The following is a review by RFF Senior Research Associate Joy Dunkerley of the OECD World Energy Outlook, recently published by the Organisation for Economic Co-operation and Development.
Under existing energy policies, oil imports of OECD countries—which together account for 88 percent of total demands for oil from the Organization of Petroleum Exporting Countries (OPEC)—are estimated to rise by 38 percent between 1974 and 1985. An increase of this magnitude will require a substantial (28 percent) rise in OPEC production if all demands are to be met.
Although technically OPEC producing capacity should be adequate to meet these higher demands, many OPEC countries may be under pressure to limit production beneath the quantities demanded because of concern about depletion or about the disruptive effects of increasing revenues.
The consequences of such a scenario would be, in the words of the OECD, "continuing long-term upward pressure on oil prices; possibilities of energy supply disruptions and inadequate amounts of energy to sustain desired levels of economic growth; greater economic divergences between countries and serious economic and political strains in some countries."
How does the OECD arrive at these conclusions, which are in sharp contrast to the conclusions of their previous study, Energy Prospects to 1985, published only two years ago? In that report, OECD imports were projected to be somewhat lower in 1985 than they were in 1974, and not 38 percent higher.
In their current estimate, the OECD projects energy consumption to rise more slowly in the future (3.6 percent per annum) than in the past (5.1 percent.) This slowing is due to the assumed lower rate of economic growth and to substantial energy savings induced by price increases and government conservation measures already in force. Thus, future energy consumption is projected to rise by 20 percent less than the rise in gross domestic output rather than an equivalent rise which has occurred in the past.
The energy supplies produced by member countries of the OECD (the United States among them) are projected to rise more sharply (3.5 percent per year) in the future than in the past (2.8 percent). As the estimated rise in energy consumption is greater than the rise in energy production, the import gap will increase substantially, though at a much lower rate (3.5 percent per annum) than in the past (9.9 percent). If these projections prove accurate, the OECD region as a whole will be as dependent on energy imports in 1985 as it was in 1974.
Oil is by far the major energy import, but its rise is expected to be rather less than other energy imports. Thus two and one-half years after the establishment of the International Energy Agency (including all OECD countries with the exception of Australia, Finland, France, Iceland, and Portugal), one of whose principal aims is to develop and implement plans to reduce dependence on imported oil, the prospects are for a continuing high level of import dependence. Moreover, as the OECD points out, the 1985 estimate does not take into account the effects of any slippage in existing policies—such as deferring deregulation of oil prices in Canada and the United States. If deregulation were to be postponed, import dependency might well increase further.
The study also provides an "accelerated policy scenario" which might come about if more vigorous energy policies than those presently in place were employed. On the conservation side, these would include pricing energy at world levels, mandatory measures such as speed limits, and, for longer term effect, auto efficiency standards, insulation standards, and incentives for investment in energy-saving equipment. It is estimated that the introduction of these measures would reduce consumption some 4 percent below the 1985 projection.
On the supply side, vigorous policies would include elimination of price controls on crude oil and natural gas, accelerated granting of oil leases and production licenses, moderation of environmental constraints on new energy development, incentives for secondary and tertiary oil recovery techniques, and government support for development of solar energy, coal conversion, shale oil and tar sands. Such measures might increase OECD production by almost 9 percent. This increase, combined with the accelerated decline in consumption, would keep 1985 imports at the 1974 level and reduce import dependence to 29 percent. For such an outcome, however, the vigorous supply-and-demand policies would have to be instituted without delay, as lead times in the energy field are particularly long.
As the major energy producer and consumer within OECD, the United States dominates the picture. On the basis of policies already in place (that is, no backsliding on oil deregulation), the United States is expected to increase oil import dependence in 1985 compared with 1974. If vigorous policies are instituted, U.S. oil import dependency could fall to 9 percent from an estimated 20 percent in 1985. Such a reduction in U.S. oil imports represents 50 percent of the total OECD reduction in oil imports under the two cases. Policy directions in the United States are therefore crucial to the overall OECD situation.
What are the possibilities of the accelerated policies being put into effect? The present administration promises strong action on the conservation side, and such initiatives, in theory at least, appear to meet with some measure of approval. But the "vigorous" policies referred to on the supply side are to run into stiff opposition both from environmentalists and from those who are reluctant to decontrol gas prices.
A version of this article appeared in print in the April 1977 issue of Resources magazine.
