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Panic gripping our oil elites

by Jerome a Paris Sat Nov 10th, 2007 at 07:13:27 AM EST

Big Oil CEOs Point To Constraints On Supply Growth

HOUSTON -(Dow Jones)- Pointing to a variety of political and technological constraints on energy investment, chief executives at two oil giants Thursday highlighted systemic limitations on the growth of the supply of oil, implying that there will be high oil prices for at least the medium term.

(...)

ConocoPhillips (COP) Chief Executive James Mulva (...) said he doesn't believe oil supply will ever exceed 100 million barrels a day. He didn't offer a price forecast.

"Demand will be going up, but it will be constrained by supply," Mulva said. " I don't think we are going to see the supply going over 100 million barrels a day and the reason is: Where is all that going to come from?"

(...)

[BP plc (BP) Chief Executive Tony] Hayward said "about half" the world's oil has been recovered, but he implied that significant improvement is possible on a broader scale. "The biggest source of new oil will come from increasing recovery," he said.

After the Total CEO last week, this is the second CEO of an oil major to say that we'll never make it to 100mb/d and, as far as I can tell, this is the first time such a senior oil executive talks about "half the oil" being gone - something which is usually considered to happen at pretty much the same time as peak production (although the two are not necessarily simultaneous).

At the same time, the IEA's chief economist (the very one whose prognoses for 120mb/d of oil in 2030 are contested by the oil industry) is giving an extraordinarily pessimistic interview in the Financial Times, following the recent publication of their latest World Energy Outlook.

Extended quotes below the fold, but in a nutshell, here's the summary:

  • we are beyond peak oil in the non-OPEC world;
  • OPEC officially has lots of reserves - but we don't really know;
  • even if they make all the investment plans announced are made and are on time, we'll still have a gap of 12.5mb/d (more than 10% of overall demand) by 2015; we now officially need to beg OPEC to invest more;
  • oh, and by the way, that's the smaller of the two energy-related problems we have: climate change is a lot worse.


Transcript: Interview with IEA chief economist Fatih Birol

ED CROOKS: There was a phrase in your report that leapt out at me: “Rising global energy demand poses a real and growing threat to the world’s energy security.” Is that your most important message today?

FATIH BIROL: There are two major messages I was getting from the book. The first one is exactly what you say. The energy security risks are so strong, and probably increasing, for an upward event in the markets, and the second is on the climate change, on the CO2 emissions, the levels are reaching a certain level that we are [getting to] an irreversible trend for our planet.

(...)

my message is that, if we don’t do anything very quickly, and in a bold manner, the wheels may fall off. Our energy system’s wheels may fall off. This is the message that we want to give.

EC: That’s a very powerful phrase: “The wheels may fall off.” What do you mean by that?

FB: On the energy security, oil prices part, the numbers, one doesn’t need to be a big energy expert or anything: it’s just mathematics. I can tell you that we, in the next seven to eight years, need to bring about 37.5 million barrels per day of oil into the markets, for two reasons. One, the increase in the demand, about one third of it, and two thirds, there is a decline in the existing fields [and there is a need] to compensate for the decline. What we have done is that we have looked at all the projects in the Opec countries and the non-Opec countries, all the producing countries of the world, at the 230 oil projects, on a field by field basis, how much oil they will bring to the markets for the next five to seven years. And these are projects which are financially sanctioned projects. If they all see the light of the day in a timely manner, they will come up about 25 million barrels per day. So, 37.5 mlillion on the one hand, what is needed, and what we expect is 25 million barrels per day, and this is in the case of no slippages, no delays in the projects, and everything goes on time, which is very rare. So, there is a gap of 13.5 [sic] million barrels per day.

EC: The gap of that size emerges by when?

FB: Within the next seven years. So, if this gap cannot be closed – and there are two ways to close it, which I will tell you in a minute – if that gap cannot be closed, we may end up with a supply shock approaching an escalation of prices. This is what I meant, the wheels may fall off.

(...)

FB: The problem is now that what we are experiencing with demand is the following. There are three major demand centres now, China, India and the Middle East. When you look at the numbers in the last seven quarters, about 70 per cent of the growth in global oil demand came from China and India, and this is followed by the Middle East, and in all of these three countries, for different reasons, oil prices do not have an immediate effect on demand. China and India, for two reasons. One, the economy is growing so strongly, that the price effect is completely unimportant, compared to the economic effect. (...) The second reason is that, especially in China and India, there are significant subsidies on the oil product prices.

(...)

So, demand will grow, and I think, if the governments of OECD, China and India, leave everything to the markets, in terms of slowing down the demand, they will make a historical mistake. In addition to the price related adjustments on demand, we need regulatory measures, such as efficiency improvements in the markets.

(...)

EC: Comparing the figures from last time, in terms of oil supply, just having a look at some of the numbers, there seem to be some quite big differences. You seem to be more negative about non-Opec production out to 2030, and quite a lot more positive about Opec production, is that right?

FB: The main issue here is that we think that, in the Opec countries, there are enough reserves. We are not sure if there is a political will to make something out of those reserves, but there are enough reserves as officially reported. However, as you rightly say, we are getting more pessimistic about non-Opec production.

EC: You’ve gone down about four million barrels a day by 2030?

FB: Close to four, yes. The main reason here is, this is very important to perhaps note, unlike the Opec countries, we think there are some geological problems in the non-Opec areas. This is not an investment issue, not a political issue, but it is more geology, because of a huge decline in the non-Opec countries.

(....) in unconventional oil, the Canadian tar sands, which is the most important one, will reach about three million [b/d] most probably in 2015, which is still only 3 per cent of the global oil production, which is still very small. So despite what some people think, I don’t think that unconventional oil will either replace the Middle East, or be a major way of addressing energy security. It makes some positive contribution, but it is very limited.

(...) Iran is experiencing a very strong decline. You were talking about the North Sea, Mexico and others, but Iran is a very exceptional case in Opec, it is experiencing decline rates in some of their fields of up to 15 per cent per year, and Iran needs money and new technology to address this decline issue. Iran needs a lot of investment, but whether or not Iran will be able to raise this investment, in the political context they are in, is another issue.

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And he says what you've been saying for a long time:

FT.com / Home UK / UK - Transcript: Interview with IEA chief economist

EC: You've talked quite a lot about what you need to see from Opec. What about from the consuming countries, from the OECD, India and China, what do they need to do, on those two fronts, both on energy security, and climate change?

FB: The good thing is that there are some policies which are good for both energy security and climate change at the same time, and make economic sense. So, these policies, we have three major policy pillars. The first one is to improve energy efficiency. This is very important and in most cases, very cost effective.

...there is a lot of efficiency improvement possibility there, in China, India and the OECD countries, which would make sense, in terms of cost effectiveness, in terms of energy security, and therefore, by using less energy, for the climate change. This is the first area, efficiency.

The second is making more use of renewables definitely makes economic sense, especially wind and hydro power, and the third and most important one is the nuclear power, in the countries where there is no public opposition, when the government is determined, and when the public is in agreement, we see nuclear power being a major contributor to both energy security and climate change issues

Today, every second square metre building built in the world is in China, one square metre, the rest of the world, one square metre in China, and what kind of insulation they use is very poor, and if we don't have standards in those countries, we will have serious problems for the next 50 to 60 years. So, both for China and India, as well as the OECD countries, we need to act and we should not only put a lot of targets, goals, meetings and so on, but nothing is happening. We want more action, instead of more targets and more meetings and more talks.


"Dieu se rit des hommes qui se plaignent des conséquences alors qu'ils en chérissent les causes" Jacques-Bénigne Bossuet
by Melanchthon on Sat Nov 10th, 2007 at 08:17:07 AM EST
A good report ont eh washinton Post ont he effects of increasing prices... in the short term...

http://www.washingtonpost.com/wp-dyn/content/article/2007/11/09/AR2007110902573.html?hpid=topnews

I can mention the effects on Spain.. an increase in the pice of commodities because all transport of goods is made with tracks (there are no trains transporting anyhting different than passengers... if they are working)... plus increasing inflation because of this dependence on transport and dependence on international markets for certain basic food products which depend heavily on those prices.

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 Sat Nov 10th, 2007 at 08:23:41 AM EST
Posted a link to this article in the Salon this morning - a  rather long piece...
by Solveig (link2ageataol.com) on Sat Nov 10th, 2007 at 09:43:29 AM EST
[ Parent ]
I know.. but I came here before than the salon....

He he he :)

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 Sat Nov 10th, 2007 at 09:48:21 AM EST
[ Parent ]
I would argue that this is a case of the public's understanding of the situation trailing, by decades, the engineering understanding.

For example, here's a paper from 1997 that says "decline in world oil production rate surely will occur well before the year 2020 and possibly before 2010."
http://hubbert.mines.edu/news/Hatfield_97-4.pdf

Most oil executives have been perfectly well aware of the situation for a long, long time. It's politicians and their public that doesn't have a clue.

by asdf on Sat Nov 10th, 2007 at 10:40:59 AM EST
Most oil executives have been perfectly well aware of the situation for a long, long time. It's politicians and their public that doesn't have a clue.

the pols are the ones guarding the bridge of understanding from the awakening plebs, while the fat cats make a getaway with the loot...

bla bla serious commitment...bla bla...time for action, not words, bla bla,

meanwhile continuing suicidal policies that perpetuate the status quo, till the last drop is squeezed...

ignorance is impotence...

"We can all be prosperous but we can't all be rich." Ian Welsh

by melo (melometa4(at)gmail.com) on Sat Nov 10th, 2007 at 10:58:50 AM EST
[ Parent ]
At least some politicians are peak oil aware, including the foreign minister of Sweden.

Peak oil is not an energy crisis. It is a liquid fuel crisis.
by Starvid on Sat Nov 10th, 2007 at 12:43:18 PM EST
[ Parent ]
Oops, kind of like, if Mobutu was trying to run away from Congo ex-Zaire and found that everywhere was in the same utter shambles that Zaire was in.


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 Sat Nov 10th, 2007 at 12:57:10 PM EST
[ Parent ]
http://www.dailykos.com/story/2007/11/10/123523/75
in an extended version.

also on the oil Drum:
http://www.theoildrum.com/node/3226

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Sat Nov 10th, 2007 at 01:46:26 PM EST
Just remember that the CEO's of the big oil firms have a conflict of interest. If they can inspire a minor panic and this causes prices to rise they can anticipate higher profits.

Some how I trusted John Browne of BP because he was taking actions to move the firm into new energy technologies. I don't know anything about the new fellow, but he needs to do some repair work on the bottom line after all the problems that BP has had over the last few years.

I can't speak for the others, but a bit of skepticism as to their recent "conversion" might not be such a bad idea.

Policies not Politics
---- Daily Landscape

by rdf (robert.feinman@gmail.com) on Sat Nov 10th, 2007 at 05:09:01 PM EST
[ Parent ]
Yes, but if they go to far they may inspire a conservation backlash.  We can only hope.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Sat Nov 10th, 2007 at 08:41:55 PM EST
[ Parent ]
how high would the floodwaters have to get?

Any idiot can face a crisis - it's day to day living that wears you out.
by ceebs (ceebs (at) eurotrib (dot) com) on Sat Nov 10th, 2007 at 08:44:55 PM EST
[ Parent ]
Well, undoubtedly pretty high.  I'm continually amazed at the total lack of concern with which many Americans go about their daily lives.

I can swear there ain't no heaven but I pray there ain't no hell. _ Blood Sweat & Tears
by Gringo (stargazing camel at aoldotcom) on Sat Nov 10th, 2007 at 11:25:00 PM EST
[ Parent ]
even if they make all the investment plans announced are made and are on time, we'll still have a gap of 12.5mb/d (more than 10% of overall demand) by 2015; we now officially need to beg OPEC to invest more;
How is demand measured? How do we know supply (and hence consumption) is 10% lower than demand?

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Nov 10th, 2007 at 01:46:28 PM EST
The IEA looks at the historical relation between oil demand and economic growth, decides what growth they want and extrapolate oil use from there.

Remember when they lowered projected future oil demand from something like 120 mbpd to 115 mbpd? They got that by deciding you needed a little less oil for a certain amount of growth.

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

by Starvid on Sat Nov 10th, 2007 at 02:12:09 PM EST
[ Parent ]
In other words, demand is not measured, it is "marked to model".

We have met the enemy, and he is us — Pogo
by Migeru (migeru at eurotrib dot com) on Sat Nov 10th, 2007 at 03:09:36 PM EST
[ Parent ]
It sounds like it's more like the term Jerome used about Level 3 assets... What was it? Marked-to-make-believe?

- Jake

Austerity can only be implemented in the shadow of a concentration camp.

by JakeS (JangoSierra 'at' gmail 'dot' com) on Sun Nov 11th, 2007 at 02:57:15 PM EST
[ Parent ]
Then you should know how they predict supply!

After looking at demand they way I described above, they put supply=demand.

Brilliant.

At least that's how they did it a few years ago. Recent development may suggest they have been going sober.

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

by Starvid on Sun Nov 11th, 2007 at 11:18:17 PM EST
[ Parent ]

Opec to seek assurances on oil demand

Opec will this week seek assurances from some of the world's biggest oil consumers that they will maintain their demand as the members of the oil cartel come under intense pressure to boost investment in production capacity.

The call, to be made at a summit of the Organisation of the Petroleum Exporting Countries in Riyadh this weekend, could boost long-term prices as investors worry the oil cartel will not invest enough to meet consumption in the face of growing demand from the likes of China and India.

The summit - only the third in Opec's 47-year history - comes as oil prices race towards a record $100 a barrel and with Opec crude oil revenues set to rise to $658bn this year, an increase of almost 9 per cent from 2006, according to the latest US government figures. The summit is expected to issue a declaration that will highlight the "relationship between security of supply and security of demand", according to Opec sources.

Consumer countries, in particular the US and in Europe, are investing in alternative sources of energy, such as biofuels and nuclear power, and energy-saving measures to reduce their dependency on crude oil and combat global warming.

Some Opec countries are worried such moves could jeopardise future demand just as they embark on expansion plans.



In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Sun Nov 11th, 2007 at 06:40:08 PM EST
They have absolutely no reason to worry. They just have to count how many people live in China and India.

At least that's what Fatih Birrol of IEA said, but then IEA is OECD---> energy importers---> want low energy prices.

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

by Starvid on Sun Nov 11th, 2007 at 11:19:55 PM EST
[ Parent ]
US demand and lack of action
shine by their absence in this interview and now the whole ME is added to the list of bad guys, China and India.

Myopic, spinny and very old.  Give him a prize for reinventing the wheel?

Our knowledge has surpassed our wisdom. -Charu Saxena.

by metavision on Mon Nov 12th, 2007 at 02:20:41 PM EST


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