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Why the Next Spike in Oil Prices Will Dwarf the Last One
Ambassador Richard Jones, the Deputy Executive Director of the International Energy Agency, has some eye popping things to say about the energy space. The Paris based IEA was first set up as a counterweight to OPEC during the oil crisis in 1974, and has since evolved into a top drawer energy research organization with one of the best 30,000 foot views of the energy universe.
World GDP will grow an average 3.1%/year through 2030, driving oil demand from the current 84 million barrels/day to 103 million b/d. That means we will have to find the equivalent of six Saudi Arabia’s to fill the gap or prices are going up a lot. His ultra conservative target has crude at $190/barrel in twenty years, and his high priced scenario would send you rushing for a change of fresh underwear.
Some 39% of that increase in demand will come from China and 15% from India. A collapse in investment caused by the financial crisis last year means that supply can’t recover in time to avoid another price spike. More than 1.5 billion people today don’t have electricity at all, but would love to have it. The best the Copenhagen climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out. It would take 100 years of natural decay to get CO2 levels back to where they were just 20 years ago.
This will require a massive decarbonization effort reliant on nuclear, hydro, alternatives, and carbon capture and storage. Up to half of the needed carbon reduction can be achieved through simple efficiency measures, like ditching the incandescent light bulb, driving more hybrids, and closing dirty, old coal fired power plants. Natural gas will be a vital bridge, as it is cheap, in abundant supply, and emits only half the carbon of traditional fossil fuels.
The total 20 year bill for the rebuilding of our new energy infrastructure will exceed $10 trillion. Each year we kick the can down the road, this price tag rises by $500 billion. Now you know why I spend so much time on energy research.
Richard, who comes from a diplomatic career in Kuwait, Kazakhstan, and Israel, certainly didn’t pull any punches during my extended interview with him. I have been a huge fan of the IEA’s data base and forecasts since their inception. Better use the current weakness in oil prices to accumulate long term positions in crude through the futures (LOH10), the ETF (USO), the offshore drilling companies like Transocean (RIG), and leveraged oil and gas plays like Chesapeake Energy (CHK) and Devon Energy (DVN). When oil comes back, it will do so with a vengeance.
For more iconoclastic and out of consensus analysis, please visit me at www.madhedgefundtrader.com .
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Cold fusion yeah that's right what STAR TREK episode was that? Ponds/Fleishman was cosmic neutrino events. That's the problem with letting chemists do high energy physics ha! The real answer might be Carlo Rubia's Thorium reactor?
Are you an expert in nuclear pyhsics as well the global energy markets, ha?
great article, peak oil isn't theory..it was and has been proven with USA and smaller individual wells like those in North Sea, Mexico, Iran. Iraq, Nigeria are the last two hopes...supposedly they haven't peaked production on the bell curve yet.
Please stop the old arguments to try and combat this article.
I read someplace the other day that there were 26 miles of oil tankers lined up at sea filled with oil waiting to dock at various ports. This doesn't sound like an imminent oil shortage to me. Also, GDP growth north of 3% next year is also a media induced pipedream.
Sounds fair enough- I take it you must be long oil.
What are the consequences of incompetence and the rush to make a buck? (or some thoughts on our future)
I am coming to the conclusion that we are seeing a trend to VAT the entire world and it is not controlled by government (carbon tax). Big business, billionaires and bankers already own the government, it's time for them to start stripping off the profits directly the top (Trading air! Mandatory vaccination! Brilliant). As front end money goes to the few directly, less profits will be taxed and dispersed on the local level, while their tax rates go up. Already in control of any military that matters and the media, the only thing left to do is establish a religion and hit up the fat money in the tithing plate. Maybe they could call Tom Cruise or Jimmy Swaggert and do a leveraged buy out of an existing religion(s) (create an umbrella religion as it were) and help get the message out faster. ("Global warming is true! Because our religion says so! All hail the world religion! Drink Coke.)
Big are the dreams of those who would presume to be in power. The reality is that this society will disintegrate like all the others before us for these same reasons. (You know the ones that just disappeared for no reason). On some generals desk are plans to preemptively blow up the world to save freedom and democracy if it looks like we are in a good position to rise from the ashes first (or trip someone elses doomsday machine for plausable deniability in case things go wrong).
So that brings me to a conclusion. I read in a book somewhere "Every man is an experiment, Mankind is not." The truth you find is in yourself and education is a lifelong matter, human beings will become extinct like every other species. I have enjoyed the education and entertainment that ZH has provided this year and look forward to more of the same in the coming year.
Thank you!
" Big business, billionaires and bankers already own the government, it's time for them to start stripping off the profits directly the top (Trading air! Mandatory vaccination! Brilliant).
"Every man is an experiment, Mankind is not." The truth you find is in yourself and education is a lifelong matter "
Very well said
short oil
Oil will get to 300.00 and a lot sooner then the reported date but Im afraid that wont happen til after the 2010 continuation of the deflationary spiral whcih will take oil down to 25.00. Though we have a shot at 95.00 before the drop to 25.00 dependant on how much longer the government wants to continue the prop up charade.
Ghostdog
Furthermore exactly what does this paragraph mean???
Some 39% of that increase in demand will come from China and 15% from India. A collapse in investment caused by the financial crisis last year means that supply can’t recover in time to avoid another price spike. More than 1.5 billion people today don’t have electricity at all, but would love to have it. The best the Copenhagen climate negotiations can hope for is for CO2 to rise until 2020, and then plateau after that, because once this greenhouse gas enters the atmosphere it is very hard to get out. It would take 100 years of natural decay to get CO2 levels back to where they were just 20 years ago.
How do you get from demand in China to 100 years of natural decay? Of course this may explain why so many folks believe this carbon nonsense...they don't have the ability to string thoughts together in a coherent progression.
Short term there could be a large spike due to a likely conflict in the Middle East but long term this is not a bullish play.
- Energy GDP intensity is going down and it will probably accelerate due to information technology.
http://www1.eere.energy.gov/ba/pba/intensityindicators/total_energy.html
- Growth rates of 2-3% pale in comparison to what is going in information technology. Doubling times (100% increase) is measured in months: fiber optics 9 months, memory 12 months, chip transistors 18 months. By 2030 this would a different world.
http://www.youtube.com/watch?v=yDYCf4ONh5M
Good thing we can drive our cars on information. I can heat my house on information too. Fertilize crops with information. Melt steel with information.
Most information is bullshit, so we're going to trade bullshit for oil I guess, and call it GDP. Sounds good to me, we been doin that for decades now with FRNs.
Hey dude, we already trade bullshit for oil - its called the US Dollar.
One example: Hawking Technologies, this business model gives a hint of what is coming: Internet will integrate to physical layer, only software in the cloud. Think about robotics under this model, what is coming is not Terminator, what is coming is SkyNet.
http://www.hawkingtech.com/
Another example: Crossbow Technoloy, wireless sensor mesh networks show how the Internet will integrate to the physical layer, Hawking also uses this technology. It's difficult to predict how the integration of the physical layer will be done, it is certain that it will be done and it's just around the corner.
http://www.youtube.com/watch?v=77RG5BVdKRc
Ah..the power of DREAMS.
Sorry, man, I guess my point went over your head.
Cars don't run on information, dude. Nothing does. Things run on energy. Information is useless without it.
We need energy to DO THINGS.
If Skynet doesn't have any gasoline, then Skynet GOES NOWHERE
I'm talking energy efficiency, read the first post again. Even if I buy you Peak Oil theory, what would be the oil price if demand falls? As the physical layer becomes smart the increase in energy efficiency will accelerate. Here, take a look at GDP/Energy again,
http://www1.eere.energy.gov/ba/pba/intensityindicators/total_energy.html
What worries me is not energy but jobs. This same technology will do a lot more with a lot less people, now that is worrisome.
Peak oil isn't a theory, dude. It's a "theory" in the scientific use of the word, like Evolution or Relativity.
Efficiency has risen every year...it just enables more consumption. As cars get more fuel efficient, people drive them more miles. This phenomenon is obvious and well-researched.
Demand can do what it wants to, supply is dropping. Demand is man-controlled, supply isn't. Supply is dictated by the earth.
Efficiency is subject to the laws of diminishing returns. What you say is a pipedream, man; that is what I am trying to explain to you. Wishes and dreams and information do not run things, energy does.
Peak oil isn't a theory, dude.
It is amazing how many buffs out there think it is. I work in the largest oilfield in North America and it depressing when seemingly intelligent peers of mine forward wish-think emails with subject lines like 'America has 5000 years worth of shale oil!' or '500 years worth of natural gas'. All I can say is that I wish I wasn't going to be around in another 5 - 10 years when they all find out that there is no more hydrocarbon Santa Clause. The harsh truth is, we are at or past a global production peak and we are STILL bailing out automobile companies! How absurd is that? We might even have a decade left before it starts to wind down in earnest - thanks to the US Military - but it won't hold much past that.
As cars get more fuel efficient, people drive them more miles. This phenomenon is obvious and well-researched.
See Jevons Paradox http://en.wikipedia.org/wiki/Jevons_paradox
One of my flaws or strengths is that I keep trying to get people to understand.
I hear constantly about the latest big find and how the total URR can be divided by present world consumption to enable "yet another x years of oil, haha peak oil is bullshit."
It's becoming more apparent to me that people are simply incapable of second-order thinking. I've tried to use various analogies and it simply doesn't stick. Some people REFUSE to accept it because it's too gloomy.
The thing people don't realize is that there are billions of people out there NOT consuming 18mbpd in their nation and they are still happy OMG. There is happiness on the other side in a contractionary future. Life goes ON. I actually ENJOY those places more than I like the US. I am HAPPIER in Brazil in a tiny car with a 1.4L engine running on alcohol than in the USA in my freaking Phaeton.
Yet, still, polyannas come on and talk about how deus ex machina "technology" or "efficiency" will enable synthetic growth. It doesn't and never has worked that way. I can throw the US in 1970 at them, the USSR in 1989, Cantarell...no effect. They're made of intelligence-repulsing teflon.
Even ostensibly smart guys like Douchinger can't bear to accept this stuff. He used to ban ppl like me for saying it. Now, he latches onto ANYthing such as these new finds with their lofty URR figures to try to convince himself that PO is a "religion" and we can continue on with the vaunted "capital markets" and western economics models unabated. Yet, the US is still declining in production, even with 39 years of technology improvements, we're still declining. 56/65 nations now are past-peak; this shit isn't arguable. But it's too scary I think for people to face. Persisting in a self-made delusion is a sin.
Efficiency in one part of the system frees up resources for more consumption elsewhere. That is the source of the paradox. Growth is the model and more growth=more better.
"yet another x years of oil, haha peak oil is bullshit."
I roll my eyes and shrug my shoulders when I hear this non-sense. Nobody wants to hear the truth anyway. It has been 30+ years since we laughed Carter out of the White House and this country is still in denial! It's even worse than that, we're still bailing out auto companies, with oil at $80 per bbl! We deserve everything we have coming to us in America.
The way I see it, people will believe whatever they want to believe but at the end of the day, reality - especially the second law of thermodynamics - doesn't give a single squirt of piss about our beliefs.
Everyone will figure it out soon enough, and it won't be pretty weather it happens in 2010, 2020 or even 2050.
infinite growth in a finite system...some model of maya...I am removing the maya and adjusting my life voluntarily (and happily I might add, it is rather freeing...), rather than have it forced upon me by that hard slap wakeup call of reality and all the sudden loss and grief.
Another bulllshit article on ZH. You guys can do better than this crap. Carbon in the atmosphere? Big fucking deal...only fools worry about that. Running out of oil....??? That has been claimed since I was young a long long time ago.
That this sort of nonsense is paraded out almost daily here has me worried that the other articles I read here are just about as credible.
With Mexico near default, uprisings everywhere why do they not pump more oil? Cantrell losing 8% per year in production should tell you Mexico will not be an exporter within the year. Canada can mine oil for profit at 70 barrel equivalent while their own citizens pay more for Nat Gas for how long? When Brazil sees 150 per barrel then deep offshore is profitable. It really isn't hard to understand the physics verse economics as with ethanol. If you spend 1.0000001 barrels of oil to generate 1 barrel of oil the end of production is at hand.
8%???? ROTFL.
Cantarell lost 34% last year!
Cantarell is losing the standard Huberts peak rate of 8% per year per year. for a total of 34% from peak production. Would you like the graph of yearly production numbers? In fact look at my avatar which is the Cantarell production graph!
where goes carbon into the atmosphere via cars & smokestacks, follows mercury, lead, fluorides, arsenic & other modern spices; and where falls excess carbon into water or soil, follows increased acidification.
you, sir, are a moronic troll.
Ah, a cornucopian! Welcome to the discussion. We need you to balance this out. I too am tired of this constant naysaying here. Peak oil? Hogwash. We are neck deep in the stuff, the Saudi and other OPEC reserves are grossly understated to maintain their pricing, and if the government would just get out of the way, and let private capital drill, we'd soon find resources of cheap, high quality crude everywhere! Same with US debt. Just print more. We'll figure it out later people.
Peak oil is probably a fact but mostly misunderstood. Demand for oil will not follow worldwide growth in lockstep and alternative energy will pick up some slack. However, generally the price will go up as demand increases.
The issue is where is the demand coming from? Reserves have declined for 4 straight weeks but is that because of increased demand because of an economic recovery? Hell no! It is because there are tankers full of oil parked offshore that end to end would stretch 26 miles. They don't get counted in reserves and they won't be unloaded until the price goes up.
The most manipulated market in the world.
Given that a typical oil tanker is very nearly a half a mile long in and of itself, that means we have fifty some odd tankers with oil in them, assuming that in fact those tankers are full. That's not really all that much oil (I suspect we're probably at closer to perhaps a couple of weeks of reserve rather than three days, but it's not likely to be that much more).
Keep in mind that if demand stays slack for any length of time, wells have to be taken offline, processors have to be powered down, investment in new wells and new discovery drops (especialy if credit is expensive, as it is right now), crews on ships or anywhere else in the distribution pipeline are furloughed or fired. Figure that for each month that the economy remains slack, add a week or so to the time it will take to restart the oil system. This means that if there is a surge in demand, there may be a temporary drop in prices as everyone tries to dump their oil at once, but then there will be a sharp rise as increased demand meets reduced supply. What's more, the oil producers and processors will likely keep many plants closed in order to increase the price to help make up for the money lost during the slack period.
This will set up a period of oil oscillations where demand chases supply through wild gyrations - something that isn't conducive to long term, large scale investing. This is symptomatic of destabilizing systems (think how a top can remain in relative stasis for a long time, but as it loses energy to friction it slowly begins to oscillate, then these oscillations become more and more pronounced). This is the real danger coming in the near term - those oscillations will eventually dampen down, but until they do, necessary investment becomes problematic at best.
"probably" a fact?
Look, dude, peak has HAPPENED ALREADY in 56/65 oil producing nations!
Reserves fell because supply is falling. This notion of a 26mi tanker fleet secretly warehousing all that oil is phony.
These tankers contain 3 days worth of world consumption if they are all full. 3 days.
I, for one, sure as hell hope there IS an oil glut and we can use this last chance to put up windmills, solar panels, and nuke plants while there is a surplus of the stuff needed to build them.
Exactly!
One open question I have though, to those who say drill baby drill is...um...howcome they didn't find these abundant deposits the first go around like BEFORE the NIMBY enviros banned drilling?
There really was a time in which prospectors were allowed to drill; why didn't they find all this oil THEN? They just missed it, instead prefering to go 5000' down in Prudhoe or the North Sea?
All this oil is lurking right under our very feet if we'd just drill for it but nobody found it back when drilling was permitted...a strange paradox, methinks.
I might be able to add a little bit here.
They did find oil up here in Alaska. Quite a bit of it outside of super-giant Prudhoe, actually. The trouble is, it certainly isn't going to turn back the decline.
There are still sizable amounts of oil offshore on the north slope of Alaska. Burger in the Chuckchi sea I have heard could hold roughly 13 bn bbls. Shell is trying to develop this oil but are up against the bunny huggers never ending court appeals. There is also a large swath of land to the west of Prudhoe all the way to the Chuckchi sea call the NPR-A or National Petroleum Reserve - Alaska, but it is anyones guess how much oil is really there and recoverable. I know BP & Conoco are focused on getting as much as possible out of the known fields before spending more on exploration, that tells me there isn't anything too substantial that is easy to get at out there. Then, to the west of Prudhoe, you got ANWR which is anywhere from 3 - 10 bn, it is just a matter of time until they get that ball rolling. I would think another Asian land war or $250 per bbl spike should do it. But you are right, none of these plays will stem the decline. If we are lucky, it might be enough to build some solar panels.
Trav, I would like to hear your take on geothermal. I read an interesting report from MIT recently, and there is some interesting developments in that space up here.
Fact: The US has drilled 4 times as many wells in the lower 48 states since oil production peaked in Dec. 1970 at about 9.4 million barrels a day... yet production continues to decline.
US lower 48 current oil production is roughly 5.2 million barrels a day in spite of 4 times as many wells drilled and in production.
Drill all you want.
There has not been a Super Giant oil field discovered since the 1960's.
That is a long dry spell even if your name was Bush (The Ultimate Dry Hole Family).
You can't drill your way out of this decline.
Pierre,
Many articles on ZH are not submitted by Tyler or Marla.
ZH is sort of like marketoracle.co.uk with articles from many different posters. I like this , it provides the counterweights for the various arguments and analysis.
It's important to understand both sides of an issue.
Just because you know one person is blowing sunshine up your patootie doesn't mean you shouldn't listen, if anything in order to rate them on fictional creative aptitude.
Besides, remember how absurd those planet surface to spaceship uniform badge communicators on star trek where? And now we HAVE THEM.
In the process of disintegration the framework of the next "happy exuberance spell" is created, so let's start fictionalizing the world we want now for our children. Whatever we picture shall be ( "Life imitates Art")
Or is that immolates.
-MobBarley
"Who ate all the goddamn candy?"
Does 82mbpd sound to YOU like we're running out of oil?
How many different ways do I have to explain the peak supply phenomenon to you people before you can grasp it?
Oh yea the belief that oil comes from plant life...hmm except that no one can duplicate this process and they can duplicate the process that heats rock then pushes the pressure up and viola oil.
And quick before you get your smartass up remember that even those industry shills who claim oil comes from tiny crushed plants admit that it is ALSO produced by abiotic means. Which means that Oil is produced NATURALLY 2 ways....hmmm.
Peak oil is bullshit pushed on folks by folks who want to control shit. Fuck them.
It is amazing they can apply The Law of Diminishing Returns to ag acres or an industrial plant... but they continually fail to apply the same concept to a mine or oil well.
Don't just flunk him Professor trav77, kick him out of the department . Send him to Sociology or Business School where all the dumb ass drunk sorority brothers end up...
This seems appropriate re: the 100 years
No Rise of Atmospheric Carbon Dioxide Fraction in Past 160 Years, New Research Finds
http://www.sciencedaily.com/releases/2009/12/091230184221.htm
Yes Sir Professor!
Just flunk him for the course and move on.
These forecasts are always jokes. Yeah, world GDP grows in a straight line - and oil demand will grow lockstep as well. Because $200 oil would not lead to demand destruction - even if said growing markets such as China and India have per capita annual disposible income of ~$1,000 a year.
To speak of the fallacy of the perpetual escalator - if you had $1 in year 1 AD and your dollar compounded at an average of 2% a year - you would have more money than everyone in the world combined (many magnitudes more).
Not to say I disagree that oil will someday be a scarce commodity and that someday prices will be much higher, but to call a short to medium term slam dunk is questionable at best. Peak oil folks have been calling the top for a decade now. (yes, prices are up - but you could have invested in basically any commodity and made gobs of $ over the period)
A couple opinions I would like to put forward:
1) we will NEVER produce 100 million barrels/day globally...neva eva
2) the IEA estimates seem to not include the global deflationary bust which we forestalled in 2008/9 but is certain to come sometime between now and 2030. Thats good news as it will likely keep demand in check over that long timeframe.
3) I believe that we are going to see waves of increasing amplitude over the next several years. So the next spike in oil will put $145 to shame, but then the deflationary bust that follows will put 08 to shame, then the hyperinflationary spiral that comes after the deflation will send oil to infinity as dollars will be increasingly less accepted as a medium of exchange for the black stuff. So to the title of this article, I definitely believe that the next spike in oil will put the previous one to shame.
100% correct.
One need only look at discoveries having peaked like 50 years ago to understand that consumption has grown FAR FASTER than discoveries even IF we were actually able to exploit the post-peak discoveries at the same rate as Ghawar in terms of flow rate vs. URR.
Demand growth during the mid 2000s was outstripping discoveries growth by 8:1. In terms of EROI or flowrates, the picture worsens.
I hate on the facts are wrong. Saudi Arabia with all the cuts is still producing 8MB/day has capacity of 10-12 today and claims to wrap up capacity to 15MBD in 5-6 years if needed. Anyway you slice it the needed 19MBD for 2030 is simply is not 6 times Saudi oil.
There is still plenty of factual mistakes, but for those eager I say, go buy oil today at 80, you indeed will have to wait a long time...
YY;
You are failing to recognize some key points. If you look at the production history for most of the major oil prodcution regions of the World such as Mexico, U.S., North Sea, etc, you will see that the depletion rates are averaging 5-7%. Mexico was around 34% in 2009!! If you concur that the World oil production has in fact reached "peak" then global depletion rates will run about 6MM BBLs/day per year going forward. To replace this rate of depletion we will need to discover about one Saudia Arabia per year AND bring it on-line. That is simply not going to happen.
If you also think that Saudia Arabia has the capacity to produce 12MM BBL's day you are sadly mistaken. The crisis will begin to take shape by 2012.
AR
KSA is lying. They cannot produce 15mbpd. They've never even come close to 12. They would talk 12 while producing 9.
I submit that OPEC did not cut production. They merely legitimized a natural decline in production. During the runup to 145, when they claimed they increased output, they did not. It was all jawboning.
KSA is very likely in supply decline already.
IEA's production figures have been NOTORIOUSLY bullshit. I got banned from TF for pounding this theme a couple years ago.
The IEA estimates are a joke.
Below link is a must read
http://www.aspousa.org/index.php/2009/09/interview-with-bob-hirsch-the-s...
As a DOE employee myself, I experience what Bob
describes on a continual basis...frustration in the
extreme.....
Over the last 10 years we have had an exponential
increase in the number of wells and flat world output
That should send chills down your spine.
To see the future of Ghawar,we need only look at the
collapse of Cantarell this year.
Nitrogen infused fields collapse overnight...
Not enough natural gas available to process
even half of the tar sands...
No amount of wind,pv or other delusional thinking
will solve this massive energy problem
For us in the US, I am convinced it our military
might that will keep oil flowing to the US
(which I highly disagree with, but we have waited
too long to tackle this problem by other means)
At that point, we will find out where the Chinese
are with Military technology, can they take out our
Carrier groups with ICBM's???
Subs we can not detect???
Long Oil
Long Au, Ag
Short delusional thinking
"Long Oil
Long Au, Ag
Short delusional thinking" (for Chumby - Bitches!)
See, that's what I'm talking about. Short, sweet and to the point.
Speaking of to the point:
http://www.videosift.com/video/Pissed-Off-Southerner-Smashes-Stuff-and-R...
This guy kills me. Has his facts straight, just
don't know how he keeps em together while swinging.
Nothing to do with this thread,but real interesting.
Screaming avatar flashed me