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GENERAL
assumed to occur, the supply challenge to satisfy
this demand is considerable.
In "Barricades,"
governments are faced with
acute energy problems, particularly after the oil
shock. Different countries adopt different
policies, strongly influenced by their domestic
resources. Everywhere demand reduction is an
important policy objective and regulation is the
preferred instrument because it is quick, clear
and specifically focused. In the process,
privatization slows and eventually stops-in some
countries, privatized assets are renationalized.
"New Frontiers"
In "New Frontiers"
Oil Markets
the demand for oil continues
to grow and supplying the quantities involved will
be a formidable challenge. In this world, transpor
tation will be the main consumer of oil products-
there will be millions of new motorists in develop
ing countries enjoying the benefit of mobility and
for whom transport fuel has to be provided-and
the total demand for liquid fuels could increase
by some 40 million barrels per day to more than
100 million barrels per day by 2020.
To sustain acceptable reserves/production ratios
during the later part of this scenario, while provid
ing energy at an acceptable price, the industry
will be faced with the task of tackling the more
costly
part of its resource portfolio-frontier or
heavy oil, and conversion from gas to liquids.
This could well require a modest increase in the
oil price, says Kassler, but if prices are allowed to
rise too high the competitive position of oil fuels
will be eroded compared with alternative energy
supplies, and they will lose their place in the
market.
"Barricades"
Oil Markets
In the 1990s economic output and energy
demand in much of the "Barricades"
world will
grow at about the same rates as in the 1980s.
The net effect is that world energy demand grows
quite slowly through the 1990s. Military expendi
ture takes precedence over oil investment in the
1-4
increasingly cash-starved and insecure Gulf
producing states.
In the early years of the 21 st century, the world
passes rapidly from a situation of excessive com
placency about energy supplies to one of poten
tial danger.
In the "Barricades"
scenario, it is imagined that at
some time after 2000 one or more of the many
Middle East disputes leads to an oil crisis.
The crisis itself is probably short-lived. The oil
price shoots up over $40 per barrel briefly, but
supply
shortages can be dealt with in a few
weeks or months, given the high state of
flexibility of the world's oil industry after many
years of political uncertainty. It is, nevertheless,
another nasty shock for the oil-consuming world.
The reaction is swift and dramatic.
importingc
Energy-
countries scramble to free themselves
from dependence on imports, egged on by their
own "green"
constituencies. The response is
largely by way of regulation, such as:
- Laws
- Regulations
- Support
- Encouragement
- Higher
mandating strictly regulated energy
conservation
encouraging
vehicles
use of electric
for nuclear plant construction
of biofuel production
taxation of oil and gas fuels, espe
cially if imported
The result of these policies is that the growth of
oil (and gas) demand in OECD countries is
severely limited, and oil consumption may even
decrease. Overall oil demand does not recover,
despite the price falling back to its preshock
level, and by 2020 may be no more than three-
quarters of that under the "New Frontiers"
scenario. The "Barricades"
scenario is not good
news for international oil companies, but be-
THE SYNTHETIC FUELS REPORT, JANUARY 1995