Energy Outlook and the Agenda to Expand Opportunity

By SBE Council at 16 December, 2014, 4:34 pm

by Raymond J. Keating-

The price of oil has fallen dramatically in recent weeks. That raises all kinds of questions, including where are energy demand and supply headed?

There are tremendous opportunities ahead for small businesses and the U.S. economy on the energy front. The outlook could be even brighter with the right set of policies to encourage production and investment. 

Looking at the short term, in its just-released forecast, OPEC is looking for global demand for its oil to decline to its lowest level in more than a decade, and falling by over 1 million barrels per day compared to its current level of production.

In addition, the IEA cuts its growth forecast in a December 12 report: “The IEA Oil Market Report (OMR) for December cut the outlook for 2015 global oil demand growth by 230 000 barrels per day (230 kb/d) to 0.9 million barrels per day (mb/d) on lower expectations for the Former Soviet Union and other oil-exporting countries. The monthly report told subscribers that a strong dollar and the lifting of subsidies have so far limited supportive price effects on demand, which is now seen reaching 93.3 mb/d next year, from 92.4 mb/d in 2014.”

But what about over the long haul? ExxonMobil released its 2015 Outlook for Energy on December 9. Some key points from this forecast:

• “Significant growth in the global middle class, expansion of emerging economies and an additional 2 billion people in the world will contribute to a 35 percent increase in energy demand by 2040.”

• “[C]arbon-based fuels will continue to meet about three quarters of global energy needs through 2040.”

• “A major shift is seen as North America will likely become a net exporter of liquids by 2020 as supplies of so-called tight oil, natural gas liquids and bitumen from oil sands increase. This is expected to open new trading opportunities as Asia Pacific’s net imports are projected to rise by nearly 80 percent by 2040.”

• “North America unconventional gas production will nearly triple by 2040 and the region is expected to surpass the combined output of Russia and the Caspian region as the largest gas-producing area. In Asia Pacific, gas production is seen doubling by 2040, driven partly by unconventional production technologies.”

• “Technologies that unlock new unconventional oil and gas supplies will help enable oil and natural gas to meet about 65 percent of global energy demand growth.”

• “Oil is expected to remain the No. 1 energy source and demand will increase by nearly 30 percent, driven by expanding needs for transportation and chemicals.”

• “By 2040, abundant sources other than conventional crude and condensate will account for about 45 percent of global liquids production, compared with less than 25 percent in 2010. Remarkably, estimates of remaining recoverable crude and condensate relative to current demand have risen from about 60 years in 1981 to about 150 years as of 2013.”

• And finally: “Rising natural gas demand will be met with abundant new supplies and significant expansion in trade as unconventional gas production nearly quadruples and LNG trade triples by 2040.”

The implications for U.S. energy producers – with key energy sectors dominated by small businesses, as highlighted in SBE Council’s recent report Benefits of Natural Gas Production and Exports for U.S. Small Businesses – and for U.S. policymaking are significant.

First, expanding global energy demand and advancements in production technologies are have created enormous opportunities for U.S. businesses and workers, and will continue to do so.

Second, tax and regulatory measures must not restrict the ability of U.S. businesses, entrepreneurs, innovators and investors to meet energy demands at home and abroad.

Third, U.S. policymakers must move to allow growth to occur via expanding opportunities internationally, which includes allowing for crude oil exports, removing bureaucratic encumbrances to exporting LNG, and expanding free trade agreements, including, for example, the Trans-Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership (TTIP).

There are tremendous opportunities on the energy front for the U.S. economy, including for American small businesses and their workers. The key, as is usually the case in the marketplace, is to remove unnecessary and prohibitive governmental costs – from regulations seeking to raise the costs of carbon-based energy to assorted restrictions on trade – and thereby allow entrepreneurs, businesses and investors to seize opportunities, and generate growth and jobs.

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Raymond J. Keating is chief economist for the Small Business & Entrepreneurship Council.

Keating’s latest book published by SBE Council is titled Unleashing Small Business Through IP: Protecting Intellectual Property, Driving Entrepreneurship and available from Amazon.com here.