“High oil prices driven by the growth in oil demand, coupled with worries over supply restrictions following the ‘Arab spring’, are raising concerns over the resilience of the post-recession economic recovery”, said John Westwood, Chairman of international energy business advisors Douglas-Westwood.
In his address to the Breakbulk Europe conference in Antwerp today, Westwood cited DW research showing that since 1973 the US had entered recession every time its crude oil expenditure exceeded 4% of GDP.
“We are not suggesting that this was the sole cause, but it often seems to have been the factor that has tipped the economic system over the edge” Westwood said. “In March 2011, crude oil imports cost the US $27.67 billion, up from $21.13bn – we are again living in dangerous times as the health of the US economy is essential to us all.”
“This time round, the situation is even more difficult”, Westwood said. “Outside the US, natural gas prices have risen in the immediate aftermath of the Japanese tsunami; LNG prices rose 12%. And while the world ponders the future for nuclear power, more natural gas, oil & coal will be burnt to generate electricity which will in turn help to support high energy prices”.
On the supply side, conventional oil supplies are in depletion evidenced by a major drive into the exploitation of high-cost deepwater oil reserves. “The global offshore industry is again entering boom times”.
Turning to potential solutions, Westwood stated that, “Managing both energy supply and demand is not a short-term game. The key players China and the US both seem to be reading from different scripts. China is taking the long view making massive investments in both conventional and renewable energy to meet its burgeoning demand whilst at the same time aiming to improve energy efficiency.”
“In the US, however, the greatest influencing factor seems to be the political impact of the price of gasoline. The US suffers from chronic energy obesity – it needs to use less oil and produce more – but that means opening up more federal lands and offshore areas to drilling, particularly in the arctic, which will set off a whole new round of political battles. The only ‘gastric band’ is price. Eventually, in order to reduce demand, the US will have to bite the bullet and start raising its gasoline prices closer to European levels – which for the present is a politically unacceptable prospect.”
“It is natural gas that may offer the US the best long-term opportunity by encouraging the use of its now-vast ‘unconventional’ reserves of shale gas, to fuel road transport.” Natural gas, in DW’s view, is the ‘gamechanger’.
“In power generation, gas-fired power plants cost one fifth of nuclear stations to build and a sixth that of offshore wind farms” said Westwood.
“Natural gas offers a bridge between today’s coal and oil-fired economy and tomorrow’s world of affordable renewable energy. Also in Europe, exploiting unconventional gases, both shale gas and coal-bed methane, could reduce the growing dependence on Russian gas supplies”.
