The Future of Oil and Gas
I recently had the privilege to attend a couple of presentations at the local ADAM (Acquisitions, Divestitures And Mergers) meeting concerning the future world energy demand and I thought I'd share a few observations. The presentations I attended were given by Scott Nauman with ExxonMobil (April 1) and Dr. Economides from the University of Houston (March 4).
In Mr. Nauman's presentation he discussed ExxonMobil's long term global energy outlook where it is estimated global energy demand will increase 35% above 2005 levels by 2030 (this represents an annual growth rate of 1.2%). The major driver of this increase will be in the form of fuel for electricity generation.
This increase in world energy demand is expected to be lead by the non-OECD (Organization for Economic Co-operation and Development) countries (India and China, mainly) with demand in OECD countries (US and Europe, etc) actually slightly lower than in 2005 due to increases in efficiencies.
By 2030 it is estimated that 65% of the world energy demand will be from non-OECD countries. 
Today 1.5 billion (25% of the world's population) do not have electricity and a whopping 2.5 billion (over 40%) do not have access to modern cooking and heating fuels and must rely on burning wood, dung and other biomass. There is a very strong correlation between economic prosperity and energy consumption as can be seen in Dr. Economides' graphic.
Several types of fuel can be used to generate electricity and in Mr. Nauman's presentation he showed a very interesting graphic depicting the costs of generating electricity with different fuels. These graphics show coal is the clear winner for low cost electricity (followed closely by natural gas), but when the potential costs of CO2 are added to the equation other fuels begin to compete (nuclear, wind) and eventually overtake coal. Natural gas, however, remains competitive with or without CO2 costs. So if you're looking to build an electricity generation plant I would think you would look real hard at natural gas as your fuel of choice, and given the expected increase in electricity demand, this should bode well for the long term future of natural gas. 
Transportation fuel choices are currently much more limited than those for electricity generation. Globally 98% of transportation fuel is oil based. Currently light duty vehicles (cars, SUVs, etc) account for the majority of energy used for transportation. In the US 80% of the population own cars. In Europe the number is less (about 50%), and in China the number is less than 3%.
As economic prosperity grows in the non-OECD countries it is expected that the number of vehicles will also grow. ExxonMobil's forecast is for a modest increase in vehicle ownership to only 8% of China's population by 2030, but that is still a very large number of cars and represents significant increase in transportation fuel demand. It is interesting to note that the ExxonMobil model forecasts personal transportation fuel requirements in the OECD countries will drop 25% due to increased efficiency, while the non-OECD demand is expected to more than double.
Currently vehicle fuel is primarily gasoline and diesel with hybrids making up less than 1%. ExxonMobil expects this to continue to be the case with hybrids (and other advanced fuels) market share increasing to 15% by 2030.
So what does all this mean? The long term outlook for energy demand is strong. The world is currently struggling its way out of a recession and oil is holding its own around $80/bbl, with the prospect of strong demand increases in the future. Currently natural gas is struggling in the low $4 range and there is a lot of hand-wringing about its future. Certainly $4 gas is not attractive to those looking at multimillion dollar horizontal wells in shale plays, but unless there is some new fuel on the horizon that can compete with natural gas for electricity generation, the future for natural gas is also bright-- albeit a little scary in the short term.
