Best of the Week
Most Popular
1. Stock Markets and the History Chart of the End of the World (With Presidential Cycles) - 28th Aug 20
2.Google, Apple, Amazon, Facebook... AI Tech Stocks Buying Levels and Valuations Q3 2020 - 31st Aug 20
3.The Inflation Mega-trend is Going Hyper! - 11th Sep 20
4.Is this the End of Capitalism? - 13th Sep 20
5.What's Driving Gold, Silver and What's Next? - 3rd Sep 20
6.QE4EVER! - 9th Sep 20
7.Gold Price Trend Forecast Analysis - Part1 - 7th Sep 20
8.The Fed May “Cause” The Next Stock Market Crash - 3rd Sep 20
9.Bitcoin Price Crash - You Will be Suprised What Happens Next - 7th Sep 20
10.NVIDIA Stock Price Soars on RTX 3000 Cornering the GPU Market for next 2 years! - 3rd Sep 20
Last 7 days
Silver Market - 22nd Oct 20
Goldman Sachs Likes Silver; Trump Wants Even More Stimulus - 22nd Oct 20
Hacking Wall Street to Close the Wealth Gap - 22nd Oct 20
Natural Gas/UNG Stepping GAP Patterns Suggest Pending Upside Breakout - 22nd Oct 20 -
NVIDIA CANCELS RTX 3070 16b RTX 3080 20gb GPU's Due to GDDR6X Memory Supply Issues - 22nd Oct 20
Zafira B Leaking Water Under Car - 22nd Oct 20
The Copper/Gold Ratio Would Change the Macro - 21st Oct 20
Are We Entering Stagflation That Will Boost Gold Price - 21st Oct 20
Crude Oil Price Stalls In Resistance Zone - 21st Oct 20
High-Profile Billionaire Gives Urgent Message to Stock Investors - 21st Oct 20
What's it Like to be a Budgie - Unique in a Cage 4K VR 360 - 21st Oct 20
Auto Trading: A Beginner Guide to Automation in Forex - 21st Oct 20
Gold Price Trend Forecast into 2021, Is Intel Dying?, Can Trump Win 2020? - 20th Oct 20
Gold Asks Where Is The Inflation - 20th Oct 20
Last Chance for this FREE Online Trading Course Worth $129 value - 20th Oct 20
More Short-term Stock Market Weakness Ahead - 20th Oct 20
Dell S3220DGF 32 Inch Curved Gaming Monitor Unboxing and Stand Assembly and Range of Movement - 20th Oct 20
Best Retail POS Software In Australia - 20th Oct 20
From Recession to an Ever-Deeper One - 19th Oct 20
Wales Closes Border With England, Stranded Motorists on Severn Bridge? Covid-19 Police Road Blocks - 19th Oct 20
Commodity Bull Market Cycle Starts with Euro and Dollar Trend Changes - 19th Oct 20
Stock Market Melt-Up Triggered a Short Squeeze In The NASDAQ and a Utilities Breakout - 19th Oct 20
Silver is Like Gold on Steroids - 19th Oct 20
Countdown to Election Mediocrity: Why Gold and Silver Can Protect Your Wealth - 19th Oct 20
“Hypergrowth” Is Spilling Into the Stock Market Like Never Before - 19th Oct 20
Is Oculus Quest 2 Good Upgrade for Samsung Gear VR Users? - 19th Oct 20
Low US Dollar Risky for Gold - 17th Oct 20
US 2020 Election: Are American's ready for Trump 2nd Term Twilight Zone Presidency? - 17th Oct 20
Custom Ryzen 5950x, 5900x, 5800x , RTX 3080, 3070 64gb DDR4 Gaming PC System Build Specs - 17th Oct 20
Gold Jumps above $1,900 Again - 16th Oct 20
US Economic Recovery Is in Need of Some Rescue - 16th Oct 20
Why You Should Focus on Growth Stocks Today - 16th Oct 20
Why Now is BEST Time to Upgrade Your PC System for Years - Ryzen 5000 CPUs, Nvidia RTX 3000 GPU's - 16th Oct 20
Beware of Trump’s October (November?) Election Surprise - 15th Oct 20
Stock Market SPY Retesting Critical Resistance From Fibonacci Price Amplitude Arc - 15th Oct 20
Fed Chairman Begs Congress to Stimulate Beleaguered US Economy - 15th Oct 20
Is Gold Market Going Back Into the 1970s? - 15th Oct 20
Things you Should know before Trade Cryptos - 15th Oct 20
Gold and Silver Price Ready For Another Rally Attempt - 14th Oct 20
Do Low Interest Rates Mean Higher Stocks? Not so Fast… - 14th Oct 20
US Debt Is Going Up but Leaving GDP Behind - 14th Oct 20
Dell S3220DGF 31.5 Inch VA Gaming Monitor Amazon Prime Day Bargain Price! But WIll it Get Delivered? - 14th Oct 20
Karcher K7 Pressure Washer Amazon Prime Day Bargain 51% Discount! - 14th Oct 20
Top Strategies Day Traders Adopt - 14th Oct 20
AMD is KILLING Intel as Ryzen Zen 3 Takes Gaming Crown, AMD Set to Achieve CPU Market Dominance - 13th Oct 20
Amazon Prime Day Real or Fake Sales to Get Rid of Dead Stock? - 13th Oct 20
Stock Market Short-term Top Expected - 13th Oct 20
Fun Stuff to Do with a Budgie or Parakeet, a Child's Best Pet Bird Friend - 13th Oct 20
Who Will Win the Race to Open a Casino in Japan? - 13th Oct 20
Fear Grips Stock Market Short-Sellers -- What to Make of It - 12th Oct 20
For Some Remote Workers, It Pays to Stay Home… If Home Stays Local - 12th Oct 20
A Big Move In Silver: Watch The Currency Markets - 12th Oct 20
Precious Metals and Commodities Comprehensive - 11th Oct 20
The Election Does Not Matter, Stick With Stock Winners Like Clean Energy - 11th Oct 20
Gold Stocks Are Cheap, But Not for Long - 11th Oct 20
Gold Miners Ready to Fall Further - 10th Oct 29
What Happens When the Stumble-Through Economy Stalls - 10th Oct 29
This Is What The Stock Market Is Saying About Trump’s Re-Election - 10th Oct 29
Here Is Everything You Must Know About Insolvency - 10th Oct 29
Sheffield Coronavirus Warning - UK Heading for Higher Covid-19 Infections than April Peak! - 10th Oct 29
Q2 Was Disastrous. But What’s Next for the US Economy – and Gold? - 9th Oct 20
Q4 Market Forecast: How to Invest in a World Awash in Debt - 9th Oct 20
A complete paradigm shift will make gold the generational trade - 9th Oct 20
Why You Should Look for Stocks Climbing Out of a “Big Base” - 9th Oct 20
UK Coronavirus Pandemic Wave 2 - Daily Covid-19 Positive Test Cases Forecast - 9th Oct 20
Ryzen ZEN 3: The Final Nail in Intel's Coffin! Cinebench Scores 5300x, 5600x, 5800x, 5900x 5950x - 9th Oct 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

The Old Faithful Peak Oil Debate

Commodities / Crude Oil Aug 24, 2011 - 03:33 PM GMT

By: Andrew_McKillop

Commodities

Best Financial Markets Analysis ArticleIt is a well known refrain: Peak Oil is always now ! The problem is that nobody noticed, because oil prices are so high and demand growth is almost zero. The ongoing and real economic recession in almost all OECD countries more than "trims" oil demand in these countries, still taking about 45 million barrels a day (Mbd) on a world total demand of about 89 Mbd, depending on estimates, which easily range through + or - 2 Mbd, and vary even more than that for seasonal variations.


These demand and supply variations, in turn, are where the biggest problems lie. If or when Peak Oil really arrives, and supply really falls away, we would have the situation that the quickest glance at the IEA chart, below, indicates. That is a sort of "break in series", which this chart from the IEA places at right now - starting by 2010 and becoming ever more powerful by 2020.



Figures and charts from the US EIA (Energy Information Agency) are sometimes similar, but are usually not, underlying the subtle war of influence going on between the IEA and EIA. The EIA is resolutely anti-Peak Oil. The IEA sometimes responds to US pressure, but also tends to go it alone by publishing charts like the above, which can be called squarely in the Peak Oil camp.

The question remains whether US pressure on the IEA is due to a legitimate difference of opinion or whether the US actually believes the "no shortage" line it tells the IEA to adopt. To be sure, the basic result of "no shortage" is lower oil prices, which are so intensely traded that good news on insurgent victories in Tripoli can send day prices down - but for several years and increasingly, oil prices are well correlated with equity prices. The new reality is that when oil prices rise, so do equity values, because both are signals the economy is growing.

Reading The Charts
The IEA graph above shows "all liquids" continuing to rise slowly through 2030 in a "new normal" of very low annual growth, but growth all the same. While Peak Oil predictions, as noted above always say it has just happened or is imminent, this is a play on definitions. The first peak oil event occurred in the 1860s, when oil was still mostly collected from declining natural seeps, particularly in Russia and the USA. This was followed by major technology and industrial changes, and major finds of extractible oil, but on that basis of past experience we could say that one day or someday predictions of physical shortage will be right.

This above IEA chart, which is not EIA approved, is however already outdated by demand change. OECD oil demand is falling, or only growing very slowly, as the few countries with continuing economic growth are outnumbered by OECD countries in sharp recession: the European PIIGS have shown near collapse of their oil demand - with typical falls of 15 percent or more in 2 years. This makes the current situation particularly confusing, because high oil prices and the OECD-wide recession have cut oil demand so sharply. Because of this, global oil production probably reached its peak in summer 2010, or slightly before. At present we cannot say when or if it will be exceeded.

This reality of "peak oil is already here" is presently not a supply-side phenomenon, but is demand driven, and the above chart can already be trimmed on likely future "all liquids" demand and therefore supply needs. In addition and on top of OECD oil demand reduction we have OPEC curtailing supply, both by design and because of increasing domestic consumption and falling export surpluses, with the net result of oil prices rising, except in outright recession. The "previous paradigm" of effective and real non-cooperation between OPEC members, with Saudi Arabia doing the dirty work and drying up supply to bolster prices, while the others cheated, is less and less necessary to keep prices high. In turn, and possibly but not surely, OPEC may now be "Peak Oil friendly" and would like us to believe that declining supply is due to natural shortages - and not due to OPEC oil market manipulation.

But why would the IEA join in this "conspiracy" ?

Wheels Within Wheels
As usual with the oil business, the future remains murky. In the short term we define as 3 years ahead, we can be almost certain oil prices will both track - and anticipate - any trend or sign of economic recovery. OPEC can if necessary cut back on supply, in fact more and more easily, as ever rising costs for developing additional capacity, and rising domestic demand reduce or limit the growth of net export surpluses. OPEC will make a killing whether there is a natural shortage, or they are causing it.

The Gas Bubble is the only solution, due to oil substitution by the renewables being so painfully slow and expensive. This is recognized by the IEA - but "political correctness" makes it impossible to say this outright. High oil prices are probably considered by the IEA as the best way to change attitudes.

"Stranded" gas and unconventional gas are abundant. These are the two rational fossil energy great hopes. Oil will stay expensive, in all probability, but gas will certainly get cheaper. New gas resources and supply are given massive coverage by the IEA - and the EIA has no ideological problems with this particular IEA policy stance !

The real world shows no hint of looming peak gas. Supplies have gone through the roof, only since 2008, due to increasing development of massive "stranded" or gas-only fields such as Russia's Shtokman field and Iran's Pars field, and particularly because of new technology for releasing gas trapped in tight shale formations. Shale-based gas production, usually from resources located more than a mile underground, uses hydro fracturing to release the gas - to be sure with relatively frequent but controllable waterbody pollution of  "frac job" chemicals and wastes.

Due to at least 40 percent of world oil being used only in transport (and most of this in land and ocean transport), gas substitution is the clearest, simplest, most rational energy policy change that is needed. To be sure it is not happening. This shifts the subject to other "conspiracies", including the Global Warming conspiracy, where gas is treated as "unclean" in the same way as coal and oil, due to CO2, but above all due to outdated geopolitical images of gas dependance on Russia's Gazprom and unstable or unreliable OPEC and non-OPEC gas exporters. The marks of that former crisis - restricted supplies of gas, and gas prices tied to and linked with oil prices - still exist, but they are totally unrelated to the Gas Bubble. We are therefore in a period of policy drift.

In the short term, as already noted, oil prices will remain high and unlinked with gas (in fact increasingly de-linked with gas in markets like Europe and Asia), spelling major problems for the last gasp of the high price gas era - the LNG boom. This particular high cost and capital intensive energy subsector is facing agonizing and dangerous times, as previous demand forecasts and capital spending plans are slashed.

By Andrew McKillop

Contact: xtran9@gmail.com

Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights

Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.

© 2011 Copyright Andrew McKillop - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Comments

MrEnergyCzar
24 Aug 11, 20:56
Future fields?

Where are the future fields left to be developed? Under the ice caps? The moons of Titan?


Graham Mewburn
27 Aug 11, 05:15
peak oil

If you look carefully at the graph above you will see crude is in decline. All the other colours are not crude oil. Google IEA PEAK OIL

The IEA says peak oil occurd 2006

Google CATALYST OIL CRUNCH

Catalyst is a tv program. They aired a program called OIL CRUNCH

I RECOMMEND YOU WATCH IT

All civilizations come and go. Our end is near

INVESTIGATE

Make an informed decision

Gray

Graham Mewburn


it's laughable
28 Aug 11, 11:23
peter

it's laughable that the oil still to be discovered increases from almost zero to 20 million barrels a day in 2030. It's appropriate that they chose the color pink to represent that in the chart; they are definitley looking through some pretty rosy colored glasses.

We are not replacing the oil we are consuming...oil output is beginning to decline and can decline rapidly. Look at Iraq, Iran, Libya, they are not ever going to get back to producting what they used to. The oil fields in Saudi Arabia of a type that can dry up almost overnight when they get to their exhaustion point. Nobody knows when that day or week or month will come but it will.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules