February 5, 2013 – Vol.17 No. 47

OODLES OF OIL (5 YEARS FROM NOW).
by Bruce Mulliken, Green Energy News

 

There's battle a brewin.' It's a battle for survival. The outcome may determine whether years of hard work pays off or not. On one side will be the rich and dominant force, defending its turf against the newcomer. The other side will be the disruptive player whose motives are more than wealth and profits. The battle will be the internal combustion engine against the still developing electric drive. Will electric drive survive the onslaught of a new round of low cost oil?

Once thought near death and running out of reserves, oil is making a strong comeback – at least in North America. It's hard to get but it's everywhere. Locked away in shale deposits, extracted from tar sands, or beneath the Arctic ice it's there and with the lure of huge profits, modern day wildcatters are being ever more inventive in getting that oil out of the ground and into the tanks of cars. There's so much oil that it will effect global markets forcing prices down beginning in the next few years.

BENTEK Energy, the natural gas and crude oil analytics unit of energy, petrochemicals and metals information service Platts, has just launched a new monthly report, Market Call: North American Crude Oil. The report features five-year price forecasts for a host of North American low-sulfur oils, commonly known as light, sweet crudes: the best stuff for making gasoline.

The first edition makes an astounding forecast:

"BENTEK analysts not only foresee record levels of light, sweet crude oils being produced in North America between now and 2018, they see those crudes reaching the U.S. Gulf Coast by several transportation means. As a result, price spreads between regional crude oils and West Texas Intermediate (WTI), the long-time U.S. barometer crude oil, are predicted to be quite volatile.

"By 2018, WTI is forecast to average $74.33 per barrel (/b). Price spreads between WTI and international crude oils, such as Brent, are likely to remain wide at more than $19/b, the report shows, as North American production growth displaces foreign imports. Driving the North American production increases will be the Bakken, Eagle Ford, and Permian shale oil formations, which will combine for more than five million barrels of day of production in 2018."

Today, West Texas Intermediate is selling for $96 per barrel and gasoline about $3.50 a gallon. A price drop bordering on 25 percent could bring gasoline to near $2.50 by 2018.

Low oil prices here will force global prices down.

"The resurgence of U.S. oil production is altering traditional flow patterns and by 2018 should greatly reduce the need for foreign oil," said Anthony Scott, manager oil analysis, BENTEK Energy. "As the value of crude transportation capacity is realigned, the West Texas Intermediate (WTI)-Brent and regional U.S. price differentials will feel the effect."

In five years lower gas prices, combined with government mandated improved fuel economy even in conventional larger vehicles, could draw people away from hybrid and electric drive to more fuel hungry cars and trucks available then. But will it matter? Will the move to highly efficient electrification be destroyed by cheap gas?

Unlikely. Car makers will still need to offer electric drive to balance against increased demand for conventional vehicles to meet Corporate Average Fuel Economy standards. If anything, it seems possible that electrically driven cars will be offered at drastic discounts just to keep sales up. That's a good thing for those actually interested in cutting their own emissions and achieving full independence from oil. The electric vehicles will certainly be better in five years and could be bargains too.

Will electric drive win the battle? Probably not in five years, but it will survive to fight another day.

BENTEK provides a full range of products including daily market reports, online applications, comprehensive studies, consulting engagements and retainer services. BENTEK Energy was acquired by Platts in 2011.Platts has been following energy since 1909.

BENTEK

Platts

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