By JOHN HOFMEISTER: Why are we asking the question “What do we do when oil prices once again crush the global economy?” The answer is simple: It is as inevitable as the sun rise.
The capital-spending reductions now in place around the world because of low oil prices, especially the draconian cuts in North America, coupled with inevitable natural reservoir declines everywhere, will yield lower production of oil as the global economy demands more oil thanks to sustained lower prices. Yes, a mouthful to absorb. Today’s 93 million barrels of production versus 91.5 million barrels of demand will be displaced by 2018 to 2020 by 99-100 million barrels of demand offset by 96 to 97 million barrels of production, including Iran. What does a supply gap this size mean to a world short of oil? We’ve been there, done that. It means oil prices north of $100/barrel for a painful, long while.
What’s the alternative? Think, plan and act ahead of the crunch. Let’s get on with fuels competition at the gasoline pump like we mean it. We see what competition for beverages does in the convenience stores alongside the gas pumps of America: it draws in thirsty customers at healthy margins. Not a bad business! How about competitive choice also at the fuel pump for savvy car purchasers who have thought and planned ahead for high oil prices? These drivers will be looking for affordable prices for different kinds of fuels than the expensive oil products variety, such as regular, medium and high octane gasoline.
In addition to gasoline, cars and trucks could begin running on compressed natural gas, liquefied natural gas, ethanol and methanol, gas-to-liquids, all manufactured from natural gas, in addition to biofuels. In later years, drivers will also be looking more often for fast-charge electricity connections and hydrogen for their fuel cell vehicles. This won’t all happen by 2018 or 2020. But by working now on regulatory approval of the alternative supplies, vehicles to use them and infrastructure to deliver them, we will have started the chain of actions that forestalls, even extinguishes, a world of too high priced oil.
Alternative fuel products extinguish for all time the collective efforts of OPEC members to manipulate the market. International bullies and pariahs, take your pick, Iran, Russia, Venezuela, Nigeria, Iraq can’t play the oil card ever again because transportation fuels cannot pinch our globally mobile society. Customers will simply use price as the decision point on fuels and car-types. Mobility will follow market-driven dynamics, just like all other products and services.
Is it too much to ask that the world become more normal by pushing oil from the fulcrum of the fuels- price seesaw to a stable multi-fueled world underpinned with natural gas and material waste and endless sources of hydrogen and renewable electricity, along with oil, to fuel our mobility? Is it too difficult to produce more winners and fewer losers in a world of abundance of fuel rather than shortage?
Now is the time to work on the fuels market of tomorrow.
John Hofmeister (@cfaenergy) is former president of Shell Oil Co. and founder and head of Citizens for Affordable Energy. He is also a member of the U.S. Energy Security Council.