Oil may reach $200 a barrel

It is that booming Asia will in a decade push oil to $200/barrel and maybe $300/barrel.

The global financial crisis and Great Recession then sent oil crashing down to $40/barrel, saving them from facing up immediately to a future of scarce oil. But the global economy is now recovering, so that challenge must be faced.

The global recovery looks weak in Europe and North America, but is gathering steam in Asia. China, India and Indonesia look like powering ahead at 12%, 9% and 6% respectively in 2010-11. Other Asian countries are also buoyant. These developing countries are at a very energy-intensive stage of development. Booming Asia is sucking in commodity imports from Africa and Latin America, fuelling booms there too.

Slackness in rich countries has kept a lid on commodity prices, but the long-term trend is unambiguously upward. China has already overtaken the US as the world biggest consumer of cars and emitter of carbon. India is following in China’s footsteps, one decade removed. So, even if oil consumption is muted in the West, even if rich countries drastically reduce carbon emissions (which is doubtful), oil consumption will rise stridently in developing countries.

The world’s old oilfields are in steep decline, and large new oil discoveries offshore in Indonesia, Brazil, Mexico and Africa are in deep waters that will take time to exploit. Although Indonesia for example has started an ambitious project to increase its oil production from current mere 900k barrel per day to 1,000k barrel per day and has started offering offshore projects to oil majors, we still need to wait until such projects generate the much needed oil for consumption.

We now and will face another huge energy crunch, and need to adjust to that reality too.

There will be a shift to the usage of bio-related energy: biofuel, biodiesels, bioetahnol and other green products and this are imposed-driven usage by the relevant governments. There will be a growth in edible oil and vegetable oil markets. There will also be a move towards energy conservation e.g. farmers should switch from diesel pumps to electric ones. Cooking gas cylinders can be replaced by piped gas. Buses can switch to compressed natural gas. The poorest can get cash transfers through smart cards to reduce their fuel bills.

We must stop massive subsidies for a non-renewable and polluting resource. Instead, we must prepare for the coming reality of oil at $200/barrel.