Will oil and gas be overtaken by renewable energy sources in 20 years? Will U.S. dependence on foreign oil recede? Find out the answers along with some good news about long-term future oil prices.

Oil and gas are the country’s top energy sources and will hold fast to their preeminent positions for many years to come. Together they currently provide 65% of the country’s energy. And while petroleum rules the world energy scene, natural gas dominates U.S. manufacturing, which accounts for three-fifths of the energy consumed in the entire industrial sector, says the Energy Information Administration (EIA).

Keeping up with the strong consumption of these fossil fuels has been a daunting task for the U.S. fuel industry for many decades. Domestic natural gas production started to lag behind consumption in the late 1980s while domestic petroleum production could not keep up with consumption as early as the 1960s. Since 1994, the U.S. has imported more oil than it has produced.

Currently, the country consumes over 20 million barrels of oil per day, a figure that is expected to increase to a range of 27 to 32 million bpd by 2025, says the EIA.

And the country’s dependence on imported oil is expected to increase. Imported oil, which currently represents 58% of the country’s total petroleum demand, will account for 65-70% of demand by 2025, says the EIA’s Annual Energy Outlook 2003. Exactly where within this range the 2025 imported oil percentage will fall will depend on the future price per barrel. And the projected range in prices for oil in 2025 is from $19 to $33 per barrel (real 2001 dollars).

This oil price range may come as a surprise since it represents a drop from current prices, which hover just above $30 per barrel. Indeed, while a possible U.S. strike on Iraq, Venezuela’s extreme slowdown of oil production and exports, and low inventories are all threatening to send oil prices gyrating, the long-term trend is expected to continue toward gradual price declines.

In fact, Adam Sieminski, an analyst at Deutsche Bank in London, says that even for the current year, we can expect oil prices to average just around $21.50 per barrel. The moderate price will be due to feeble world demand growth of only about 1 million bpd combined with production jumps in countries outside of OPEC (the Organization of Petroleum Exporting Countries), especially Russia.

In contrast, natural gas prices are expected to steadily climb and as a result of this and technological innovations, natural gas production from unconventional sources such as tight sands, shale and coalbed methane is expected to outstrip the growth of conventional production. In addition, the U.S. will likely become increasingly reliant on Alaskan production as well as foreign natural gas sources.

From roughly 23 trillion cubic feet in 2001, domestic natural gas consumption will rise to the range of 32 to 38 trillion cubic feet in 2025, say EIA projections. Most of this growth will be due to electricity generation, which is expected to represent 33% of total end-use natural gas consumption in 2025.

Most new electricity generation capacity will be powered by natural gas. In sharp contrast, the U.S. Energy Department forecasts that, at most, renewable energy sources such as solar and wind power will fuel 9% of U.S. electricity generation by 2025.

And in the automotive industry, alternative energy sources will experience relatively modest growth as well. In 2001, 12% of new cars sold were fueled by alternative energy technology (hybrids, turbo direct injection, alcohol, fuel cells, etc.), and by 2025, that portion will increase to 20%, says EIA.

Oil and gas will continue to enjoy robust demand. And to meet steadily increasing demand for both, providers are shelling out more money on large oil and gas projects outside the country. In fact, while total U.S. spending in 2003 will likely go down by 0.7% to $30.3 billion, spending outside the U.S. will rise by about 6% to $102.1 billion, says a survey by Lehman Brothers Inc. in New York.

“The U.S. just doesn’t hold that much potential for finding major new reserves,” says James D. Crandell, a Lehman oil analyst. This reality has sent majors such as Royal/Dutch Shell Group and ExxonMobil to Russia’s Sakhalin Island, where they’re expected to invest as much as $18 billion by 2010 in oil and gas projects.

Alternative energy sources, in comparison, have not merited as much investment, as most companies spend conservatively on these innovations. For example, of BP’s annual investment budget of $12 billion, it is sinking just $500 million over three years on renewable energy sources.

So for now, the tried and true energy sources rule and may continue to do so for decades to come.

Primer Links

Government Agencies

Energy Information Administration
http://www.eia.doe.gov/

U.S. Department of Energy
http://www.energy.gov/

Organizations

American Association of Petroleum Geologists
http://www.aapg.org/

American Gas Association
http://www.aga.org/

American Petroleum Institute
http://api-ec.api.org/newsplashpage/index.cfm

Gas Technology Institute
http://www.gri.org/

National Petroleum Council
http://www.npc.org/

Organization of the Petroleum Exporting Countries
http://www.opec.org/

Resources

Energy Intelligence Group
http://www.energyintel.com

Gas Utility Manager
http://www.gasindustries.com/

Hydrocarbon Processing
http://www.hydrocarbonprocessing.com/contents/publications/hp/

MBendi: Oil & Gas Industry Glossary of Terms
http://mbendi.co.za/indy/oilg/p0025.htm

Offshore
http://os.pennnet.com/home.cfm

World Oil
http://www.worldoil.com

Sources: Energy: A Barrel of “Ifs”
Stanley Reed, with Wendy Zellner
Business Week, Jan. 13, 2003
http://www.businessweek.com

Short-Term Energy Outlook – January 2003
Energy Information Administration, Jan. 8, 2003
http://www.eia.doe.gov/emeu/steo/pub/contents.html

Energy Markets Course Dependent on Oil Prices, Economic Growth,
Consumer Behavior, and Rate of Technological Improvement
Energy Information Administration
Press Release, Jan. 9, 2003
http://www.eia.doe.gov/neic/press/press205.html

Annual Energy Review 2001
Energy Information Administration
http://www.eia.doe.gov/emeu/aer/contents.html

Annual Energy Outlook 2003, With Projections to 2025
Energy Information Administration, Office of Integrated Analysis and Forecasting, Jan. 2003
http://www.eia.doe.gov/oiaf/aeo/pdf/0383(2003).pdf