As oil production slows, gas production and other fuel substitutes likely will grow in importance to meet an expected increase in overall energy use, according to "Commodities: Scarcity of Abundance," by the Swiss-based investment firm's Wealth Management Research arm. Exactly when oil will peak is "very difficult to estimate," but "the fact that consumption is outstripping new discoveries by more than 400% suggests that further increases in global reserves may be nearing an end."
Natural gas, meanwhile, "which is still in the early stages of becoming a globally traded commodity, will eclipse oil production by 2030, if not earlier," the report forecast. "The still relatively unexplored reserve base is also supportive of future supply increases."
In the near term, high infrastructure and investment costs involved with transitioning to substitute fuel sources such as natural gas will allow oil consumption to remain strong. Production capacity, however, will likely trail demand because of "geopolitical instability in key oil producing regions, which points to continued oil supply and demand imbalances for at least the next five years, in our view."
The potential for faster growth in gas supplies "will likely bring about a steady transition to natural gas as a major source of energy. Supporting this is an increasing desire for energy supply diversity, less dependence on crude oil imports, and lower carbon-emitting energy sources...Furthermore, substitutes for crude oil will likely emerge with time but require substantial technological innovation, infrastructure development and the willingness of governments to remove distortionary energy subsidies."
Gas discoveries "have lagged demand in recent years, as the infrastructure and markets are costly to develop. The markets for natural gas are still inter-regional (i.e., North America, Europe and Asia), with limited ocean trade between continents due to the transportation difficulties and high costs."
However, "despite the large infrastructure hurdles, past supply trends are consistent with our optimism that natural gas will become an increasingly important source of primary energy supply, while oil's share will continue to decline. Natural gas contributed 19% to total electricity generation in 2003, up from 12% in 1973. Meanwhile, the use of oil in electricity generation fell to 7% from 25% during the same time period.
"It is quite possible that the future will bring improved technology for carbon sequestration in coal production and greater acceptance of nuclear power sources. However, barring such developments, we see neither of these fuel sources detracting from future growth in global natural gas supplies."
With the expanded gas and liquefied natural gas (LNG) market, there also will be "new global dependencies," the report noted. "North America is largely self-sufficient in natural gas at present but will likely see imports increasing substantially from 2020 onwards."
Imports will be ensured with the expansion of LNG tankers/shipping, investment in gasification and liquefaction terminals in key demand regions, expansion of fuel cell technology, a shift toward a hydrogen-based economy, and continued high oil prices, the report said.
"Given that natural gas has only recently become a globally traded commodity and that transportation infrastructure is still underdeveloped, we are unable to make demand projections for natural gas in the way that we have done for oil and energy. However, our oil and natural gas supply projections are consistent with our conclusion" that "oil consumption will decline as a percentage of overall energy consumption."
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