Oil by Any Other Name

Here it is:

That’s the U.S. government’s energy forecast out to 2035.

It breaks down like this:

In the forecast it says, “despite rising prices, use of liquid fuels increases by an average of 1.3 percent per year, or 45 percent overall from 2007 to 2035.”

If that’s true, we’ll need 110.6 million barrels per day.

Today, the world produces 89 million barrels per day.

Where’s the difference going to come from?

No Loaves and Fishes

Demand is already outstripping supply.

A quick trip to the International Energy Agency’s homepage will show you that:

It shows demand is hovering at the 90 mb/d mark, while supply has never reached that high.

When it comes to having enough oil, the world is already living paycheck to paycheck. We get by on the margin — the few million barrels already in the system, already at the refinery, or in your tank.

And as Peak Oil plays out, not many experts think we’ll be able to crest the 100 million barrel per day mark.

Here’s a chart I’ve shown you before:

So I ask you again…

If world oil demand is to be 110.6 million barrels per day in 2035, and most experts believe production will never pass 100 million barrels per day…  

Where is the difference going to come from?

This isn’t rhetorical. If you plan on being alive then, you should be thinking about this.

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Shakespeare Nailed It

Oil by any other name is still oil.

By now, it’s accepted that there will never be enough conventional crude oil to supply a thirsty and growing world. (I mean scientifically accepted — as in, there has been no overwhelming support of peer-reviewed evidence to the contrary, like with climate change and evolution.)

But there are other sources that can be used in oil’s stead: oil sands, extra-heavy oil, biofuels, coal-to-liquids, gas-to-liquids, and shale oil.

These are what the Energy Information Administration calls “unconventional liquids”.

And it says production of them will rise to 12.9 million barrels per day by 2035, up from 3.4 million barrels per day — a 279% increase.

It also says, “Oil sands from Canada and biofuels, largely from Brazil and the United States, are the largest components of future unconventional production.”

Natural gas will also pick up some of the slack, with a “substantial increase in those supplies” coming from the U.S., Canada, and China.

I’ll let the experts explain why:

In the United States, one of the keys to increasing natural gas production has been advances in horizontal drilling and hydraulic fracturing technologies, which have made it possible to exploit the country’s vast shale gas resources. Rising estimates of shale gas resources have helped to increase total U.S. natural gas reserves by almost 50 percent over the past decade, and shale gas rises to 26 percent of U.S. natural gas production in 2035.

Tight gas, shale gas, and coalbed methane resources are even more important for the future of domestic natural gas supplies in Canada and China, where they account for 63 percent and 56 percent of total domestic production, respectively, in 2035.

Translation: Unconventional oil and natural gas will fill the gap left by dwindling crude oil production, and there’s a lot of both in the U.S. and Canada.

That’s as simple as I can make it from a macro perspective.

Sure, there will be an earthquake or an energy bill or a new discovery that may shift the long-term trajectory of the market by a degree or two.

But by and large, “oil” remains the world’s dominant fuel for decades…

Only it’s not the easy-to-get Saudi stuff; it’s sand, shale, and natural gas from untapped basins in the U.S. and Canada.

Call it like you see it,

Nick
Editor, Energy and Capital