Per

Day

North Sea

Caribbean Basin

Former Soviet Union

Other Non-OPEC

-Developing Asia will be a major driver for Oil Consumption growth-Non - Industrialized nations will also see higher growth in Oil consumption-Middle East remains the biggest supplier of Oil.-Dependency on Oil from Middle East remains increasing Volatility.

TRENDS IN OIL CONSUMPTION Contd..

OPEC EXPORTS 2001 vs 2025

0

1

2

3

4

5

6

North America

2001

WesternEurope

2001

Asia2001

Non. Indus.2001

North America

2025

WesternEurope

2025

Asia2025

Non. Indus.2025

Mill

ion

Bar

ells

Per

Day

Persian Gulf

North Africa

West Africa

South America

Asia

TRENDS IN OIL CONSUMPTION Contd..

Oil Production

0

20

40

60

80

100

120

140

2002 2010 2015 2020 2025

Year

Mill

ion

Bar

ells

of

Oil

OPEC

EE/FSU

OtherNon-OPEC

Total

-OPEC will be the biggest Oil Producer by 2025 supply more than 50% of the global Oil demand.-Oil Demand will increase from 78 Million Barells to 120 Million Barells 54% Increase in Oil Consumption

Effects of Higher Oil & Gas Prices

• The long-term trend of energy prices is northwards. This will lead to alternative energy fuels and hydrogen fuel cells to compete against the carbon based fuels.

• The increased uncertainty in the Middle East coupled with concerns of national security will lead US to allocate higher government funds towards critical research areas in the field

of alternate energy resources and hydrogen fuel cells. • Global warming and pressure from environmental groups will

lead to stricter environmental regulation that will put substantial pressure on utilities and car makers leading to faster adaptance of cleaner technologies - Result in alternate fuel sources to compete against Hydrocarbons.

• Fuel Cells and Alternate energy resources have reached a critical mass and will increase, as the technology becomes more affordable.

Why Hydrogen is the most promising of fuels:

• Biomass and Coal Gasification are based on carbon as the primary energy sources. Leads to Pollution and does not offer any long term advantage over Oil.

• Alternate Energy Sources include the Renewable energy sources

such as: Geothermal, Wind Energy and Biomass.

– These are “low Intensity Energy Sources”

– Spread over a large area and hence increase visibility

– Varies with natural Occurrence and hence is not suitable for base load operation unless sophisticated storage devices are invented.

Why Hydrogen is the most promising of fuels.. Contd

• Found in abundance in nature in the form of water.• Clean fuel as the resultant of combustion is water and

energy.• Can be used in the existing systems such as turbines

and IC engines. • Can be used to power potable devices.• Prototypes already working.

Economic Benefits of Hydrogen Economy

• Hydrogen Economy will involve the following.– Production: The main area of research should focus on production of Hydrogen,

as it is not found in free state in the environment.– Delivery: As in the case of Carbon based energy fuels, Hydrogen economy will

have to develop hydrogen delivery system and various components will include pumps, compressors, piping material technology, hydrogen sensors and fire fighting equipment

– Storage: Storage will pose a major challenge as Hydrogen is highly inflammable and storing poses a great challenge.

– Conversion: One of the most important areas of improvement is the conversion of Hydrogen energy into useful energy. The conversion of energy can be achieved with fuel cells, reciprocating engines, turbines etc

– Applications: In the end fuel cells should be cost effective so that it can be used to power cars, homes, computers, mobile devices and meet global energy needs.

– Global projections for all fuel cell products ie portable, stationary and transportation power applications to reach $46 billion per year

by 2011 and to grow to more than $2.5 trillion per year by 2021.

POLICIES FOR FASTER ADAPTATION OF NEW ENERGY SOURCES AND INNOVATION

• Increasing the Emission Standards: Increasing the emission standards will result in higher existing energy costs related to Carbon related sources because the energy users and equipment manufacturers will have to incorporate costly emission control equipment.

• Changing the market incentives to favor desired outcomes i.e. lower

emissions. Introducing tradable emissions permit for automobiles thereby encouraging individual decision making for pollution control.

• Taxing the existing energy sources to include the total cost of usage i.e. environmental effects caused by emissions of harmful gases

and carbon dioxide. • Subsidizing the research towards alternate energy sources will

provide government research funds that will lead to vital research needed for any new technology to be successful and adopted.