Green energy policies in the US and China could spell the end of growth in global oil demand, countering a widely held belief that the value of oil will only rise in the future, a US think tank says. The new policies under consideration in the world's biggest oil-consuming countries leave the UAE and other Gulf exporters in a difficult position as they weigh investments of billions of dollars in new oilfields and export terminals.
Proposed policies that target carbon emissions by shifting energy sources away from oil and other fossil fuels are some of the most important variables in the oil markets, said Amy Myers, an energy expert at Rice University's James A Baker III Institute for Public Policy in Texas, which will publish a major study on the topic this year. In the US, the world's largest oil consumer, the effects of policies on the table to raise fuel efficiency and encourage electric cars and renewable energy could range from having barely any impact, to reducing consumption by as much as 7 or 8 million barrels per day (bpd) after 2020, Ms Myers said in Abu Dhabi. That is equal to as much as 40 per cent of daily US consumption today.
"People have planned their vision for where they're going to be in 2025, and that we're going to have a shortage in the market," she said. "Well, if the United States could eliminate 6 to 7 million bpd through policy, that would wipe out whatever gain you could imagine from China." Ms Myers said China was also likely to improve the efficiency of its oil use faster than experts had predicted. "There's a tendency out here in the Gulf to believe that there is this policy uncertainty in America, and therefore we shouldn't focus on that market. We're going to shift our attention to the new growth markets of China and India," she said. "But I think there's policy uncertainty in China and India as well."
If China implemented the types of energy efficiency improvements that western countries introduced during the 1970s oil crises, she said, the country's use of oil in the next two decades could be millions of barrels per day lower than forecast. The global policies, if fully implemented, are likely to have "far-reaching consequences for global energy markets", said Mohammed al Hamli, the Energy Minister.
World oil markets are now balanced between the needs of energy consuming and producing countries, with prices at between US$70 and $80 a barrel, but prices are being sustained at that level by the perception that producers will need to tap hard to reach fields that cost a lot to drill, Mr al Hamli said. "The apparent mismatch between oil price and short-term market fundamentals is an illusion," he said.
"Oil market prices are in response to fears that in the medium to long term, oil producers will struggle to produce new oil required for growing world demand once economic recovery is achieved. "Viewed from this perspective, oil prices are not high at all." Mr al Hamli said current price levels were "acceptable" to producers and had remained relatively stable "despite weaknesses in the global economy and unfavourable market fundamentals".
Oil in storage in industrialised countries is sufficient to cover 60 days of consumption, he said. OPEC prefers 52 to 53 days of consumption cover. "The market is well supplied," Mr al Hamli said. He declined to predict what OPEC would decide about output levels at its meeting on March 17 in Vienna. Middle East oil producers were themselves playing a significant role in the growth of global oil consumption, he noted, forcing the region's governments to divert part of their output from exports to meet domestic energy needs.
A significant portion of the growth in consumption in producing countries is due to subsidies. "Some of the fastest growth rates in energy consumption come from the major energy producers themselves," Mr al Hamli said. He said he favoured reducing subsidies in the UAE, noting that consumers in much poorer countries, such as Bangladesh, paid far more for fuel. "We're moving in the right direction," he said. "It will take time."
cstanton@thenational.ae
