Energy Picture Changing

By Russell Ray, Tulsa World, Okla.

Jun. 25–The way we produce, consume and govern energy is changing. Every segment of the energy industry is grappling with reform.

It’s a transformation driven by $70 oil and the growing realization that the world’s recoverable supply of crude may not be enough to sustain the growing appetite for energy.

The economics of energy production have changed. Suddenly, making fuel from sugar beets, switchgrass, soybeans and corn is about as cost effective as making it from crude oil.

Commercial production of switchgrass-based ethanol is just a few years away, said Ray Huhnke, a biosystems and agricultural engineering professor at Oklahoma State University. OSU researchers have developed a process for converting switchgrass into ethanol.

“We hope to have a pilot plant online with industry support within two years,” Huhnke said.

Alternative fuels will account for a greater share of world energy demand because of high oil prices, according to the Energy Information Administration, the statistical arm of the Department of Energy.

Last week, the agency made a stunning alteration to the estimated growth in global oil demand. The government has long been projecting that world oil consumption would rise about 40 percent to 119 million barrels a day by 2025. The world now consumes about 85 million barrels a day.

The EIA’s annual international energy outlook, which was released Tuesday, contained a much lower growth rate. World oil demand, it said, would grow to 111 million barrels a day by 2025, 8 million barrels below the previous projection.

The change is significant because it reflects a slowdown in consumption and our efforts to conserve.

“It’s a major contraction in the expectations for the oil market,” said Bob Tippee, editor of the Oil & Gas Journal. “That’s a good thing.”

U.S. oil consumption actually fell last year, the first decline since 2001.

What’s more, the EIA cut by half its expected increase in OPEC production between 2002 and 2025, and the International Energy Agency has reduced its projection for world oil demand this year by 200,000 barrels a day.

“That is an economic response to price,” Tippee said last week at the Petroleum Club of Tulsa.

The EIA now expects oil’s share of world energy consumption to drop to 33 percent by 2030, down from 38 percent in 2003. During that same period, renewable fuels’ share of world demand is projected to rise to 9 percent.

But the high price of oil isn’t the only force behind the growing significance of alternative fuels. The supply of oil will no doubt provide the greatest spark for alternatives.

Although the expected growth in world oil consumption has dropped, many experts still question the industry’s ability to meet rising demand. Alternatives will be needed, Tippee said.

However, renewable energy will remain a small piece of the world’s energy consumption pie. Although oil’s share of the world energy market may become smaller, it will continue to be the largest source of energy.

Excluding hydropower, renewable energy represents just 3 percent of world energy demand, Tippee said.

“Right now, there’s a whole lot of hoopla about what renewables are going to do in the way of sparing us from the use of oil,” he said. “The Energy Information Administration doesn’t agree with that assessment.”

Although oil’s share of world energy consumption is expected to fall, meeting the increasing demand for petroleum will still be a challenge.

The EIA expects world oil demand to grow 37 percent to 118 million barrels a day by 2030. Nearly half of that growth will come from the nonindustrialized nations of Asia as the growing economies of China and India consume more Mideast oil.

According to the EIA, “The rising dependence of China on Middle Eastern oil supplies has geopolitical implications both for relations between the two regions and for the oil-consuming world as a whole.”

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Copyright (c) 2006, Tulsa World, Okla.

Distributed by Knight Ridder/Tribune Business News.

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