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French Version

Voracious oil consumers should prepare to cut back - or pay

World oil demand is projected to reach 90 million barrels per day (bpd) before the end of this decade. The United States, non-OECD countries, Asia and other emerging economic powers are expected to keep up their thirst for energy at unbelievable growing levels, while oil extraction in the near future will not keep pace.

This increasing energy demand poses tremendous challenges, while the price of crude, without oil shocks or embargoes, has hovered around $68 per barrel lately.

The current energy hunger, supply crunch and price spikes are the consequences, on the one hand, of inadequate production, refining capacity and crude availability on the world market. This is compounded by insufficient infrastructure in the amount of existing networks of pipelines, new supply routes or liquid natural gas (LNG)-receiving terminals, limited boundary connections for supply routes, and maintenance of the aging infrastructure. On the other hand, not having sufficiently developed or diversified alternative energy resources such as shale oil, a new generation of nuclear power, tar sands, hydrogen, clean-coal technologies and renewable resources such as solar, wind, hydro and bio-fuels is also contributing to the challenges facing the energy sector. With regard to nuclear power, the last U.S.-India nuclear protocol will definitely help but does not solve all of the issues. Nuclear power alone cannot solve all of the energy inadequacies because it does not address the needs of transportation and other sectors.

A drive to reduce dependence on oil and gas should be assessed first in order to plan and execute short-term and long-term solutions. It can start by giving a mandate to U.S. and European car manufacturers to reduce manufacturing cars with high gas consumption, promoting energy-conservation measures and energy efficiency across the world. The energy users in Europe, the U.S. and Asia should be determined to reduce their consumption, introduce energy-efficient instruments and encourage clean development mechanisms. According to a World Bank estimate, in Africa alone, using the total flared gas in power production could generate over 20,000 megawatts. Another example that encourages consumption is the tax on gasoline in the U.S., which is the lowest compared to any other OECD country. Meanwhile, the U.S. Senate passed an $18 billion bill last year in tax incentives to promote further exploration and production (E&P). These incentives should also address the large polluting utilities to invest in their plants to reduce carbon dioxide emissions. Tax incentives need to be introduced by all policymakers across the continents for solar, wind and other renewable energy industries.

Through cooperation, collaboration and determined public policies of consuming nations, industries and individual actions in the medium and longer term could definitely lead to significant benefits from essential energy-saving guidelines.

Again, the voracious appetite for energy by fast-developing economies will continue to be a major factor propelling the upward trend in energy prices. President Georges W. Bush, in his last State of the Union address, was adamant on energy independence and set a goal to replace a third of the U.S. oil imports in 20 years - a challenging undertaking. Global energy players are requested to make progress in addressing a global-energy policy approach to secure energy efficiency, environmental protection, diversification of energy supply, promote radiant energy and obtain real profits by diversification of energy production and supplies. Europe, for example, after the enlargement in May 2004, needs to be effectively connected to a robust internal and external energy market that functions efficiently with a diversification of energy supply and most notably having strategic storage facilities. The European Union will no longer be, in this case, at the mercy of Russian supply fluctuations - they currently depend on Russia for 25 percent of their natural gas importation. The recent shortfalls with the Ukraine exposed many European countries' supply insecurity.

The overlapping of politics and energy economics has created a new strategic focus for OPEC and non-OPEC producers. Therefore, development of an energy-efficient economy is a challenge for major countries. With energy hikes in prices, the field of energy economics has been increasingly global in topics and pursuers. However, good energy governance is crucial for goals to be met in the various priority areas of global oil inventory and proven reserves, global production, meeting global demand, striving for diversification on energy production while safeguarding the world environment and the stressing of efficient energy consumption and conservation and discovery of energy solutions.

Since 2003, global demand started its increase and has continued since then, driven mainly by increased demand in the U.S., China and India. The U.S. as the world's largest energy consumer, China as the world's second-largest oil importer, and the third-largest energy consumer, India, with its economic growth reaching almost 8 percent in 2005-2006 is following the same trajectory. These countries, along with Europe and the Middle East, have the responsibility to assume a world energy action plan and lead governments, policy makers, the IEA, and economic decision-makers in universal energy consumption habit-changes and to help ease oil addiction by consuming less, driving less, and offering a reliable, affordable and competitive energy while using modern technologies and addressing seriously energy security.

Energy is also wealth, power, ambition and economic creation. Energy balance policy is needed to preserve the environment and should be destined to endure for fighting global warming. However, as a strategic central role, energy will continue to be the basis of industrial societies. While fossil fuel is still being found in abundance and new exploration and production methods are helping to extract larger quantities, oil will still be available in certain parts of the world for at least another 100 years.

A priority plan for stable and unstable producing nations needs to cement clear, open and efficient policies and large consuming nations have to be lobbied to keep access open to a universally reliable, continuous and affordable energy supply to consumers. This, of course, is expanding the scale of massive investments needed for a global petroleum industry: from exploration acreage to production, to additional refining capacities, building tankers, LNG carriers and extensive networks of pipelines.

Underlying all of this is a fundamental challenge: Economic stability depends on fossil fuels, advanced markets on different continents seeking continuous long-term commitments for a secure energy supply, pursuing environmental protocols and continuing economic growth. Would the world diplomatic and political arenas find the balance? If so, at what price?

Roudi E. Baroudi is an energy and privatization expert.

Beirut,04 18 2006
The Daily Star
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