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Barreling toward disaster

Financial markets breathed a sigh of relief last week as the price of oil eased from the record $50-a-barrel level. Drivers will be next to rejoice when gas prices come down, as expected, once the Labor Day weekend ends.

But don't get too comfortable.

Experts say the stark reality is that oil and oil-derived products will inevitably shoot up again in price as demand exceeds production. And this will happen sooner than most people think.

"It's very scary," said Jamal Qureshi, a market analyst at PFC Energy, a Washington consulting firm. "People should be alarmed, and they should be demanding some government policy on this."

PFC this week will unveil the results of extensive forecasts for global oil production and consumption. The findings will be presented at the nonpartisan Center for Strategic and International Studies.

Qureshi said PFC's analysts ran projections for a variety of scenarios extending to 2020. By and large, they all pointed to a similar conclusion.

"By the time you get to about 2015," Qureshi said, "you reach the point where demand is far outstripping production, by several million barrels a day."

He added: "Prices will go through the roof, and this will absolutely kill economies in the process."

This is inevitable?

"It's inevitable," Qureshi replied with the certainty of someone who has spent weeks combing through reams of data. "The only question is how much the world will come together to manage the transition."

Crude oil was trading Friday around $44 per barrel, down from its record high last month of $49.40. The price has come down as Iraq's output has stabilized and as OPEC moves to expand spare production capacity.

The Organization of Petroleum Exporting Countries, which controls about three-quarters of the world's oil reserves, is already pumping almost 30 million barrels per day -- its highest level since 1979.

Meanwhile, the International Energy Agency estimates that global demand will grow by a record 2.5 million barrels per day this year, up 3.2 percent from 2003, as economies rebound worldwide.

A third of the demand growth is attributable solely to China, where the white-hot economy is growing by more than 20 percent annually. The IEA says China is now drinking down 830,000 more barrels of oil daily than last year.

The United States, for its part, shrugged off high gas prices and saw its oil demand grow by 3.5 percent in the second quarter -- the biggest increase in about five years.

"Oil will probably not drop below $30 again, not unless some big, huge deposit is found somewhere," said David Ramberg, vice president of Economic Insight, a Portland energy consulting firm.

"Production is growing, but it's not growing nearly as much as demand," he said. "In the long run, base costs will continue to go up. There's no two ways about it."

One problem, for consumers at least, is that major oil companies and producers have dawdled in investing in new facilities to increase output. OPEC's capacity, for example, is now about 4 million barrels per day less than it was in 1979.

At the same time, the six biggest U.S. and European oil companies are expected to pocket a record $138 billion in cash flow this year, compared with $108 billion in 2003, according to the Connecticut energy consulting firm John S. Herold Inc.

Yet capital spending on exploration and production by these companies will increase relatively slightly to $68 billion from $63 billion last year, the firm predicts.

"We're in a state of paralysis," commented Mark Kubow, senior managing director of Navigant Consulting's energy practice in Chicago.

"If I look at only the next five years, I'm not that worried," he said. "If I look 10 or 20 years out, I can see we're not doing what we need to do politically and commercially to prepare for what's coming."

Qureshi at PFC Energy said new oil reserves will become available within the next six years from deepwater wells off West Africa and Brazil.

"After that, we see a real problem on the horizon," he said. "Nobody's making big, huge finds anymore. They're just not there."

By 2010, Qureshi warned, governments and companies throughout the world will have to be focused on developing alternative energy sources like hydrogen and solar power.

Or else.

"We're going to run out of oil," Qureshi said, "and it's not as far off as people might believe. This doesn't have to be a disaster. I can very easily see a scenario where we manage a transition to a new energy paradigm.

"But we better start thinking about it now."

David Lazarus' column appears Wednesdays, Fridays and Sundays. He also can be seen regularly on KTVU's "Mornings on 2." Send tips or feedback to dlazarus@sfchronicle.com.

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