Mission failure. The Energy Information Administration (EIA) is funded by American taxpayers to warn about energy issues. Every Wednesday the EIA publishes This Week in Petroleum (TWIP). The failure to warn is highlighted in the Jan 12, 2011, TWIP:

“EIA expects a continued tightening of world oil markets over the next two years. World oil consumption grows by an average of 1.5 million barrels per day (bbl/d) each year while the growth in supply from non-Organization of the Petroleum Exporting Countries (non-OPEC) countries averages less than 0.1 million bbl/d. Consequently, EIA expects the market will rely on both inventories and significant increases in production of crude oil and non-crude liquids by OPEC to meet world demand growth.”

The TWIP notes that demand for oil will grow by 3 million bbl/d over the next two years but there is no supply risk because EIA “expects” OPEC to fill in the need. That is like being lost in a desert and saying that you will be hungry and thirsty at 6 PM so you “expect” the pizza delivery company will find you. Oh, and you will need to borrow money from China to pay for the meal.

EIA’s own data shows how absurd their “expectation” is.

OPEC’s oil production between 2004 and 2010 averaged about 30.5 million bbl/d; supply growth in response to price increases from $40-$140 per barrel was only about 0.6 million bbl/d. Add to this International Energy Agency (IEA) reports that existing oil fields are depleting at 6.8 percent per year (or about 2 million bbl/d). Even if OPEC can overcome depletion rates and increase production to their previous high average of 30.5 million bbl/d, demand will exceed supply by 1.8 million bbl/d. The 2007 increase in production required President Bush to go and beg the Saudis to step up their output. What assurances does EIA have from OPEC? If the latter cannot provide declarations then EIA should be warning of supply shortfalls.

EIA and IEA have an incredible record of failing to warn the American people about risks of higher oil prices and supply shortfalls. Following are graphs from the Dallas Fed and ASPO on EIA and IEA repeated underestimation of price increases and overestimation of supply.

Life requires energy: less affordable energy, less life. Failure to warn of higher oil prices resulted in policies that encouraged home ownership with “drive to qualify.” As gas prices increased from $1.45 in 2002 to $2.92 in 2006, American families lost $2,000 per year of disposable income. More and more families were forced to choose between paying for their commute or their mortgage. Foreclosures collapsed the banking system, housing market, and jobs.

There are alternatives, but they will take time to build. China’s economy is growing at $90 a barrel oil because they have 100-plus million electric motor scooters so coal can be used as a transportation fuel.

Chinese cities are bikeable. Europe has trains. The Personal Rapid Transit (PRT) network in Morgantown, WV, has delivered 110 million oil-free, injury-free passenger miles since being built as a solution to the 1973 Oil Embargo. The solution is self-reliance.

US policies over the last 50 years have caused the loss of thousands of miles of railroads and a monolithic dependence on a single source of energy 65 percent outside our control that we must borrow from China to buy.

Policies have created oil’s Potato Famine potential. Instead of warning of supply shortfalls and much higher prices, EIA says there is no need to innovate our infrastructure because we “expect” OPEC will save us.

(Note: Commentaries do not necessarily represent the ASPO-USA position.)