An Analysis of Forecasts of Energy Supply, Demand, and Oil Prices

Abstract

Abstract Throughout the history of the oil and gas industry, forecasts have been made of energy supply, future rates of production, energy demand and of oil prices. These forecasts are used for a wide variety of purposes including the oil industry itself, financial institutions, public policy planners, nations, and groups of nations (OPEC). Most forecasts are incorrect after only a few years, but they are often updated without a fundamental under-standing of why the earlier predictions were in error. This leads to painful disruptions and redirections not only within the oil industry but also in public policy debates and decisions on a national and global scale. This paper reviews some of the more significant forecasts of energy supply, demand, and oil prices made in the last 25 years, and identifies the basic premises used and why they led to incorrect forecasts. Usually the premises have been too narrowly based. A broader basis is proposed, which includes continuing changes in technology, national goals, public attitudes and environmental concerns. Extrapolation of past trends is a poor basis for forecasts. Hence, a broader understanding of the changing world is essential and must be incorporated meaningfully into forecasts.