Hofmeister: Surging demand and flat production equals high oil prices

In an interview with Consumer Energy Report, John Hofmeister, former President of Shell Oil, attributes a rise in oil prices to 'constant growing global demand' and 'flat production for the most part' over the past decade.

Charlie Riedel/AP/File
In this March 2012 file photo taken with a long exposure, a pumping unit sucks oil from the ground near Greensburg, Kan. In an interview with Consumer Energy Report, John Hofmeister stated that the reason for higher prices is simply that, “We have not been able to keep up with demand growth and the decline rate simultaneously.”

Can Oil Supplies Grow Fast Enough to Keep Prices in Check?

I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil and currently the head of Citizens for Affordable Energy, a non-profit group whose aim is to promote sound U.S. energy security solutions for the nation. In the first part of this interview Mr. Hofmeister spoke of A Difficult Decade Ahead For Oil Prices and Supplies. In the second, he set forth an Energy Plan for America. In the current installment, he discusses the events responsible for the explosion in the price of oil over the past decade.

Developing Demand and Depleting Supplies

I prefaced my question with my own view that the explosive growth in oil prices mostly boiled down to new demand outstripping new supplies, which resulted in loss of spare capacity. Some have suggested that the real culprit is a massive influx of financial players into the oil markets, so I was curious to get Mr. Hofmeister’s views on the factors behind the escalation in oil prices over the past decade. 

In response, he cited that the main factors were ”constant growing global demand” and “flat production for the most part” over the past decade. (Read more: Petroleum Demand in Developing Countries)

He noted that several developing areas experienced strong production growth, while OPEC struggled to increase capacity:

“In 2005 China needed about 5 million barrels per day (bpd) of oil; in 2011 China needed 10 million bpd of oil; by 2015 China will probably need 15 million bpd of oil. And that kind of tripling of demand in China, augmented by significant additional increases in daily demand from the rest of the developing world, including India and the fact that OPEC has been largely flat in its production and its inability to create spare capacity for most of the last decade.”

For the rest of the world, he noted that oil production in most non-OPEC countries is in decline, with Russia and Brazil as two non-OPEC countries with the potential for increased production. (Read more: How Much Oil Does the World Produce?)

He stated that the fundamental problem is that the annual decline rate of existing fields is 4 to 5 million bpd, so each year we need 4 to 5 million new barrels per day of production just to stay even. Demand growth requires additional supplies on top of that, and if the supplies don’t come online to meet demand growth, higher prices are the inevitable result.

In a nutshell, Mr. Hofmeister stated that the reason for higher prices is simply that “We have not been able to keep up with demand growth and the decline rate simultaneously.”


Mr. Hofmeister has been helping to shape content for the launch of Total Energy USA as a member of the Executive Committee. Total Energy USA is the groundbreaking conference and exposition that addresses the greatest uncertainty in the energy industry today — the cross-fertilization of energy sectors and technologies. More information about Total Energy USA, November 27-29 in Houston, Texas at www.TotalEnergyUSA.com

Link to Original Article: Hofmeister: Demand and Decline Equals High Oil Prices

You've read  of  free articles. Subscribe to continue.
Real news can be honest, hopeful, credible, constructive.
What is the Monitor difference? Tackling the tough headlines – with humanity. Listening to sources – with respect. Seeing the story that others are missing by reporting what so often gets overlooked: the values that connect us. That’s Monitor reporting – news that changes how you see the world.

Dear Reader,

About a year ago, I happened upon this statement about the Monitor in the Harvard Business Review – under the charming heading of “do things that don’t interest you”:

“Many things that end up” being meaningful, writes social scientist Joseph Grenny, “have come from conference workshops, articles, or online videos that began as a chore and ended with an insight. My work in Kenya, for example, was heavily influenced by a Christian Science Monitor article I had forced myself to read 10 years earlier. Sometimes, we call things ‘boring’ simply because they lie outside the box we are currently in.”

If you were to come up with a punchline to a joke about the Monitor, that would probably be it. We’re seen as being global, fair, insightful, and perhaps a bit too earnest. We’re the bran muffin of journalism.

But you know what? We change lives. And I’m going to argue that we change lives precisely because we force open that too-small box that most human beings think they live in.

The Monitor is a peculiar little publication that’s hard for the world to figure out. We’re run by a church, but we’re not only for church members and we’re not about converting people. We’re known as being fair even as the world becomes as polarized as at any time since the newspaper’s founding in 1908.

We have a mission beyond circulation, we want to bridge divides. We’re about kicking down the door of thought everywhere and saying, “You are bigger and more capable than you realize. And we can prove it.”

If you’re looking for bran muffin journalism, you can subscribe to the Monitor for $15. You’ll get the Monitor Weekly magazine, the Monitor Daily email, and unlimited access to CSMonitor.com.

QR Code to Hofmeister: Surging demand and flat production equals high oil prices
Read this article in
QR Code to Subscription page
Start your subscription today