OIL PRODUCTION I HAVE OUTLINED THE IMPACT OF THE PRICE HIKES OF THE 1970'S ON WORLD OIL CONSUMPTION. EQUALLY IMPORTANT HAS BEEN THE PRICE INCENTIVES PROVIDED FOR NON-OPEC COUNTRIES TO DEVELOP THEIR INDIGENOUS OIL RESOURCES. NON-OPEC OIL PRODUCTION HAS CONTINUED TO INCREASE STEADILY OVER THE PAST DECADE. MOST OF THE INCREASE HAS OCCURRED IN THE SOVIET UNION, THE NORTH SEA AND MEXICO. IN ADDITION, MANY OTHER DEVELOPING NATIONS HAVE MADE SIGNIFICANT STRIDES IN INCREASING THEIR OIL PRODUCTION TO DISPLACE IMPORTS OR PROVIDE A SOURCE OF FOREIGN EXCHANGE EARNINGS. THE MOST NOTABLE INCLUDE BRAZIL, EGYPT, INDIA, MALAYSIA, AND OMAN. MOREOVER, THE PRODUCTION OF CRUDE OIL AND NATURAL GAS LIQUIDS IN THE U.S. HAS INCREASED IN EVERY YEAR SINCE 1979. THE COMBINED EFFECTS OF DECLINING OIL CONSUMPTION AND NONOPEC PRODUCTION GAINS HAVE BEEN DRAMATIC: OPEC CRUDE OIL PRODUCTION FELL TO 17.6 MILLION B/D IN WHILE OPEC CRUDE OIL PRODUCTION DECLINED BY 43 PERCENT FROM 1973 TO 1984, CRUDE OIL PRODUCTION IN THE REST OF THE WORLD INCREASED BY 47 PERCENT OVER THE SAME PERIOD. OPEC'S SHARE OF WORLD CRUDE OIL PRODUCTION FELL TO 33 PERCENT IN 1984 COMPARED TO 56 PERCENT IN 1973. CRUDE OIL OUTPUT IN SAUDI ARABIA, OPEC's "SWING" PRODUCER, AVERAGED ONLY 4.7 MILLION B/D IN 1984, LESS THAN HALF THE 9.8 MILLION B/D IN 1981. WE ESTIMATE THAT OIL PRODUCERS, DUE TO THE SOFTNESS IN THE PLACED AGAINST THE BACKDROP OF THIS IMPROVING ENERGY SITUATION, IT IS CLEAR THAT THE 489 MILLION BARRELS TO BE STORED IN THE STRATEGIC PETROLEUM RESERVE BY THE END OF THIS FISCAL YEAR REPRESENTS A VERY SIGNIFICANT STRATEGIC ASSET TO THE U.S., ONE THAT, IN FACT, IS COMPARABLE TO THE LEVEL OF PROTECTION ENVISIONED WHEN THE PREVIOUS ADMINISTRATION ANNOUNCED PLANS FOR A 750 MILLION-BARREL RESERVE IN 1978. IN 1978 THE PROJECTION OF DAILY NET OIL IMPORTS FOR 1985 RANGED FROM 7 TO 11.5 MILLION BARRELS. BASED ON THESE PROJECTIONS, A 750-MILLION BARREL RESERVE WOULD HOLD THE EQUIVALENT OF 65 TO 107 DAYS OF NET IMPORTS. IN OTHER WORDS, 65 TO 107 DAYS WAS THE PROJECTED LEVEL FOR OIL PROTECTION WHEN THE 750-MILLION BARREL RESERVE LEVEL WAS ANNOUNCED. TODAY, BASED UPON THE MOST RECENT ESTIMATES OF OUR PROSPECTIVE 1985 IMPORT LEVELS, A 489-MILLION BARREL RESERVE REPRESENTS APPROXIMATELY 108 DAYS OF NET IMPORTS--MORE PROTECTION THAN WE HAD ANTICIPATED FROM THE COMPLETED 750 MILLION BARREL RESERVE WHEN FIRST PLANNED. THE RESERVE COULD SUPPLY MORE THAN 6 MONTHS OF PROTECTION SHOULD HALF OF ALL U.S. IMPORTS BE INTERRUPTED AND THE EQUIVALENT OF ABOUT 18 MONTHS OF IMPORTS FROM ARAB OPEC SOURCES. IN SHORT, THE NEED TO ADHERE TO THE SCHEDULE SET IN THE LATE 1970'S FOR COMPLETING DEVELOPMENT AND FILL OF THE RESERVE IS NO LONGER AS COMPELLING AS IT ONCE SEEMED. THE U.S. CAN MAINTAIN THE LEVEL OF PROTECTION CONTEMPLATED IN 1978 WHILE HELPING TO REDUCE THE BURDEN OF LARGE FEDERAL BUDGET DEFICITS ON THE NATION'S TAXPAYERS. MOREOVER, AS I PREVIOUSLY INDICATED, OUR ALLIES ARE ALSO BETTER PREPARED, INDIVIDUALLY AND COLLECTIVELY, TO RESPOND TO AN EMERGENCY. OUTLOOK FOR 1985 THE WE DO NOT EXPECT FUNDAMENTAL CHANGES IN THE OIL MARKET IN 1985. WE BELIEVE THAT OIL PRICES WILL CONTINUE TO BE WEAK REFLECTING LITTLE, IF ANY, GROWTH IN WORLD OIL CONSUMPTION. ONGOING DEVELOPMENT OF NEW OIL FIELDS OUTSIDE OPEC WILL CONTINUE, MORE THAN COMPENSATING FOR THE DECLINE IN MORE MATURE PRODUCING FIELDS. THE NET EFFECT IS LIKELY TO BE A GRADUAL INCREASE IN NON-OPEC PRODUCTION. AS A RESULT, WE EXPECT LITTLE CHANGE IN THE WORLD'S DEMAND FOR OPEC OIL COMPARED TO 1984 AND POSSIBLY A FURTHER SHRINKING OF OPEC'S MARKET SHARE. UNCERTAINTIES REMAIN, OF COURSE: WORLD OIL CONSUMPTION IN 1985 WILL REMAIN DEPENDENT ON AN UNFORESEEN SUPPLY DISRUPTION COULD HAVE AN IMPACT FOR THE U.S., WE EXPECT THAT DOMESTIC OIL PRODUCTION WILL MATCH OR EXCEED THE 1984 LEVEL. ACCORDING TO THE ENERGY INFORMATION ADMINISTRATION's (EIA) BASE CASE ESTIMATE, NO INCREASE IN OIL CONSUMPTION IS LIKELY IN 1985. HOWEVER, WITH VARYING ESTIMATES OF ECONOMIC GROWTH, OIL PRICE LEVELS, EFFICIENCY GAINS AND WEATHER, EITHER A SLIGHT INCREASE OR DECREASE IN U.S. OIL DEMAND COULD OCCUR. LONGER TERM TREND As I INDICATED EARLIER, ANY FORECAST OF OIL MARKET DEVELOPMENTS IS FRAUGHT WITH UNCERTAINTY. WHAT I WILL ATTEMPT TO PRESENT TODAY IS A REPRESENTATIVE VIEW BASED ON A NUMBER OF GOVERNMENT AND PRIVATE SOURCES. THE LONGER TERM OUTLOOK WILL DEPEND IN PART ON THE BASIC ECONOMIC AND TECHNOLOGICAL FORCES IN THE MARKET. HOWEVER, CONGRESSIONAL DECISIONS ON FEDERAL LAND LEASING, FURTHER DECONTROL OF NATURAL GAS MARKETS, NUCLEAR LICENSING REFORM, ACID RAIN, COAL MINING REGULATIONS, INCOME TAXES, AND SEVERAL OTHER ISSUES WILL HAVE A MAJOR IMPACT ON DOMESTIC PRODUCTION OF ENERGY AND OUR DEPENDENCE ON IMPORTS. WITH THIS IN MIND, IT MAY NEVERTHELESS BE OF SOME VALUE TO SUMMARIZE SOME MAJOR FORECASTS. THE CONSENSUS APPEARS TO BE THAT PRICES WILL CONTINUE THEIR DECLINE OR REMAIN STABLE FOR AT LEAST THE NEXT 2 YEARS, AND POSSIBLY THROUGH TO THE END OF THE DECADE. LOWER PRICES MAY LEAD TO SOME GROWTH IN OIL CONSUMPTION AND THE GRADUAL USING UP OF SURPLUS PRODUCTION CAPACITY. ACCORDING TO A NUMBER OF FORECASTS, U.S. OIL CONSUMPTION IS EXPECTED TO CONTINUE TO RISE GRADUALLY THROUGH 1990, THEN REMAIN FAIRLY CONSTANT THROUGH THE TURN OF THE CENTURY IN THE NEIGHBORHOOD OF 16-17 MMBD. EXPECTED SLIGHT DECLINES IN DOMESTIC PRODUCTION THROUGH THE 1990'S WOULD MEAN THAT IMPORTS WOULD HAVE TO MAKE UP THE DIFFERENCE, IN THE ABSENCE OF INCREASED FUEL SWITCHING. IMPORTS MAY RISE FROM CURRENT LEVELS BELOW 5 MMBD, TO BETWEEN 6 AND 7 MMBD DURING THE PERIOD 1990 TO 2000. TOTAL U.S. DEMAND FOR ENERGY MAY GROW AT APPROXIMATELY 1.5-2 PERCENT A YEAR. WITH OIL CONSUMPTION RELATIVELY CONSTANT, WE EXPECT OTHER ENERGY SOURCES SUCH AS COAL, NUCLEAR, AND RENEWABLE RESOURCES TO PLAY AN INCREASINGLY IMPORTANT ROLE IN OUR ENERGY PICTURE. THE LONGER TERM HORIZON PRESENTS A GREAT POTENTIAL FOR VARIATION IN ECONOMIC GROWTH, ENERGY PRICES, TECHNOLOGICAL INNOVATION, DEMAND PATTERNS AND RECOVERY RATES OF UNDISCOVERED |