This is an excerpt from EERE Network News, a weekly electronic newsletter.

May 07, 2008

Record Oil Prices Spur More Increases in Projected Energy Costs

With crude oil prices reaching $120 per barrel in April, oil prices for 2008 are now expected to average $110 per barrel. DOE's Energy Information Administration (EIA) also projects that oil prices will remain high in 2009, averaging $103 per barrel, up from $92.50 per barrel in last month's forecast. The EIA's "Short-Term Energy Outlook," released on May 6, expects gasoline prices to continue rising in response to the high oil prices, with regular-grade gasoline reaching a peak of $3.73 per gallon in June. The EIA previously expected gasoline prices to peak in spring. Prices for regular gasoline are projected to average $3.66 per gallon for the summer driving season (April through September) and $3.52 per gallon for the year as a whole. Diesel fuel prices are expected to average $3.94 per gallon for 2008, declining to $3.67 per gallon in 2009.

The EIA blames the latest price increases on supply disruptions in Nigeria and the North Sea and warns that the global oil system is operating near its capacity, remaining vulnerable to both actual and perceived supply disruptions. The agency expects crude oil production capacity to increase by early next year, providing some spare capacity to ease the upward pressure on oil prices. Meanwhile, the American Automobile Association's "Daily Fuel Gauge Report" notes that motor fuels again set record prices on May 1, at $3.623 per gallon for regular gasoline and $4.251 per gallon for diesel fuel. See the EIA's "Short-Term Energy Outlook," and for the latest prices on oil and motor fuels, see the New York Mercantile Exchange Web site and the American Automobile Association's "Daily Fuel Gauge Report" Web site.

Given the latest trends, what will the future hold? Shell's latest visit to its crystal ball concludes that the world is facing an unprecedented energy challenge, which the company sums up succinctly as "more energy, less carbon dioxide." The company has developed two scenarios to describe how the future may unfold, the first being "Scramble," in which global policymakers pay little attention to efficient energy use until supplies are tight. The policymakers also avoid addressing greenhouse gas emissions until there are "major climate shocks." The near-term result is a global scramble for energy resources, followed by draconian measures to cut energy use, resulting in severe economic impacts. The second scenario, which Shell describes as "the best hope for a sustainable future," is labeled "Blueprints" and starts with local and regional actions to address energy challenges. These actions eventually link together to form national and international energy policies. Shell declines to say which scenario is more likely, but aspects of both scenarios can be found in recent world energy news. See the Shell scenarios.