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Friday 23 February 2001

Energy experts optimistic

See oil prices falling in long term, but we'll be playing lotto-gas-pump for awhile JAY BRYAN The Gazette

With North Americans afflicted by short supplies and high prices of oil, natural gas and, in some places, electricity, it's reasonable to wonder if our decade-long spell of strong economic growth will be permanently stalled by energy starvation.

Probably not, at least if some of the world's leading energy experts can be believed. Among the more than two dozen corporate executives, economists and financiers who spoke at the Canadian Energy Research Institute's world energy conference this week, the tone was mostly upbeat.

Maybe that's because the energy analysts who have forecast impending doom frequently over the past three decades have been so wrong so often, suggested one prominent economist, confessed optimist Michael Lynch of the WEFA consulting group.

For what it's worth, Lynch admitted that anybody, including himself, who tries to predict oil prices six months from now is almost certain to be wrong. There are just too many unpredictable influences at work.

But over the next few years, it is possible to see where supply and demand trends ought to push oil prices, and Lynch's best bet is that they'll be up only moderately from the long-term average of about $17.50 U.S. His estimate is that the new average will be close to $20, which still looks pretty good in the light of today's price around $29.

There is a little bad news, however. With world inventories of oil tighter than in the past and with the Organization of Petroleum Exporting Countries working hard to maintain this squeeze, prices will probably jump around more than in the past. That means we might just have to get used to playing lotto-gas-pump, with prices sometimes changing by several cents overnight.

In the longer run, the outlook should be hopeful, depending on how well the world's economies adjust to the need for more energy efficiency.

There's certainly a danger of serious shortages if the link between economic growth and oil use remains as tight as it has been historically.

Marcel Kramer, who heads the Asia-Pacific division of Norway's Statoil, noted that during the 1990s, three-quarters of the growth in world oil demand was driven by economic growth in the Asia-Pacific region, with the poor but massive populations of China and India driving most of the new consumption.

By the time these countries approach a North American standard of living, their oil consumption per dollar of economic growth will have to be far more modest than today's in order to avoid a disastrous supply crunch. Fortunately, that's what Kramer expects.

Lee Schipper, a senior scientist with the International Energy Agency, agreed that there is some reason to share this optimism.

A project led by Schipper showed that it is indeed possible to slash energy use sharply without lowering people's standard of living. Back when industrial nations were scared by the 1970s' oil crunches into caring about energy efficiency, they proved this by running highly effective programs to promote conservation and efficiency.

The IEA project found that during the period from 1973 to 1990, manufacturers and building heating systems cut energy use by 20 to 40 per cent for the same amount of output. North American cars became 30 per cent more fuel-efficient and even the smaller cars in Europe squeezed out 15 per cent greater mileage. Appliance power consumption fell by 10 to 20 per cent.

Since 1990, energy conservation has gone out of style and the gains have stopped, but the old, wasteful technologies didn't come back. The savings of previous years have tended to remain, even in the case of autos, where the market has been influenced by gas-hogging sports-utility vehicles.

This means the outlook for energy efficiency and a closely related issue, global warming, is uncertain, but potentially heartening.

The technologies are available if governments decide that energy conservation is a priority and, to some extent, they are already coming into use.

A small example is the hybrid car and cleaner diesel fuels, which can cut automotive emissions considerably. A bigger one is the Internet and computer revolution.

Ironically, information technology has been blamed by some ill-informed observers for contributing to excessive power use. A more careful look reveals that the opposite is true.

Schipper points out that information technology, ubiquitous as it is, accounts for only 2 or 3 per cent of all U.S. electricity consumption. Set against that, computer technologies save enormous amounts of energy: for example, permitting more efficient use of truck fleets and industrial machinery and running automated energy-management systems.

The lesson: we can be more prosperous and energy-efficient, but it's much more likely to happen if governments take the lead.

-- Martin Thompson (, February 24, 2001

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