The title is a one-line summary of what I will be describing in this post. Essentially with the global economic downturn slated to moderate due to the injection of fiscal stimulus, the countries that will continue to face true organic growth will have a need to consume more energy.
There is no economy on this planet growing faster than China, and not surprisingly, one can see from this article that their actual crude consumption has increased, and will continue to increase in the future. Note that Japanese consumption continues to decline, which is lock-step with their economy.
The only two questions that need to be answered is whether North American consumption will decrease and where will the supply come from?
I will borrow a slide from R-Squared (who incidentally knows much more than what he discusses on his blog, and knows much more than your typical politician on the issue of alternative fuel sources) and just say that the supply side looks to be capped in the future:
Since world oil production has probably peaked, or is close to peaking, any supply-side shocks will have a disproportionate amount of impact in price. It is likely that an absolute floor for crude is $35 as seen in late 2008, in the middle of the economic crisis. It is also more likely in ‘regular’ times that the floor for crude prices is higher, likely around $60 per barrel.
Marginal costs for alternative energy sources are still much higher than the price for crude extraction and processing; most of the inputs for alternative energy sources (e.g. corn ethanol) rely heavily on other energy inputs (crude and natural gas).
The only thing that will make alternative energy more viable is higher crude prices. And higher is where crude will go in the medium term. As crude’s price continues to go higher, more and more supply sources start to become economically viable. There won’t be a shoot-up to $1000 a barrel (barring some sort of global conflict) but a climb in prices is inevitable given the demand-supply dynamics.
The only salvation against higher crude prices are energy breakthroughs in other fields, such as the development of sustainable fusion, or less capital expense intense solar energy, or the development of high capacity low-loss energy storage.