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BREAKING NEWS

LOWER GAS PRICES MAY BE LULL IN LOOMING
OIL SUPPLY CRUNCH

August 08, 2008




Off shore oil rigs extract crude from below the sea bed
(MONORE, WA) -- At gas stations through out the Sky Valley and greater Seattle area today, drivers can find regular gas right around $4.00 a gallon and under that at some stations. Crude oil prices have tumbled to seven-week lows amid concerns that the slowing US economy will weaken demand.

A lot of valley commuters are breathing sighs of relief now that prices are edging downward. But the downward price of oil, which drives the price of gasoline, may simply be in a brief lull before the price of oil goes much higher.

In a study out today called “The Coming Oil Supply Crunch”, a British energy expert warns that a serious oil supply crisis is on the horizon which could push world crude oil prices above $200 a barrel.

Professor Paul Stevens of the British based think tank Chatham House says a “supply crunch” will – not may, but will he says - affect world markets in the next five to ten years.

The report comes out just days after oil prices slipped from peaks near $150 a barrel. While the study allows breathing room for some increase in capacity over the next few years, a supply jolt appears likely around 2013.

The problem says Stevens is not that there isn’t enough oil left in the ground (there is for the near term) but that oil companies and governments have been failing to invest enough in facilities and exploration to ensure production.

He says only a collapse in the demand for oil can stave off the looming crisis.

In a report broadcast by the BBC Stevens is quoted as saying "In reality, the only possibility of avoiding such a crunch appears to be if a major recession reduces demand - and even then such an outcome may only postpone the problem," he said.

Stevens says investments in new oil supplies have been inadequate as oil firms have opted instead to return profits to shareholders (in the form of higher dividends and buying back their own shares) rather than reinvest profits. In addition he says the large oil-producing cartel Opec has failed to meet plans to expand its capacity since 2005.

The report says a "resurgence of resource nationalism" also means that governments are starving their national oil companies of investment by excluding international oil firms from helping to develop capacity.

Stevens concludes that only "extreme policy measures could achieve a speedy response" in boosting supplies and lowering oil prices - a move that is likely to be "politically unpopular".

An earlier study released July 24th by Chatham House predicts that Saudi Arabia’s oil exports may start to fall in 2014 after it reaches maximum production capacity of 12.5 million barrels a day and domestic consumption grows. Current Saudi output capacity is 11.3 million barrels a day.

“Once production levels off at a plateau, exports will decline” as local demand rises, the London-based think tank said in the July report titled “Ending Dependence: Hard Choices for Oil- Exporting States.”

While production may hold steady for decades, the kingdom’s exports may fall as more oil is diverted to the local market. To ensure the Saudi economy keeps growing, other sources of income will be needed to replace oil revenue, which may plateau by the middle of the next decade

The report also says Saudi Arabia, Iran and Nigeria will stop exporting oil by 2040.

Oil output from Iran, Kuwait and Nigeria, whose production capacity represents more than a quarter of the Organization of Petroleum Exporting Countries’ (OPEC) total, will level off as soon as 2010.

The report also concludes that oil exports may last longer if producing nations scrap domestic fuel subsidies in order to reduce energy use or adopt renewable energy.





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