Facing oil's expensive future

The price of oil will rise dramatically--from an expected $46 a barrel in 2010 to $74 a barrel in 2030--in part because of a projected doubling of demand, said Fatih Birol, the chief economist for the International Energy Agency, speaking at the International Petroleum Technology Conference here. And that's only if oil producers invest heavily in new refining technologies, novel fuels and extraction techniques.

Without intense investment, oil prices could rise 32 percent more by 2030.

"We shouldn't expect too much of a decline in oil prices," he said. "Forty-six dollars is actually much higher than our earlier estimates."

The amount of greenhouse gases pumped in the atmosphere will also likely rise. Solar and other alternative energy technologies could reduce this, but the amount of carbon dioxide will still be far higher than it was in 1990, he predicted.

This somewhat ominous picture comes courtesy of a confluence of forces. China, India and other emerging nations have increased demand for oil and natural gas. Cars are a major part of the picture too. Although power plants and other formerly oil-burning facilities have begun to phase out oil in favor of cleaner alternatives, oil remains the fuel of choice for moving vehicles.

"Almost all of the growth in the last four years comes from the transportation sector. That is different than the last 20 years," he said. "It is very difficult to substitute other fuels in transportation."

By 2030, demand will likely hit 121 million barrels of oil a day. Now, the world consumes about 80 million barrels a day. Back in 1990, the world consumed 66 million barrels a day and in 1970 only 50 million barrels a day. (Oil today sells for around $57 a barrel, lower than the 2010 projection, but lower than recent highs.)

The increase in demand, naturally, will raise revenues for oil producers and oil producing nations. Energy exports, which include oil but also things like natural gas, from the Middle East will go from $313 billion in 2004 to $636 billion.

The increase in sales, however, will also require sinking money into capital expansion and research and development. Auto manufacturers, for instance, are building engines that require cleaner, lighter fuels.

Unfortunately, the supply coming out of the ground is more sulfurous. As a result, it will have to be more finely refined. Oil producers will have to invest $180 billion in refinery capabilities to keep up, Birol said.

The investment contingency
Overall, energy providers will have to invest $1.5 trillion, or $56 billion a year, over the next 25 years to keep up with overall energy demands, he predicted.

The levels of investment will directly impact the market shares of various companies and regions. If the expected levels of investment are met, the Middle East as a whole will see its percentage of the oil market rise from 35 percent today to 44 percent in 2030. The increase comes because the region has larger proven reserves than the rest of the world.

If the nations and companies in the region do not make the required investments, choosing to preserve resources for future generations, the region's market share will drop from 35 percent to 33 percent, Birol said. "Gross Domestic Product in the region will drop," he said.

While oil has been the mainstay of the energy industry for several decades, natural gas will gain in importance. Several industries have converted to using it and research is being conducted see how it can be used to run more automobiles.

Increased demand in gas will favor Qatar, which has about 25 percent of the global gas trade and the world's largest reserves, along with No. 2 Algeria and No. 3 Iran.

Middle East gas exports will increase by four times by 2030, he said.