Bangkok--3 Jul--Standard & Poor's As oil prices continue to hit new highs, David Wyss, Standard & Poor's Chief Economist, has provided a global look at what's driving the demand and supply equation in an article published yesterday. This article, which is titled "As Demand Continues To Increase, How Will The World Cope With Sustained High Oil Prices?" is the lead article in a series that will be published later today as a Standard & Poor's special report on the credit impact of rising energy costs. More than 10 companies are profiled to provide insight into how damaging or beneficial higher energy prices are in different industries and the strategies employed to cope with these impacts.A copy of the full report is attached for your review. Total world energy consumption was up 2.4% in 2007, a slight slowdown from 2.7% in 2006 but still an above-average increase. Every major region saw higher consumption, with Asia up the most and Europe the least. With China accounting for more than half the total world increase, it is hard to see much slowdown, even with more recent declines in Eurozone and U.S. consumption. "The good news is that energy is a smaller part of the U.S. and world economies than it once was," noted Mr. Wyss. "Even this year, we expect the average U.S. household to spend 6.7% of its income on energy, which is about the same as in 1971, before OPEC." In 1980 and 1981, energy was 7.9% of income. This reflects a greater efficiency in energy use relative to GDP. Even with that, however, per-capita use of energy has lifted. In the U.S., higher per-capita GDP has increased energy use per person by 2.0% (1971 to 2005). For the world overall, energy use per head has risen 15.7% (1971-2004). The average American used 4.7 times as much energy as the average for the world in 2005 and nearly twice the average of Western Europe and Japan. Where the energy will go is easy to estimate. The harder question is where will it come from? The EIA expects three sources to meet this rise in demand: OPEC production is expected to rise by 12 million barrels/day, non-OPEC conventional by nine million, and nonconventional sources (tar sands, shale oil, heavy crude, and biofuels) by seven million. "Whether producers can actually achieve these increases is highly questionable," Mr. Wyss cautioned. The EIA puts out alternative forecasts based on differing price trajectories. Under a high-price case ($186/barrel by 2030), demand would be only 99 million barrels/day, still up 15 million barrels from 2005. The bottom line is that the future of oil prices remains very uncertain. No one knows how much oil is available or how expensive it will be to get it out of the ground. Deep-sea deposits are especially uncertain, with estimates based on old seismic analyses. Coal seems reasonably plentiful for the near future, but coal could run afoul of global warming concerns. It seems probable that oil prices will be significantly higher in 25 years than they are today. But will they be slightly higher or much higher, and how easy will it be to find alternatives? The sooner we start finding answers to these questions, the easier the transition to a new energy world will be. The report is available to subscribers of RatingsDirect, the real-time Web-based source for Standard & Poor's credit ratings, research, and risk analysis, at www.ratingsdirect.com. Ratings information can also be found on Standard & Poor's public Web site at www.standardandpoors.com; under Credit Ratings in the left navigation bar, select Find a Rating, then Credit Ratings Search. Media Contact: Mimi Barker, New York (1) 212-438-5054, [email protected] Analyst Contacts: David Wyss, New York (1) 212-438-4952