Oil may lose top rank as cheapest energy

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(Agencies)
Updated: 2008-12-11 10:04

THE WOODLANDS, Texas – Over the next 20 years or so, oil and natural gas will lose top ranking as the world's most affordable energy sources, according to a survey of energy executives released Wednesday.

Deeper wells in more inhospitable places, both political and geological, have altered presumptions of doing business in the oil patch.

In this May 2, 2007 file photo, workers are shown at a drilling site within the Fort Worth, Texas, city limits. [Agencies]

Nearly three out of four executives and managers surveyed last month by Deloitte LLP said oil and gas are the cheapest available energy sources for now, though only 23 percent believe that will be the case in 25 years.

Deloitte, which conducted the wide-ranging survey of 52 industry professionals via telephone, released the results Wednesday at its annual oil and gas conference in suburban Houston. Most of the executives work for companies with annual revenues of more than $100 million.

The sampling revealed a growing concern about the sustainability of oil and natural gas in the coming years. Future sources of fossil fuels, the cost of producing them and the price consumers will pay are some of the biggest uncertainties facing the industry.

"Clearly, the oil and gas professionals involved in our survey are starting to think about the nation's transition to renewable energy and other alternative fuels," said Gary Adams, vice chairman of Deloitte's oil and gas practice.

Last week Exxon Mobil Corp., the world's largest publicly traded oil company, expanded its energy outlook to include a new section on the development of all "viable" forms of energy and public policy on climate risk.

Exxon has steadfastly maintained that it is an integrated oil company, however, and that fossil fuels will provide 80 percent of all global energy needs through 2030.

The ongoing global economic malaise and its effect on crude demand in the next couple of years was a hot topic at the conference.

Adam Sieminski, an energy economist at Deutsche Bank, painted a bleak picture, saying global oil demand could fall by 700,000 or 800,000 barrels a day in 2009, a steeper decline than many other forecasts.

The US Energy Information Administration said Tuesday it expects global oil consumption to decline by 450,000 barrels a day next year, down from a November forecast of flat demand. Total world consumption is between 85 million and 86 million barrels a day, according to the EIA.

"Not only could we lose 700,000 or 800,000 barrels a day next year, but very possibly it could be twice that number," Sieminski said during a presentation.

He said crude could fall as low as $30 a barrel in the near term, but only because of the recession.

"Once the global economy recovers, I think you need a price somewhere in the $75, $80, $85 range in order to get the investment required to sustain production," Sieminski said.

Of the executives interviewed by Deloitte, 53 percent said they think the US could run out of reasonably priced oil within the next quarter century, and 56 percent said the world is likely to face the same scenario in the next 50 years.

Few question that fossil fuels will be a vital energy source worldwide for many years. And the world's biggest oil and gas companies continue to spend far more trying to find new sources of oil and gas than they do on alternatives such as solar and wind.

Just last month, the International Energy Agency said more than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy.

The Paris-based agency stressed it's essential for the world's energy companies to continue investing in new projects despite crude prices that have tumbled 70 percent since hitting a record high in July.

Slightly more than 40 percent who took part in the Deloitte sampling said the US energy situation is better today than it was five years ago, while 50 percent said it was worse. Six percent weren't sure.

Three out of four said shifting away from the nation's reliance on fossil fuels for transportation needs is an appropriate goal for the country, yet most think the best alternative right now is natural gas. About 30 percent said electric plug-in vehicles are the most promising alternative.

Among the survey's other findings, 42 percent of respondents cited government regulation as the most significant deterrent to investing more in exploration and production. About 30 percent said it was geopolitical risks and 12 percent cited commodity price volatility.