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Abstract

Throughout the history of the oil and gas industry, forecasts have been made of energy supply, future rates of production, energy demand and of oil prices. These forecasts are used for a wide variety of purposes including the oil industry itself, financial institutions, public policy planners, nations, and groups of nations (OPEC).

Most forecasts are incorrect after only a few years, but they are often updated without a fundamental understanding of why the earlier predictions were in error. This leads to painful disruptions and redirections not only within the oil industry but also in public policy debates and decisions on a national and global scale.

This paper reviews some of the more significant forecasts of energy supply, demand, and oil prices made in the last 25 years, and identifies the basic premises used and why they led to incorrect forecasts. Usually the premises have been too narrowly based. A broader basis is proposed, which includes continuing changes in technology, national goals, public attitudes and environmental concerns. Extrapolation of past trends is a poor basis for forecasts. Hence, a broader understanding of the changing world is essential and must be incorporated meaningfully into forecasts.

Introduction

Predictions of future energy supply and demand, either for the U.S. or worldwide, is a very difficult task; a difficulty perhaps most clearly illustrated by Figures 1 and 2, attached. Both are from the U.S. Department of Energy's National Energy Strategy published in February, 1991.

Figure 1 shows various world energy consumption forecasts made by 12 different forecasters. By the year 2030, consumption in the lower forecast is only half of that in the higher forecast. Similarly, for Figure 2, U.S. only, the range of projections vary from 18 million to 78 BOE/D. If two very low forecast numbers are considered outliers, then the range is from 38 to 78 million BOE/D. The two outliers are both from J. Goldenburg, et al., published in 1988 in Energy for a Sustainable World. This illustrates yet other problems in forecasting energy. Often forecasts are made for special purposes, and include quite different assumptions as to future economic growth rates and behavior of producers and consumers. Some such as the Goldenburg, et al. seem to be also based on wishful thinking. Nonetheless, Figures 1 and 2 illustrate the wide variances in projections and emphasizes the difficulty of forecasting energy supply and demand.

Background

Estimating future energy supply and demand also requires estimates of ultimate resource available for each type of depletable energy source; and at what price.

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