Why oil won't hit $100

New production, new energy sources and some conservation could push down prices by 2010 - but don't expect $20 a barrel anytime soon.

NEW YORK (CNNMoney.com) -- Despite oil's record high last week, forget about crude going to $100 a barrel.
Prices have already dropped about 7 percent since last week, and are likely to fall even more in the coming years.
That's the consensus of analysts, who say rising production, the advent of biofuels, and conservation measures will likely lead to lower oil prices by 2015.
But how much lower is subject to wide interpretations, and estimates rage from $20 to $60 a barrel.
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"If this market can continue going lower without OPEC disrupting it, it's very possible that by 2010 we could be substantially lower than anyone is imagining," said Peter Beutel, an oil analyst at the consultancy Cameron Hanover. "Four to 8 years from now, we could come down and break $20 a barrel."
Beutel bases his prediction on the fact that oil is historically a cyclical commodity. In the early 1980s it hit $38 a barrel, far higher than today's price when adjusted for inflation, only to fall to $10 a barrel by the late 1990s.
He also said high energy prices are hurting the American consumer, especially the young, the elderly and the poor.
"This has decimated their lifestyle," he said. "I'm convinced it will give us a recession."
But Beutel is in the minority, and most analysts don't ever expect crude prices to trade anywhere near $20 a barrel ever again - which is good news for renewable energy technologies, most of which need crude prices near the $50 mark to remain competitive.
The government-run Energy Information Administration has a $50 target price for crude by 2015.
EIA says by 2010 the amount of oil OPEC can pump should increase by 2 million barrels per day, largely driven by Saudi Arabia. The EIA, like most analysts, does not agree with the view that production has peaked or will soon peak in Saudi Arabia, although a small but growing number of experts say it might.
EIA says more oil from Central Asia and the Gulf of Mexico should offset production declines in the North Sea and and Mexico.
And co-called "non-traditional" fuels, such as oil sands from Canada and corn-based ethanol, are expected to double, going from the current 3 million barrels a day to 6 million barrels a day by 2010.
While demand is expected to continue growing, EIA says conservation measures should slow the rate of growth to 1.3 percent a year from 2 percent.
All this means the world's spare production capacity - the difference between what is consumed and what is produced - should grow, relieving some of the fears that have pushed prices so high as of late, such as a disruption in supply from a hurricane in the Gulf of Mexico or a war with Iran.
"You're not going to get to $100, but you're not going to see $20 either," said Glen Sweetnam, director of EIA's international economic and green house gas division.
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Most analysts agree with EIA's assessment.
"This is an inherently cyclical business," said Edward Morse, chief energy economist at Lehman Brothers, who said he could see oil prices in the $40 to $50 range by 2010. "We're seeing a potential overbuilding of refining capacity."
But while the possibility of $100 seems to be fading fast, some analysts are predicting oil will remain close to current prices.
"Several recent forecasts, including those from such groups as the IEA (International Energy Agency) and the Economist Intelligence Unit, are in stark opposition to any forecast of a price drop," Mike McKee, a director with KPMG Corporate Finance, said via e-mail. "They see demand-driven strength in prices through the next 4-5 years, as the industrializing world is taking up an increasingly large portion of worldwide production."
And Deutsche Bank recently raised its 2010 target price for crude to $60 a barrel from $45, citing the increasing costs associated with bringing new oil to market from such expensive sources as Canada's tar sands and the deep water Gulf of Mexico, as well as continued strong demand.
"We need it all, and we needed it yesterday," said Adam Sieminski, Deutsche Bank's chief energy economist. "There's still a shortage."

The end of oil

A small - but growing - group of experts think world oil production will peak in the next few years, to devastating effect.

NEW YORK (CNNMoney.com) -- At some point in the near future, worldwide oil production will peak, then decline rapidly, causing depression-like conditions or even the starvation of billions across the globe.
That's the worst-case scenario for subscribers to the "peak oil" theory, who generally believe oil production has either topped out or will do so in the next couple of years.
What follows depends on who one talks to, but predictions run the gamut from the disaster scenario described above to merely oil prices in the $200-a-barrel range while society transitions to other energy sources.
It's not a view held by most industry experts, including the oil companies, the government and most analysts at the financial houses.
Why oil won't hit $100
But its adherents are growing, and include some fairly well-known names.
In the coming week, a former chairman of oil giant Royal Dutch Shell (Charts) is speaking at a peak oil conference in Ireland, as is former U.S. Energy Secretary James Schlesinger.
Most peak-oil proponents simply don't believe the numbers put forward by industry and the government.
The world will produce 118 million barrels of oil a day, up from its current 85 million barrels per day, just to satisfy projected demand by 2030, according to the Energy Information Agency.
"That's never going to happen," said Richard Heinberg, a research fellow at the Post Carbon Institute and author of three books on peak oil.
Heinberg says world production of regular crude oil actually peaked in May 2005. He also says production in 33 of the 48 largest oil producing countries is in decline, and that global oil discoveries peaked in 1964.
Most importantly, he says reserves in the Middle East, where EIA predicts the bulk of new supply will come from, have been "systematically overstated."
"Everyone just takes their figures at face value," Heinberg said. "But they are national oil companies, they can't be audited."
Instead of production ramping up to 118 million barrels per day, Heinberg sees a plateau over the next few years, then gradual declines beginning in 2010.
By 2015, he says the rate of decline will accelerate as field after field runs dry and few new supplies are found. By 2030, the world could be looking at powering its economy on 30 million barrels a day.
"It's going to be an enormous shock to the global system," said Heinberg. "We're talking something on the order of the Great Depression, perhaps much worse."
As for billions starving to death when crops dependent on fossil fuel-based fertilizers fail en masse, he said, "that's the worst case scenario, but it can't be ruled out."
Indeed, Web sites devoted to peak oil sell numerous survival-style books seemingly geared toward a society in which, at the very least, the basic economic infrastructure has broken down - if there's not total anarchy.
From the Web site lifeaftertheoilcrash.net, titles include "Gardening When it Counts: Growing Food in Hard Times" and "Crisis Preparedness Handbook: A Comprehensive Guide to Home Storage and Physical Survival."
"It's fear mongering, sensationalist crap," said Fadel Gheit, a senior energy analyst at Oppenheimer.
Gheit says there's plenty of oil out there, it just needs to get to a price where it's profitable to extract.
"We have so far consumed one trillion barrels" in all of history, he said, pointing to a 2000 study from the U.S. Geological Survey that made predictions based on rising prices, technology advances and assumed new discoveries based on past finds. "There are three trillion more to go."
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He said proven oil reserves - the ones oil companies believe they can extract with today's technology at current prices - have increased every year for the last 30 years.
A lot of the new oil will come from existing fields, said Gheit.
He said oil companies have never extracted more than 30 or 40 percent of the oil in any given field. It just became too expensive to continue drilling there, so the companies moved on to new areas.
"The free market is working," he said. "With higher prices, there will be incentive for companies to develop new technology" to extract the remaining oil.
Industry executives also downplay the peak oil theory.
"Similar predictions were made in 1914, in 1939, in 1951, when post-war demand was on the rise, and again in the 1970s," Exxon Mobil (Charts, Fortune 500) head Rex Tillerson was quoted saying in the Calgary Sun in 2005. "These predictions were always proven wrong."
But whether oil production peaks or not, by pushing crude prices up more than eightfold over the last 10 years, traders clearly believe supplies will strain to keep up with demand.
"Growth in the developing world is just too great," said Stephen Leeb, an investment manager who has authored two books on oil scarcity, the last one predicting $200-a-barrel oil in the next 5 to 10 years. "Demand for oil will outstrip supply."

The end of oil is just a game

New combat videogame depicts a world at war over rapidly dwindling crude supplies. But what's the message players walk away with?


NEW YORK (CNNMoney.com) -- On a futuristic battlefield littered with broken oil wells, burnt-out electric cars and dilapidated wind turbines, you are leading crack military unit on a mission to secure the world's last remaining oil supplies.
Your enemies are the Russians and Chinese, who are of course after the same prize.
Suddenly machine guns rattle, men are hit, the helicopter goes down, and you're in the middle of an intense firefight in Central Asia.
Over the last two decades prior to 2030 oil production has peaked and is declining rapidly, renewables never panned out, plagues hit, and starvation ensued. In other words, things have been very bad, at least according to Kaos Studios, the maker of this video game you're playing.
"It's a mess, it's a real wreck in there," said Frank DeLise, Kaos' general manager.
While Frontlines: Fuel of War is one of the first video games to capitalize on the doom-and-gloom scenario of what might happen when the world runs out of oil, it's not the only video game focusing on energy as oil prices rise, developing nations use more and more crude, and the world grapples with global warming fears.
DeLise chose oil as a story line because "energy seems to be a hot topic, and it seems to be getting worse. When stuff is in the news, it gets people involved, and they want to know more about it."
The peak oil theory - that is, that oil production has already peaked or will do so in the next few years, followed by widespread social disruption - has been gaining ground in recent years.

Most oil industry analysts say peak oil production is many decades, if not hundreds of years away, and a transition to other sources will likely be more orderly than the scenario depicted in Frontline.
But a small and growing number of experts -- some well-respected -- say peak oil production is close or has happened and the transition will be much more painful than mainstream analysts predict.
Either way, DeLise said he hopes people will get more out of the game than just an adrenaline rush.
"If they play this game they will walk away thinking 'wow, energy is a problem," he said.
Experts say video games can be fun as well as educational, although the outcome largely depends on the content.
"They could in fact lead to changes in attitudes, beliefs, and ultimately, changes in behavior," said Craig Anderson, a professor of psychology at Iowa State University who studies the effects of video games on people.
The multi-player version of Fuel of War lets gamers connect and play along side or against each other from anywhere in the world.
They can choose to fight for the Western Alliance, made up of the U.S. and European countries, or the Eastern Alliance consisting of China and Russia.
And the choice of weapons is staggering - players can hop from ground combat with an array of hand-held munitions to flying helicopters, planes, or driving tanks - all futuristic designs DeLise and his team created using current weapons and intelligence gleamed from the Internet and other sources on next-generation military hardware.
Fuel of War, set for release in February, is a first-rate shoot 'em-up game with a well developed story line. It is one of a growing number of games that center around the theme of energy.
A previous game from Kaos centered on an oil war in the Caspian region, and Energyville, a SimCity-like Web-based game from Chevron and the Economist Group, lets players plan the energy needs of a future city.
But Anderson, the psychologist, is concerned about the message that violent games like Fuel of War may send to players.
"It may well change attitudes towards the use of these tactics as a political tool," he said. Players may think "of course we have to use military tactics to go take oil."
DeLise dismisses such concerns, saying nations go to war all the time over resources, and that the game is merely a reflection of reality.
"When it comes down to it, it's about what countries will do to survive," he said. "That's not going to change."