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Countdown to $100 oil (37) - OPEC says peak oil (and $100 oil) is near

by Jerome a Paris Sun Dec 17th, 2006 at 03:56:26 PM EST

In the most recent edition of the OPEC Bulletin, recently put online on the OPEC webline and which can be read here (120 page *pdf* - relevant bit on p.60), OPEC - via a senior member, i.e. Dr Shokri Ghanem, Chairman of the People’s Committee, the National Oil Corporation (NOC) of Libya - addresses the issue of peak oil head on:

while some of the more pessimistic oil specialists are declaring that peak oil has already been passed, or at best is here now, others believe it is not going to arrive before 2010. Some optimists give the world a little more breathing space — that is to say up to 2020, and perhaps even up to 2030. However, all in all, most would appear to agree that *peak oil output is not very far away for all of us. It could take place sometime within the next decade or so*, which in fact means that *there is not much time left* for a world economy to be driven largely by oil.

His article is about where oil prices are headed, and while it's self-serving for OPEC to talk about higher oil prices, you have to remember that OPEC is scared to death by what happened in the late 70s and early 80s, i.e. when higher oil prices led to lower demand and higher production from non-OPEC sources, and their revenues collapsed quite quickly thereafter, creating tense domestic situations.

So when they write that:

since peak oil output is not about the time at which oil will run out, but the time at which production can no longer be increased to cope with increased demand, it seems the only way the oil price can go is up. This conclusion seems to be in line with the view held by the peak oil output advocates who argue that the ongoing oil price rises are mainly due to supply-demand imbalances. This is because we are at, or near, the production peak of world oil, if not on the downward slope of Hubbert’s peak curve. This is not to deny the role of other factors (such as geopolitical), but only to stress the importance of supply and demand for crude oil as the prime factor in determining the price of the commodity.


So, for some, $100/b oil may still be cheap after all and, as such, the world economy can cope with this price. Having said that, I would like to turn now to the fundamental question: what is keeping the oil price high? The simple answer to this question should be first and foremost strong world oil demand. We can see this growing demand evident in China, India, and the United States, coupled with dwindling spare production and less economically viable recoverable reservoir capacities. Other factors, such as a lack of refining capacity, geopolitical uncertainties, market speculation, and natural disasters are also important.

They are confident about talking prices up because they consider the underlying supply-demand balance to be highly favourable: strong demand growth, including in recent years despite sharply higher oil prices, and a lack of substitutes for supply.

So we will reach the point soon when demand will still be growing, but supply won't - and something will have to give, i.e. demand will have to be destroyed because supply won't be able to provide. And the most likely solution will be a big recession - unless we act first to prevent this from happening.

Even if we did not care about the geopolitical angle (all these shady and/or hostile countries holding a vital supply in their hands), the economic angle makes it urgent to work on energy conservation and savings in order to avoid the downturn that will unavoidably be required to balance the oil markets in the face of supply's inability to cope.

For now, it's still in out hands. Soon, it will be too late. Prudence would suggest that we should at least think hard about it, even if only as insurance.

Earlier "Countdown Diaries":
Countdown to $100 oil (36) - Free game! win champagne! no risk! (eurotrib)
Countdown to $100 oil (36) - Free game! win champagne! no risk! (DailyKos)
Countdown to $100 oil (35) - peak oil: the last skeptics capitulate (CERA)
Countdown to $100 oil (34) - Oil major CEO calls for demand reduction
Countdown to $100 oil (33) - Below zero
Countdown to $100 oil (32) - peak oil is, like, so over. Not!
Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to $100 oil (21A) - The 4 biggest oil fields in the world are in decline *
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)
* added to the series after the fact


In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Dec 17th, 2006 at 04:01:19 PM EST
I've been thinking a bit about demand destruction. It will happen in rich countries where there are easy substitutes (heating, a little power generation, some industry) and everywhere in poor countries (where oil is sadly overrepresented in both of the vital sectors heating and power generation).

But I haven't managed to find any info on global oil consumption by sector. Anyone having a nice grahp around so we can see where it's possible to cut down on consumption in just a few years and rather easily?

This is the best I can find, but it's not good enough.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Sun Dec 17th, 2006 at 05:17:23 PM EST

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Dec 17th, 2006 at 06:26:52 PM EST
[ Parent ]
As you can see transport is the main use.. And how much of this use is needed for the transport of good or vital.. I think we can reduce 20% of oil use just by reducing the private non-essential trips.

I think we ahve a lot of slack ther to prevent a crisis in Europe... if we can control the private transport.

A pleasure

I therefore claim to show, not how men think in myths, but how myths operate in men's minds without their being aware of the fact. Levi-Strauss, Claude

by kcurie on Mon Dec 18th, 2006 at 07:12:50 AM EST
[ Parent ]
While it's better than the one I posted, it's still not good enough. We need to see consumption by sector, not by type of petroleum fuel.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Dec 19th, 2006 at 07:53:10 AM EST
[ Parent ]
You keep asking for Leontieff matrices ;-)

Those whom the Gods wish to destroy They first make mad. -- Euripides
by Migeru (migeru at eurotrib dot com) on Tue Dec 19th, 2006 at 08:01:25 AM EST
[ Parent ]
Perhaps it's not exactly what you would expect, but it may help ...
Sorry, it's in french !
"Essence" = gasoline
"Gas-oil, fuel" = diesel, heating fuel
"Lubrifiants" = lubricants
"Pétrochimie" = petrochemistry

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------------- If liberty means anything at all, it means the right to tell people what they do not want to hear (Orwell)

by Baikal (baikal@no-log.org) on Wed Dec 20th, 2006 at 04:36:09 AM EST
[ Parent ]
The thing that surprised me last week was to heard at the news, OPEC reducing its production to maintain a +$60/barril. It was not the first time and Jerome already mentioned it but i found amazing how journalists have a short term memory  :just 3-4 years ago, the OPEC'price target was ~$30.

why noone is surprised ? no question asked ?

by fredouil (fredouil@gmailgmailgmail.com) on Sun Dec 17th, 2006 at 07:55:35 PM EST
... if your system is focusing on differentials alone, like a frog's heat sensing, then a low enough fire will leave you sitting placidly in a pot of water until you boil to death.

Immediately from a $20/barrel level, $60/barrel would have been the sky it falling time ... despite the fact that in real terms it was much higher at the peak of the second OPEC price shock.

After $80/barrel, and fears of worse, $60/barrel is written up by the MSM as "reasonable".

I get the impression that the US electorate had a longer memory in the election just past ... I recall some scattered, "They say gas prices are down ... do you call $X.XX down?" ads during the campaign, and as those people got elected it couldn't have hurt too badly.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sun Dec 17th, 2006 at 08:22:26 PM EST
[ Parent ]
That should destroy some demand.  

Do what you can.  Get a bike.  Insulate your house.  Re-arrange you life for fewer trips.  Plant a garden.  Whatever:  

Soft-landing scenerios are long gone.  

The Fates are kind.

by Gaianne on Mon Dec 18th, 2006 at 12:44:43 PM EST
I heard on one of the TV business shows that there has been a huge increase in venture capital going into development of new sources of energy.  I couldn't find an article or report,,yet anyway.  I think the number was something like $1 billion in the last quarter, which compared to $100 million in the prior year.

I wish the US would make some common sense decisions, like 1. raising the gas mileage requirement from car fleets, 2. call SUV's and light trucks cars, or at least give them aggressive mpg requirements, 3. announce a program to increase the gas tax something like 25 cents per year for the next 5 years, with a review in year 6 to consider continuing the increase, and 4. allowing oil drilling off shore and in ANWAR to help bridge the gap.

Typically human ingenuity solves problems like this, as discussed in Wikipedia

Economists understand the principle of substitution and the dynamic influence of technology with respect to commodity prices. For example, in the absence of any new technologies, copper prices would indeed be expected to increase as growing economies demanded more copper to meet the needs of expanding communications networks and plumbing infrastructure. Technological changes mitigated much of this expected demand as fiber optics replaced copper wire networks and various plastics replaced the once ubiquitous copper pipes throughout the construction industry.
but some thoughtful policies would help as well.
by wchurchill on Mon Dec 18th, 2006 at 01:16:41 PM EST
If business TV catch phrases are correct and reflect the US, welcome and about time, although the phrase is decades old and it applied to Canada, Europe and Japan.

As for overdue US decisions, I agree with your 1, 2 and 3.  Your fourth and "ingenuity" are NOT reasonable solutions.  More like sticking one´s head in the sand, or wishful thinking.

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Mon Dec 18th, 2006 at 02:03:42 PM EST
[ Parent ]
Well you prove yourself to be the Paul Ehrlich in the referenced Wikipedia article.  I think new technologies will have dramatic impact on future energy costs, and investments such as the new VC money into energy R&D will be a major reason for the new innovations.  But you're certainly welcome to your opinion.

And if you don't think providing more oil as one source of energy, when there is a supply problem, will help the situation, you might want to go back to Economics A01 and look at some of those supply/demand charts.

by wchurchill on Mon Dec 18th, 2006 at 02:46:01 PM EST
[ Parent ]
There is a demand problem, not a supply problem.

Those whom the Gods wish to destroy They first make mad. -- Euripides
by Migeru (migeru at eurotrib dot com) on Mon Dec 18th, 2006 at 02:56:25 PM EST
[ Parent ]
That is just such an odd comment.  When an economist looks at a demand and supply chart, and it shows, for example, climbing prices,,,,he would not look at one part of the chart, and say that is the problem.  That is of course what you are doing  when you say that.  

Note my five suggestions have three on the demand side, and two on the supply side.  It's just not rationale to eliminate half the options.  Certainly increasing the supply of oil helps the situation--I'm not saying that it solves the situation, only that it helps.  And the new technologies that are being developed will have the effect of shifting the supply curve.

Historically cheap oil has made it impractical, in a capitalist society, for the investments in new technologies to be made that will shift the supply curves.  This is an area where visionary public policy could have seen the situation, and made policy decisions that would have smoothed the transition.  Obviously that didn't happen, and the road to change is going to be bumpier than it might have been.  But what's new with politicians that either lack vision, or lack courage because often vision requires short term pain--anathema to politicians--(see social security and healthcare for the aging).

by wchurchill on Mon Dec 18th, 2006 at 03:22:53 PM EST
[ Parent ]
I don't really follow...

It's peak oil supply. Peak oil demand is nothing to worry about. If prices stay reasonable, demand is almost infinite.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Dec 19th, 2006 at 07:47:27 AM EST
[ Parent ]
The point is CLIMATE CHANGE and(due to) FOSSILS´ OVERUSE.  Two things that do not appear in econ. books, nor theoretical stunts.  For all I forgot after getting top grade in Econ 430?, I didn´t forget the mental discipline of finding real-life answers outside a textbook, from current information.

Regretting the past and fantasizing about the future does not change the urgency to stop wasteful use.  

If you count on "finding more oil", with all its environmental-climate-changing damage, ask yourself what future value does that have.  If you count on the "magic of science" coming to the rescue, you are gambling many lives to the limit.  Science still does not have the support necessary to make renewables an accessible choice.

Even if I could count on both, I wouldn´t trust the current USgov and energy multinationals, even if they were in another planet.

PEAK OIL calls for individual ACTION NOW and we know what to cut.  Write to your monsters; I´m working on mine.  And if you know of good investments in renewables, let me know and I´ll see if they pass my tests.

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Mon Dec 18th, 2006 at 05:03:49 PM EST
[ Parent ]
Actually, I think we'll see all three factors play a role:--lower rate of growth in demand due to escalating prices in the short and midterm, "finding more oil", and new technologies.

We will see 1) in the longer term, some of the emerging technologies will eventually be successful, 2) in the short/medium term,existing energy sources being exploited more aggressively--note plans for new nuclear plants, continuing efforts with hybrid, electric and "cleaner diesel" just as  examples, 3) in the short term, more drilling for oil, note new drilling in the gulf, I believe between US and Cuba, financed by Russia, 4)also in the short term, previously unprofitable oil sites opened and producing, plus previous sources such as oil shale seem to be opening now, and 5) rising prices will both lower demand and move demand gradually away from oil,,,,and it would be nice if public policy supported that.  And probably a number of other factors i don't have a clue about.

There is no single "silver bullet" here, imho, but we'll get something from each of the above factors.

I don't know energy well enough to really invest in it, but Uranium mining stocks have done very well, such as Cameco and Pinetree Capitol, the former up eight fold in less than five years, and the latter up four fold this year.  I made some small investments in these and did well.  I'm letting those investments ride for a while, but watching somewhat carefully.  But I don't know the energy field well enough to to make any serious investments in it, so I can't really answer you.

by wchurchill on Tue Dec 19th, 2006 at 01:44:11 AM EST
[ Parent ]
"rising prices will both lower demand..." should have read "lower the rate of increase in demand for energy".
by wchurchill on Tue Dec 19th, 2006 at 01:47:16 AM EST
[ Parent ]
My favourite is Exelon.

Not due to peak oil actually, but due to North American peak gas.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Tue Dec 19th, 2006 at 07:51:08 AM EST
[ Parent ]
And the core of Exelon's business is this:

Exelon Nuclear is headquartered in Warrenville, Ill., and is a business unit of Exelon Corporation.  It operates the largest nuclear fleet in the nation and the third largest fleet in the world.  Exelon's ten stations - with 17 reactors - represent approximately 20 percent of the U.S. nuclear industry's power capacity.  Chris Crane is president and chief nuclear officer Exelon Nuclear and senior vice president, Exelon Corporation.

Exelon Nuclear's 17 generating units produced a total of 130.2 million net megawatt-hours of electricity in 2005.  The fleet also achieved an average capacity factor of 93.5 percent, the fifth year in a row the capacity factor was more than 92 percent.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Tue Dec 19th, 2006 at 07:58:25 AM EST
[ Parent ]

Our knowledge has surpassed our wisdom. -Charu Saxena.
by metavision on Tue Dec 19th, 2006 at 11:38:03 AM EST
[ Parent ]
I take your point that uranium is not renewable, but it seems to be available in abundance, and as technology goes forward, I would expect productivity increases in the use of uranium, so the same amount produces more energy.  So it seems to me the renewable aspect of uranium is not really an issue, do you agree?  I realize there are other issues with uranium, however.
by wchurchill on Tue Dec 19th, 2006 at 02:57:32 PM EST
[ Parent ]
We are right in the middle of a fool's game !

Assumption n°1: the current OPEC policy, which consists in "officially" cutting production to match real demand, and thus keeping oil prices at around 60$ per barrel, could be nothing else than a smart pretext to conceal that main OPEC members (like Saudi Arabia, Iran or Kuwait) are struggling like crazy to keep flat their production, if not in decline ...

Assumption n°2: by distiling declarations like Ghanem's one, OPEC's will is to maintain a worrisome climate, so that prices remain high enough to satisfy their own objectives of profitability, without affecting demand in a significant way, and without being forced to cut production. A kind of strategy of communication to maximise the oil benefit.

What do you think ?

------------- If liberty means anything at all, it means the right to tell people what they do not want to hear (Orwell)

by Baikal (baikal@no-log.org) on Tue Dec 19th, 2006 at 10:36:03 AM EST
I wouldn't be surprised if your first assumption is correct.  $60 provides them with lots of profit.  And I wonder if they feel that over $60 opens up too many other energy sources--higher cost oil fields, shale,,,,alternative energy investments.  So they may see themselves as "walking a tightrope" on this issue.  It would be intesting to see what Jerome, Metavision and others think on this.

And your second point is really consistent with that.

Obviously this strategy may be good for them, OPEC, and not very good for the rest of us--particularly if they limit investment funds going into the alternate technologies.

by wchurchill on Tue Dec 19th, 2006 at 03:02:52 PM EST
[ Parent ]

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