Global energy “demand shock,” compounded by tight oil supplies, constraints on U.S. natural gas production and geopolitical turmoil, has put the United States’ energy situation at a critical juncture, according to Daniel Yergin, chairman of Cambridge Energy Research Associates (CERA).

Speaking in Colorado Springs at the 75th mid-year meeting of the Independent Petroleum Association of America, Yergin said, “The risks will be different in the near term from the long term and among various energy users and regions. But there’s no question that the risks have gone up.”

The solution, said Yergin, will “undoubtedly” involve adapting to a new worldwide supply-demand profile, globalizing the liquefied natural gas (LNG) industry, adjusting current market psychology, promoting international cooperation, maintaining a strong domestic industry and “more realistically” appraising energy reserves, environmental goals, technological potential and geopolitical limitations.

“The North American natural gas industry is facing its highest sustained prices ever, reflecting a very tight market,” Yergin said. “The reason is geological maturity at a time of significant growth in demand.” And, “contention over development and access” is adding to the pressures in the marketplace for gas.

Pointing out that gas currently meets almost a quarter of the domestic energy requirements, Yergin said CERA is forecasting that the “need for gas to fuel the new fleet of gas-fired electric power plants is the largest single driver of growth in gas demand.” Gas consumed in the power sector “is set to grow 5% a year over the next few years, overtaking industry as the biggest consumer of gas in North America.”

LNG also is expected to play a much larger role in the U.S. market in the coming years. “It’s not an either/or question,” said Yergin. “Both substantial new North American production and supplies from the world market, via LNG, will be necessary to relieve the pressures in the market.” CERA forecasts LNG to emerge as the second global energy business with construction of as much capacity in the next eight years as the global LNG industry has built in the past 40.

Success in this drive will require orchestration of a wide-ranging set of independently driven factors, including: development of very large liquefaction facilities; ordering and deployment of a sufficient number of tankers for reliable, timely transport; and construction of regasification facilities,” Yergin said of LNG.

CERA also is forecasting that the world’s consumption of oil could increase over the next two decades by more than 40% — reaching 115 million bbl/d by 2025, compared with 81 million bbl/d today, while LNG imports will be needed for more than 30% of a substantially larger U.S. natural gas demand. Yergin compared the magnitude of effort required to prepare for future growth with the role the American oil industry played in World War II, when it organized itself, against many obstacles, to supply “almost 90% of all the oil that the Allies used on the road to victory.”

Yergin also noted that population and “social change” in China, India and the Middle East are driving today’s oil prices. And turmoil in the Middle East and other producing regions has added a “security premium” to oil prices, a “premium that is very event-sensitive.” CERA is currently putting the security premium for the price of oil at $6-10/bbl.

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