[America2Point0] Major reports point to oil supply turmoil and price volatility
Jay Hanson
<http://energybulletin.net/> ) _____
Major reports point to oil supply turmoil and price volatility
Published by Peak Generation on Mon, 08/23/2010 - 08:00 Original
article:
http://peakgeneration.blogspot.com/2010/08/major-reports-point-to-oil-supply
.html
by Matthew Wild Major energy reports published this year are pointing
to a significant rise in the price of oil due to supply constraints
sometime over the next three years - the only disagreement is how
soon.
So far 2010 has seen three international reports considering the
future of oil production, demand and prices. These were published
by high profile groups that command widespread respect - in turn,
a collection of UK industrialists, the US military and a joint
effort between Europe's most recognized insurance company and a
politically connected think-tank.
Largely ignored by the media, and considered separately online as
they came out, it is interesting to do a compare-and-contrast between
documents produced for widely different audiences on each side of
the Atlantic.
<http://1.bp.blogspot.com/_uSIgE-C_n38/THK5jddLseI/AAAAAAAAARc/909QwHJq_XM/s
1600/Peak-generation-peak-oil-taskforce.bmp>
http://energybulletin.net/sites/default/files/images/Peak-generation-peak-oi
l-taskforce.jpgIn early February a group calling itself the UK
Industry Taskforce on Peak Oil & Energy Security presented
<http://peakoiltaskforce.net/wp-content/uploads/2010/02/final-report-uk-itpo
es_report_the-oil-crunch_feb20101.pdf> The Oil Crunch: a Wake-up
Call for the UK Economy, an "independent, business-minded" view of
a coming decline in oil production. Representing six UK companies
- Arup, Foster + Partners, Scottish and Southern Energy, Solarcentury,
Stagecoach Group and Virgin - the group called for immediate
government action to help overcome potential economic turmoil
relating to oil demand versus production (see graphic, left, from
the report).
The report begins with a clear definition of peak oil
<http://peakgeneration.blogspot.com/p/what-is-peak-oil.html> ,
before suggesting that "global supply rates are currently at, or
near, their peak and cannot rise significantly above 92 million
barrels per day." Or, in more detail:
There are now serious concerns that the free flow of relatively low
cost oil, which has underpinned OECD countries economic growth since
1945, may not be sustainable for very much longer. . . low-cost
(under $25/b) oil supplies effectively ended in early 2005 and are
unlikely to return. The actual global supply of oil is now expected
to be limited to 91-92Mb/d (million barrels per day) of capacity
that will be in place by end 2010/early 2011. Global capacity will
then remain in the 91-92Mb/d range until 2015 from which time
depletion will more than offset capacity growth from then onwards.
. .
The next major supply constraint, along with spiking oil prices,
will not occur until recession-hit demand grows to the point that
it removes the current excess oil stocks and the large spare capacity
held by OPEC.
However, once these are removed, possibly as early as 2012/2013 and
no later than 2014/2015, oil prices are likely to spike, imperilling
economic growth and causing economic dislocation.
It makes some interesting observations about demand destruction
arguments that suggest prices above $120 per barrel kills the market
and brings oil down again. Nowadays world economic development is
"systematically different from the past," it suggests, with the
growth coming from developing countries whose "economic systems are
currently evolving in a climate of higher oil prices and therefore
might be relatively immune to it."
<http://4.bp.blogspot.com/_uSIgE-C_n38/THK50CoL29I/AAAAAAAAARk/mMrocwdah_Q/s
1600/Peak-generation-JOE.bmp>
http://4.bp.blogspot.com/_uSIgE-C_n38/THK50CoL29I/AAAAAAAAARk/mMrocwdah_Q/s2
00/Peak-generation-JOE.bmpLater in February the United States Joint
Forces Command published
<http://www.jfcom.mil/newslink/storyarchive/2010/JOE_2010_o.pdf>
The Joint Operating Environment 2010 as an "intellectual foundation
upon which we will construct the concepts to guide our future force
development." Essentially, it sets out to consider likely "future
trends and disruptions" that will affect the US military over the
next 25 years. This list includes a series of global issues familiar
to readers of any liberal-minded publication:
demographics, globalization, US debt, the global recession, water
shortages, food supply, climate change and dwindling oil supplies
(graphic, left).
It points to a chronically unstable world. Massive population growth
across the Middle East and Sub-Saharan Africa may lead to significant
potential for "revolution or war, including civil war," alongside
rising tensions over dwindling resources as basic as water and food
both between nations and different groups within individual countries.
The authors may have an interest in saying this, but it will involve
a great deal of work for the US military - the report considers its
role in combat, policing and aid delivery. But the Joint Operating
Environment is also clear that the burgeoning US debt suggests
military spending cuts may be coming: "Interest payments, when
combined with the growth of Social Security and healthcare, will
crowd out spending for everything else the government does, including
national defense." The point is that the military will most likely
have to do more with less.
Although stating that global energy production would have to rise
by 1.3 per cent each year to maintain the economic growth required
to hold things together, the Joint Operating Environment contains
the term peak oil precisely once. (It appears as a heading, over
an item that discusses likely coming energy shortages, but not from
a peak oil perspective.) The report clearly states the main concern
is underinvestment in the oil industry at a time of increasing
global demand. Its view is:
Assuming the most optimistic scenario for improved petroleum
production through enhanced recovery means, the development of
non-conventional oils (such as oil shales or tar sands) and new
discoveries, petroleum production will be hard pressed to meet the
expected future demand of 118 million barrels per day.
A severe energy crunch is inevitable without a massive expansion
of production and refining capacity.
While it is difficult to predict precisely what economic, political,
and strategic effects such a shortfall might produce, it surely
would reduce the prospects for growth in both the developing and
developed worlds. Such an economic slowdown would exacerbate other
unresolved tensions, push fragile and failing states further down
the path toward collapse, and perhaps have serious economic impact
on both China and India. At best, it would lead to periods of harsh
economic adjustment. . .
By 2012, surplus oil production capacity could entirely disappear,
and as early as 2015, the shortfall in output could reach nearly
10 MBD.
<http://4.bp.blogspot.com/_uSIgE-C_n38/THK6KgixlbI/AAAAAAAAARs/IlEzPj1OVhA/s
1600/Peak-generation-Lloyds-peak-oil-report.bmp>
http://4.bp.blogspot.com/_uSIgE-C_n38/THK6KgixlbI/AAAAAAAAARs/IlEzPj1OVhA/s2
00/Peak-generation-Lloyds-peak-oil-report.bmpIn June, insurers
Lloyds (which reported 3.9 billion UK pound profits in 2009) teamed
up with Chatham House (a think tank with a history of working closely
with the UK parliament) to produce
<http://www.chathamhouse.org.uk/files/16720_0610_froggatt_lahn.pdf>
Sustainable Energy Security: Strategic Risks and Opportunities for
Business.
This examines energy issues - availability, cost and political
climate change initiatives - from a business perspective. (See chart
of various oil future price estimates, left, taken from the report.)
It sugars the pill with a consideration of opportunities to proactive
leaders who are first to "transition to a low carbon economy," but
also states that "failure to do so could be catastrophic." Underlying
this is the stark message that "the bad times have not yet hit."
The world faces "dramatic changes" as it has "entered a period of
deep uncertainty in how we will source energy for power, heat and
mobility, and how much we will pay for it."
Once again the term peak oil is largely absent, occurring three
times in a densely written 44 page document. Although it gets a
fair hearing, with a study quoted that suggests "there is a significant
risk of a peak before 2020," the report suggests the world faces
more immediate concerns relating to oilfield investment not keeping
pace with rising demand:
Even before we reach peak oil, we could witness an oil supply crunch
because of increased Asian demand. Major new investment in energy
takes 10-15 years from the initial investment to the first production,
and to date we have not seen the amount of new projects that would
supply the projected increase in demand.
While the report itself does not enter into speculation about exactly
when all this could come about, it does present the following quote
- you aren't meant to miss it as it's in a vivid purple colour a
couple of point sizes larger than surrounding text - from Professor
Paul Stevens, senior research fellow for Chatham House: "A supply
crunch appears likely around 2013.given recent price experience, a
spike in excess of $200 per barrel is not infeasible."
Sustainable Energy Security provides an overview of the world's
declining hydrocarbon and nuclear "extractive energy sources." It
presents an overview of the whole energy debate: growing domestic
oil use producing nations, increasing demand from the developing
world, geopolitical considerations, questions over the availability
of coal and gas for transition fuels, and the inherent problems
associated with output from deepwater, oil sands and shale gas
sources. (More here
<http://peakgeneration.blogspot.com/2010/06/business-leaders-predict-global-
oil.html> .) Findings include:
Modern society has been built on the back of access to relatively
cheap, combustible, carbon-based energy sources. Three factors
render that model outdated: surging energy consumption in emerging
economies, multiple constraints on conventional fuel production and
international recognition that continuing to release carbon dioxide
into the atmosphere will cause climate chaos.
Energy markets will continue to be volatile as traditional mechanisms
for balancing supply and price lose their power. International oil
prices are likely to rise in the short to mid-term due to the costs
of producing additional barrels from difficult environments, such
as deep offshore fields and tar sands. An oil supply crunch in the
medium term is likely to be due to a combination of insufficient
investment in upstream oil and efficiency over the last two decades
and rebounding demand following the global recession. This would
create a price spike prompting drastic national measures to cut oil
dependency.
So, three quite different reports, independently written for different
audiences on either side of the Atlantic - and all with very similar
views of energy supply over the next few years.
The Oil Crunch is a more typical peak oil report, calling for
political action to mitigate a coming plateau in global oil production;
The Joint Operating Environment, written by the military for its
own leaders, states a "severe energy crunch is inevitable" because
of oil industry underinvestment even though the world has large
reserves; Sustainable Energy Security also states projected demand
for oil is greater than our ability to bring it to market.
Only the first of these is a peak oil report - the others do not
outright dispute the peak concept, but suggest a variety of issues
are more urgent, from supply disruption due to warfare to a technical
inability to get sufficient oil to consumers. Terms such as "energy
crunch" or "supply crunch" may at first appear to be a conscious
decision to gain political acceptance through the use of more neutral
language, but this less specific terminology allows a more wide-ranging
view of energy supply.
Anyway, the terminology is of less interest than the suggested
timelines for resource disruption:
The Oil Crunch: The world will experience peak oil at 91-92 million
barrels per day "by end 2010/early 2011. Global capacity will then
remain in the 91-92Mb/d range until 2015 from which time depletion
will more than offset capacity growth. . ."
The Joint Operating Environment: "By 2012, surplus oil production
capacity could entirely disappear, and as early as 2015, the shortfall
in output could reach nearly 10 MBD."
Sustainable Energy Security: "A supply crunch appears likely around
2013.given recent price experience, a spike in excess of $200 per
barrel is not infeasible."
Taken together, then, these reports suggest the world will be
entering into a period of turmoil due to oil supply issues as early
as the beginning of 2011 or as late as 2013. This will be marked
by a time of rising oil prices, simply due to demand. By 2015 oil
output will be in decline and the world will collectively have to
make structural changes, or else face outright economic decline,
because less oil will be coming to the market at any price.
(For comparison, the IEA <http://omrpublic.iea.org/> 's latest Oil
Market Report, published August 11, predicts global demand reaching
86.6 million barrels per day in 2010, and then 87.9 million barrels
per day in 2011, assuming a continuing global economic recovery.
As
<http://peakgeneration.blogspot.com/2010/08/iea-cheap-oil-is-over-as-demand.
html> I've written previously, this will overtake the all-time
high of 86.9 million barrels
<http://omrpublic.iea.org/omrarchive/12aug08full.pdf> per day
established in 2008 before the global economic downturn. I've also
looked at the views of economists
<http://peakgeneration.blogspot.com/2010/08/different-takes-on-peak-oil-same
-result.html> writing online recently, suggesting "we are in a lot
of trouble in energy in the United States and around the world by
about 2012-2015.") Content on this site is subject to our fair use
notice <http://energybulletin.net/fair-use-notice> .
Energy Bulletin is a program of <http://postcarbon.org/> Post
Carbon Institute, a nonprofit organization dedicated to helping the
world transition away from fossil fuels and build sustainable,
resilient communities.
_____
Source URL:
http://energybulletin.net/stories/2010-08-23/major-reports-point-oil-supply-
turmoil-and-price-volatility Links:
[1]
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result.html
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