By on June 12, 2008

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Commerzbank (Frankfurt, Germany) senior commodity analyst Eugen Weinberg joins the growing chorus of finance gurus predicting the popping of over-inflated oil prices. Weinberg sees oil dropping below $100 per barrel in 2009. His crystal ball also tells him that crude prices haven't yet quite hit their peak in this rally. He expects the price of oil futures contracts to collapse only after soaring to $150 and $170 in the next three months. Who's to blame? Weinberg say, "The trigger for this extremely fast-growing bubble is above all the poor performance of other investment classes, like stocks, bonds and property."  (I swear, Herr Weinberg must read TTAC!) I guess this means that I'll keep my Jeep parked and drive the Honda until next spring. Over to you, Stein…

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59 Comments on “Commerzbank: Oil Below $100 Per Barrel In 2009...”


  • avatar
    N85523

    As much as I love my Jeep, I wouldn’t mind having a Honda as well right now. Even a Subaru would work out well…

    I hope the folks in this story are right.

  • avatar
    gawdodirt

    Guess I’ll be laughing while I tow my BBC 26 ft boat behind my diesel crew cab while the greenies pic-nic on the beach. Can’t tow with a Pious!

  • avatar
    Alex Rodriguez

    “The trigger for this extremely fast-growing bubble is above all the poor performance of other investment classes, like stocks, bonds and property”

    Wait, I thought the market was based on supply and demand forces setting the price for the last barrel. You mean this guy is saying that the price is all about oil being a great place for investors to put their money??

    Impossible! The markets are a pure place where angels from heaven balance all forces into perfect price harmony. There is no speculation!!! None I tell you.

  • avatar
    Alex Rodriguez

    Additionally, T Boone Pickens and Hugo Chavez, the last bastions of integrity have both said that there are 87 million barrels of supply and 88 million barrels of demand, and using their halos have round the price of oil to the EXACT perfect price to balance those (made up) numbers. Just say NO to regulation!!!

  • avatar

    So, we have Miller of Gazprom predicting USD250 “within the foreseeable future” and Eugen of Commerz seeing under 100.

    Let’s safely assume that Miller – as the CEO of an energy company – doesn’t mind high prices, and that Eugen has a client who’d like them low …

    I’d love for the price of energy to be dirt cheap, as it’s been for a hundred years. Pity the Chinese and Indians, who are going to be ramping up their infrastructure with exensive oil underpinning the effort.

    A finite resource, the world’s willing to die for it, and it’s running out (or rather, the cheap oil is gone) – and we expect the price to fall?

  • avatar
    NickR

    Bullshit

  • avatar
    montgomery burns

    “The trigger for this extremely fast-growing bubble is above all the poor performance of other investment classes, like stocks, bonds and property”

    And let’s add a war in the middle east. The guy in the White House borrowing billions from China to finance that war, driving confidence in the dollar down. That same guy threatening a major oil exporter in the ME. And of course fear and greed. A perfect storm indeed.

  • avatar
    97escort

    What is Mr. Wienberg’s track record? Finance types have been predicting lower oil prices for several years now.

    They have been wrong repeatedly.

    They base their predictions on classic economics which supposes supply will increase if prices rise. That is not the current situation with oil.

    Prices have been rising for several years now with hardly any increase in supply. This is good evidence of Peak Oil. Those who study M. King Hubbert’s predictions of oil supply have been right about prices lately.

    Listen to them: Oil prices will continue to rise with periods of correction in between.

    This is due to the falling production of large oil fields that can not be made up for by the coming on stream of new smaller fields. And there is a shrinking supply of oil available in the export market.

    Also, the rise of China, Russia and Middle East auto markets continually suck up more oil supply.
    China’s recent auto sales are up 17% over last year for example.

    Oil prices are not in the control of Americans. It is an international market in which oil demand is growing due to rapid increases in auto ownership in places like Russia, Middle East oil exporting countries and China.

  • avatar
    toxicroach

    ??? Who has been saying that markets don’t have speculation?

  • avatar

    Great. If as a result of a possible price drop gas prices do go down into the $2.50 range, all American innovation will be set back by at least another 10 years compared to our foreign counterparts as all the big fat yokels stampede back into their oversized SUVs. GM will be happy to accommodate them, pushing out more YukaTahoes and then, instead of reinvesting the profits in R&D for advanced technologies and efficiency, Wagoner and crew give themselves millions in bonus money.

  • avatar
    marc

    I wouldnt be surprised to see oil fall below $100 once we go back to sound economic policies. But if you think that means the end of high gas prices, you’re crazy. Gas prices are lagging oil prices.

    Correct me if I am way off base…..

    A couple years ago, oil was around $30 a barrel, and we were paying around $1.20 a gallon. Now at $130 a barrel, we are paying around $4.00 a gallon. By my simple ratios, we should be paying $5.20 a gallon. I know gas prices are not wholly 100% realted to oil prices, but that is enough of a gap to let me think that even if oil goes dowmn, it will be some time before gas prices retreat in response. Besides, at $100 a barrel, werent we still paying around $3.70-$3.80?

    Sell the Jeep (although you wont get much for it).

  • avatar
    TEXN3

    @ gawdodirt: now don’t go being SMUG to owner’s of a Pious, sure doesn’t make you look any better.

    I know you’re sure hoping that this analyst is correct. Hate to look the fool…

  • avatar
    Landcrusher

    No, the market is not perfect, it’s just better than anything else, and we have no evidence of tampering by private individuals or corporations.

    OTOH, tampering by governments is openly discussed daily.

    Go burn your strawman somewhere else, your stinking up the place.

  • avatar
    ra_pro

    I have become a full Peak cultist after reading several sites like theoildrum.

    In the long run oil has nowhere to go but up because there ain’t more coming from nowhere, not much more anyway.

    Former German foreign minister Joshka Fisher is predicting an Israeli attack on Iran in the fall. With this October surprise we may be looking at 300 dpb.

  • avatar
    Pch101

    I have become a full Peak cultist after reading several sites like theoildrum.

    I believe that this is one of the key problems with these sorts of internet discussions.

    On one side, you’ve got car buffs who are absolutely unwilling to accept a world in which oil could be running out or bad for our health.

    On the other side, you have people who are so convinced that we are on the brink of running out of oil that every $0.10 upward tick in the price of oil is a sign that the end of the world is here (which, for some odd reason, seems to be a good thing.)

    I actually agree with aspects of the peak oil concept. But to say that oil prices can only move in one direction is a bit much.

    I raise this point continually, and I’d like someone to address it: Please find me an example of a freely traded commodity that had a dramatic sharp run up in prices that was able to maintain those prices over the long haul.

    When prices of any particular good skyrocket, there are usually a few basic reasons for it:

    (a) A government price control was lifted or artificially propped up and pegged currency collapses, so the price leaps to reflect pent up inflation.

    (b) A fad, like Cabbage Patch Doll or Pet Rock

    (c) A calamity, such as a war or a plague

    (d) A speculative bubble.

    That’s pretty much it. Prices that leap that quickly are not typically sustainable. Short term price movements are not necessarily indicative of long-term demand.

    You’re going to have difficulty finding exceptions to this. There is no reason to believe that oil is an exception, but it would have to be for oil prices to remain where they are today. This should be evident, if you fervently believe in peak oil theory.

  • avatar
    ghillie

    # gawdodirt :
    June 12th, 2008 at 4:36 pm

    Guess I’ll be laughing while I tow my BBC 26 ft boat behind my diesel crew cab while the greenies pic-nic on the beach. Can’t tow with a Pious!

    C’mon – you’re my brother-in-law aren’t you? ‘Fess up Steve, this is your stuff. I know it’s you, you big old rascal… gotta be.

  • avatar
    Geotpf

    Pch101 :
    June 12th, 2008 at 6:04 pm

    That’s pretty much it. Prices that leap that quickly are not typically sustainable. Short term price movements are not necessarily indicative of long-term demand.

    You are forgetting that oil is an inelastic good. For such a good, the price doesn’t affect how much people use much at all. If the price of gasoline doubled tommorow, people would still have to drive to work, to take their kids to school, to the grocery store. Sure, people would drive less otherwise, and buy a bunch of Priuses, but demand would not drop by half. It takes a very large price increase in the price of oil to affect the quantity demanded significantly. So, a very minor drop in supply or rise in demand can cause a significant price increase.

    Another problem is the story below this one-many foreign governments subsidize the cost of gasoline, which means until those governments decide the “price” of fuel riots is less than bankrupting the government, the price paid by those people will remain artificially low. It takes a huge increase in price before those governments cut or eliminate said subsidies.

  • avatar
    veefiddy

    So, um, even if the price goes down, can we agree that perhaps, just maybe, we should, you know, try to use a bit, how should I put this, less of the stuff?

  • avatar
    Pch101

    You are forgetting that oil is an inelastic good.

    This is actually untrue. Oil is an elastic good over the medium run.

    As we saw after the OPEC crisis, it gains elasticity over the medium run. Consumers will adjust their demand in time, but they do so only after they have time to recognize the price point and change their usage styles accordingly.

    During the last run up, oil demand peaked in 1979, fell 10% by 1983, and didn’t surpass the 1979 level again for another decade.

    Oil demand today is growing at a far slower pace than it was during the early 1970’s. For all of the talk about China and India, our needs today are actually growing at a fraction of their pace during the mid 1970’s.

    Supplies are also elastic over the medium run. The higher prices will encourage wildcatters to enter the market, alternative technologies to be used and the cartel members to cheat.

    It is shortsighted to think that demand for oil is continually increasing and that supply is absolutely fixed, when historically, this has not been the case. Markets are ultimately demand driven, and demand growth is trending downward. If we repeat the late 70’s/ 80’s episode, then demand will not only continue to slow, but it will actually fall.

  • avatar

    just another bubble like Long Term Capital, NASDAQ, Real Estate. the Fed prints money, first users create bubble, it bursts and sheep are sheared. same with oil, only this time, everyone feels the pinch.

  • avatar
    Landcrusher

    veefidy,

    No, we should not. Seriously. If there is a need for us to use less, which the population feels so strongly about, then we should be talking to our legislators about taxes or rationing.

    Either way, in a capitalist country, the wealthy will not be bothered, and the rest will feel the crunch. THAT fact, is why nothing will be done. Nothing will be done about the environment by a Democratic congress if it endangers any of the coalitions’ wants. That coalition includes the poor, the retired, and the socialists who won’t put up with anything that cramps their style.

    World be damned, they won’t change anything if it means they might lose their seats. Expect lots more demagoguery because their really is no way they can nail the rich on this one, and they know it. Hell, they can’t really even nail the “high” income earners (which is actually a different group than the independently wealthy).

  • avatar

    It’s a good thing that we’re having this price spike.

    It’s necessary to trigger the one thing we need now: demand destruction.
    To get that we need a consumer revolt. A panic.
    Thanks to the price spike that seems to be coming along now.

    So, folks, what are you going to do to use less oil?

  • avatar
    Landcrusher

    Nothing. Why should I do anything? Gas is cheap.

  • avatar

    Well, my snark in the earlier post fell to the ground.

    Here’s the head of BP on this issue:

    The first myth is that high prices are caused by technical factors, such as speculation. While these factors may have an impact on the margins, the data clearly show that high prices are really caused by economic fundamentals.
    Global energy demand growth in 2007 was above average for the fifth year in a row, driven by the fastest period of economic growth since the early 1970s. Demand growth is concentrated in those emerging nations that also subsidise fuel prices, such as China, India and – increasingly – the oil-producing nations themselves.
    http://www.ft.com/cms/s/0/c3f54e4c-36eb-11dd-bc1c-0000779fd2ac.html
    He says it’s not due to speculation, but due to economic fundamentals. But what the hell does he know, he’s only running an oil company and has little insight compared to the illuminati commenting here.

    Over at The Oil Drum they make the following observation, in a post discussing Mr. BP’s analysis:
    * demand growth is still very strong, and it is not just coming from China, it is also increasingly coming from oil-producing countries themselves;
    * production is stagnating overall, and declining in a number of regions: OPEC (despite its apparently plentiful reserves, Russia and, more significantly, in regions that “we” control, like the North Sea and the US (no explanation given);
    * incremental production can only come from “frontier” areas, ie expensive and low EROEI (although Hayward does not touch that concept, of course). There is no sivler bullet or quick fix like Alaska and North Sea were 30 years ago.

    And even the IAE agrees, though most commenters didn’t get what they were saying:
    IEA says high oil prices needed to cap demand

    The IEA said in its monthly oil market report that “supply growth so far this year has been poor and higher prices are needed to choke off demand to balance the market”. It added: “Abnormally high prices are largely explained by fundamentals”. (…)

    In its report, the IEA cut slightly, as expected, its oil demand growth forecast for the year, but surprised the market with a deep reduction in its non-Opec supply growth forecast, leaving the world economy more dependent than anticipated on Opec, the oil producers’ cartel. “This is a case of supply and demand pulling in opposite directions to push prices higher,” the IEA said. “Global market fundamentals showed continued tightness, with constrained supplies and robust non-OECD demand growth.”

    And while Mr. Commerzbank and his clients are hoping for sub-100, expect the price to keep rocketing:
    http://www.ft.com/cms/s/0/23928598-36c1-11dd-bc1c-0000779fd2ac.html?nclick_check=1

  • avatar
    Phil Ressler

    As I’ve previously pointed out, CERA tallies 2.5 – 4.0 trillion barrels of accessible oil remaining in the planet, after only the first trillion has been pumped out. But how about a more conservative accounting:

    This week, BP released an overview of energy reserves. They tally *known* global reserves of 1,238,00,000,000 barrels. That’s over a trillion. Known reserves have been growing, by 107.8 billion barrels since 2001, and 168.5 billion barrels, or 14%, over the last decade. Known global reserves have risen by 36% since 1987, during a time of slackened investment in new oil discovery. At current rates of consumption, known reserves see us through another 42 years.

    BP notes that man has used its first trillion barrels of oil. We have the next trillion already lined up. And they argue that the third trillion can be found if we “really apply” ourselves to identifying it.

    None of this includes unconventional oils or kerogen in shale. American shale oil is estimated to add 2 to 5 trillion more barrels of oil equivalence to the mix, with a special utility in transportation liquid fuels. This doesn’t count oil sands, oil shale on other continents, nor conventional oil in many unexplored deep water locations. It also excludes such phenomena as old wells refilling from below and new extraction techniques that are reviving old wells thought to have been exhausted. Now, some of these fuel sources become economic only above current prices, but those are the costs to begin exploiting them. It’s reasonable to expect that volume production of fuels derived from kerogen along with cumulative experience doing so will result in real-dollar declines in initial economics of extraction.

    We might *choose* to wind down petroleum-dependency prematurely for other reasons, but supply won’t be the near-term instigator, and you can expect to see considerable price fluctuation as the speculator markets calm or evaporate, and the dollar regains value.

    By 2000, the US — despite 19 years of declining real-dollars oil pricing — had improved its aggregate energy efficiency to the point where we drove a unit of economic growth on less than half the energy input required to do same in 1973. No one would argue that there isn’t more energy inefficiency to wring out of the US’ economic performance, so of course it will be further wrung. No doubt price shocks induce uneven distribution of pain across the body politic, but the current spike is far from crippling, and nothing indicates permanent escalation of prices, nor persistence in the rates prices have been spiking.

    The momentum pricing of oil-derived energy notwithstanding, gasoline is still quite cheap in the US, and delivers very high value. It is the enabler for personal mobility and a fuel for individual freedom, both of which are among the great aggregate wealth drivers in history.

    However, it’s been cheaper, so the bubble-nomics pricing feels disruptive & jarring to the inertia of the incidental spend Americans like to associate with fuel. Well, this year it’s not so incidental for some people. Which isn’t the same as saying it’s expensive. By the way, I think my property tax will go down enough this year to almost cover the delta between $3.00 and $5.00 premium gasoline if annualized. Buying on average about 30 gallons of gasoline a week, I can probably cover more than half of that delta by running my house A/C 2 degrees higher this summer and my heating 3 or 4 degrees lower next winter. With almost no effort at all, I can moderate my driving style anytime I want to attain a 20% gain in city fuel efficiency, and 10% boost highway.

    Oil is traded in dollars. Back out the cost influence of the weakened Buck. Back out the rising insecurity tax traders build into the price of oil when they get it in their heads that Bush is gunning for Iran before he leaves office. Back out the bubble-nomics of gamblers who have flocked to a new horse. What you end up with is oil that is moderately and sustainably-priced, just not incidental nor free.

    We’re nowhere near peak oil globally, but the next two trillion barrels will come at rising extraction costs, until the next mega-sources of hydrocarbons plateau or erode the fear-and-loathing pricing of today. There certainly are good reasons to elect to curtail our reliance on the oil drip early, but we have time to do this smoothly. In 2050 there will still be petroleum-fueled private transportation coincident with a mix of propulsion schemes and vehicle configurations appropriate to specific missions. Vehicles will weigh less. But those trucks in which so many people are upside down today will put distant owners very right-side-up in the middle of the 21st century.

    Fully aware that price eruptions claim some genuine victims, most people would do well to Maintain An Even Strain.

    Phil

  • avatar
    mdf

    Phil Ressler: “most people would do well to Maintain An Even Strain.”

    The main problem is that it is a hell of a lot easier to live in a world of fear, waiting for the hammer to fall, and try to infect other people with your brand of fear:

    When in danger,
    when in doubt,
    Run in circles,
    scream and shout.

    than actually get off your ass and solve the problem at hand.

    Gas prices got you down? Drive less. Buy a more fuel efficient car. Invest in the future you want.

    Death to doomerism. Why deny to it that which it seeks?

  • avatar
    detroit1701

    This price run-up is ridiculous, and has tons to do with speculation

    The reason why the feds say everyday, “we have no evidence of speculation” is because the hundreds of billions of dollars under hedge funds are not transparent, and cannot be accurately calculated.

    When OPEC is screaming that the price increase has little to do with supply, I believe it.

    Smart economists have recognized what the original post stated: When the dollar value is low and equities + bonds are in the gutter, one invests in commodities. That simple. Game over. Hedge funds have to beat the market (so that the 35 year-olds running them can have enough money to bid against each other for Picassos for $120 million).

    I would admit that some of the increase in price is due to demand: let’s say, 15-20%. The market will bottom out when the dollar strengthens and traditional investments start earning decent rates of return again.

  • avatar
    ra_pro

    Pch101,

    You keep saying history doesn’t support a projection that oil will go up in the price in the long term, the key word is long term. It may go down 10 bucks tomorrow if Shell comes out today with a bombshell such as “We discovered a Saudi Arabia in Antarctica”.

    The simple answer to your history point is that no natural resource of great significance has ran out yet with commodity markets in existence. This will be the first time when a commodity runs out and not just any commodity, by far the most important commodity ever in the history of mankind. Just the banks caution their clients that ‘the past performance is no guarantee of the future performance’ the fact that no commodity has gone up in price continuously doesn’t guarantee that none ever will.

    Check out this site and you will find answers to any and all reasonable objection you can come up with why we are not going to run out or even if we are why the future bright.

  • avatar
    Landcrusher

    Strangely,

    I agree with most of the comments from both BP and from the oildrum folks (the ones quoted, not the rest of their stuff necessarily).

    I have a lot of respect for BP as a company. They were well known at my old company for being the least bureaucratized, and best to work with of the major oil companies. Still, I differ on the speculation point. Here is the rub, there are lots of other heads at oil companies that say the present price is NOT supported by the fundamentals. I have not heard any of them blame speculators outright, but what is left?

    Those saying the speculators are not having that much effect like to point out the dollar gained, dollar lost justification. IOW, speculation is a zero sum game. That might be true, but it doesn’t mean we end up with the correct price. If you throw a market on top of a manipulated commodity you don’t just get a market price. As I have stated here before, there is something screwy with the oil markets because they don’t really represent the majority of oil produced. It seems they are more of a spot market. Also, the manipulation is not being done by what we call the “majors” but by the REALLY big oil companies owned by governments.

    As for the peak oil stuff, I believe the energy return on deep water oil is really good, and we got decades of it. Shale oil right now does have a poor energy return, but we have a long time to work on solving that problem.

    I know it’s too much to ask everyone to just relax, do business honestly, and expect the problem to go away. However, that would work if we could do it. Instead, we will continue to have people all over the world fighting over everything, coercing each other, cheating each other, and mostly because they believe in scarcity rather than plenty. It’s sad, really.

  • avatar
    Pch101

    You keep saying history doesn’t support a projection that oil will go up in the price in the long term

    Sorry, but that is not what I said.

    My point is fairly simple: steep short-run price increases are almost never sustainable over the medium term.

    If you can find an example of an exception, then I’d like to see it, but I think that you could look for it high and low, and you aren’t going to find much.

    The price of oil has increased over 2 1/2 times over a period during which demand increased by 2%, a pace that is well below historical averages. That price increase in the face of such modest demand growth is completely illogical and suggests that supply and demand ceased being the primary driver for oil prices about three years ago.

    There is no evidence that we are out of oil yet. Perhaps we will be in the future, but that is not the case today.

    Furthermore, oil demand does not increase every year, as has been intimated here. Since 1970, oil demand declined during six of those 37 years.

    Demand growth during 2007 was actually below average, and about 1/6th of the increase experienced during 1973. While China and India are factors over the long run, their importance has been grossly overblown in the context of historical demand growth.

    There is a tendency to confuse the long-term with the short term. It is perfectly possible to have a peak oil problem on a 20-year horizon, for example, without the current price being rational. The two ideas are not contradictory.

    When prices increase, demand eventually adjusts accordingly and suppliers eager to supply at the higher prices end with up with too much.

    The idea that we have run out of supplies is simply wrong. There is a lag between price spikes and the market’s ability to adjust to them, so it does take a few years for the consumers to adjust to the pricing, but they are doing that as we speak.

    Drilling activity is increasing, as profit seekers look for a chance to score from the price hikes, and they will add supplies to the market over time while demand heads in the opposite direction. That’s a recipe for lower prices.

  • avatar
    Lumbergh21

    And let’s add a war in the middle east. The guy in the White House borrowing billions from China to finance that war, driving confidence in the dollar down. That same guy threatening a major oil exporter in the ME. And of course fear and greed. A perfect storm indeed.

    It really wouldn’t matter what the billions (try trillions actually) are being borrowed for, the effect on the dollar would be the same. It’s frightening to see how the national debt has skyrocketed in the last seven years and for what? Politics as usual, trying to buy votes. At least the spending under Reagan resulted in a strong military (generally credited as a huge factor in the split of the eastern block and the USSR) with lots of bombs for Bush (the elder) and Clinton to lob at whomever they decided needed bombing.

    Shale oil has been brought up recently, and I would like to know why this isn’t being developed. Or, is it being developed and the development not being reported because it doesn’t fit in with the doom and gloom reports? I remember a break even point of approximately $30 back in the 70’s; so, why aren’t we churning this stuff out. Oil has been over $50 for quite some time.

  • avatar
    Geotpf

    Pch101 :
    June 13th, 2008 at 11:36 am

    Demand growth during 2007 was actually below average, and about 1/6th of the increase experienced during 1973.

    Stein X Leikanger :
    June 13th, 2008 at 3:37 am

    Global energy demand growth in 2007 was above average for the fifth year in a row, driven by the fastest period of economic growth since the early 1970s.

    One of you is wrong. Since Stein has a link and Pch101 does not, I’m guessing Stein is correct and Pch101 is wrong.

  • avatar
    Landcrusher

    Geotpf,

    I am not sure that those statements are actually contradictory. Enough of the terms are undefined that they could both be correct.

    That’s why you always have to question statistics, especially gubment ones.

  • avatar

    @Geotpf

    There are some fun games with statistics being performed by the people who have a strong, vested interest in the price of oil going down. A lot of low-cost airlines were advised that the price of jet fuel would come down by factors (it’s about USD 1300+/ton now), and they were quoted around 700/ton as a target — which is why they didn’t tie in contracts, and why they are suffering now. Bank analysts provided the recommendations …

    Similarly with the bets that Detroit made on large cars, they were told (after Katrina) that the prices we were seeing were just a blip, and that the world would once again go for the irresistible allure of oversized blimp vehicles that were perfect for traversing the many challenges from doorstep to school parking lot.
    Detroit is suffering, as are the analysts who landed Detroit in the soup.

    Some of the commenters here are still not seeing it – and appear, to me, as the people who must have been recommending investments in tar and caulking materials, as the trend in steel ships with engines would soon pass, and owners would be going for sail and wooden tall ships again.

  • avatar
    Pch101

    Since Stein has a link and Pch101 does not, I’m guessing Stein is correct and Pch101 is wrong.

    Bad guess. You can simply check with the EIA, the data is readily available, but unfortunately, posting links here doesn’t always work so well.

    Here it is:

    Year / Oil consumption, barrels per day / Change
    1970 / 46,808 / —
    1971 / 49,416 / 2,608
    1972 / 53,094 / 3,678
    1973 / 57,237 / 4,143
    1974 / 56,677 / (560)
    1975 / 56,198 / (479)
    1976 / 59,673 / 3,475
    1977 / 61,826 / 2,153
    1978 / 64,158 / 2,332
    1979 / 65,220 / 1,062
    1980 / 63,114 / (2,106)
    1981 / 60,944 / (2,170)
    1982 / 59,543 / (1,401)
    1983 / 58,778 / (765)
    1984 / 59,815 / 1,037
    1985 / 60,085 / 270
    1986 / 61,809 / 1,724
    1987 / 63,095 / 1,286
    1988 / 64,965 / 1,870
    1989 / 66,078 / 1,112
    1990 / 66,676 / 598
    1991 / 67,277 / 601
    1992 / 67,463 / 187
    1993 / 67,596 / 132
    1994 / 68,863 / 1,267
    1995 / 70,067 / 1,204
    1996 / 71,627 / 1,560
    1997 / 73,372 / 1,746
    1998 / 74,004 / 632
    1999 / 75,664 / 1,660
    2000 / 76,662 / 998
    2001 / 77,400 / 738
    2002 / 78,036 / 636
    2003 / 79,612 / 1,576
    2004 / 82,330 / 2,718
    2005 / 83,650 / 1,320
    2006 / 84,622 / 973
    2007 / 85,385 / 762

    Note 2006 and 2007. Both are below the 36 year average of +1,043 barrels per day, and certainly far below anything experienced during the OPEC crisis of the seventies.

    Don’t believe the hype. It’s pretty obvious why 2004 got the attention of speculators. Combine that with the war, and oil becomes a fun bet.

    But demand growth is tapering off. As we can see from historical data, demand growth has been negative once consumers had a chance to adjust. The medium run and short run pictures are not the same.

    I’m still waiting for an example of all of those commodities that managed to defy gravity by keeping their short term leaps permanently. If anyone has some examples to show us, please present it.

  • avatar

    Pch101

    Study this interactive chart. Pay particular attention to the blue dot – set the animation to demonstrate relative sizes.

    Enjoy. It’s a better depiction than yours, as it breaks down world regional demand relative to supply.

    http://www.theoildrum.com/node/4138

    And, Pch101, you probably know this, but your “statistic” ingeniously fails to take into account not only population growth, and an increase in vehicles needing petroleum — but also doesn’t consider the addition of nations experiencing hypergrowth.
    And that’s BP chief Heyward’s point in the op-ed he wrote for the FT — but then you probably know a lot more about oil and demand than he does?

    As I wrote above, there are a lot of fun games with statistics being played by people who have a vested interest in ignoring the problem. (For whatever reason.)

  • avatar
    Pch101

    And, Pch101, you probably know this, but your “statistic” ingeniously fails to take into account not only population growth, and an increase in vehicles needing petroleum — but also doesn’t consider the addition of nations experiencing hypergrowth.

    That’s absolutely and utterly false. Those figures are for global oil demand per day. The entire planet, the entire population.

    Those figures show that the China/India story is somewhat inaccurate. While they are certainly on a path to greater consumption and while their demand growth outpaces the world as a whole, their increased consumption is offset by reductions elsewhere so that the global total is not radically increasing.

    That is probably due largely to the fact that much of their increased consumption is attributable to offshored manufacturing that just transfered energy usage from other parts of the world to Asia. They use more, but we slow our consumption growth accordingly as their factories displace ours.

    Oil demand was growing much, much faster during the 1970’s than during any period in the last decade, save for the anomalous year of 2004. That is a fact, and very clear from the table.

    The EIA is neutral. Your peak oil advocacy sites have a preconceived agenda. If you only refer to sources that say what you want to hear, then naturally you will confirm your preconceptions every time.

  • avatar
    Landcrusher

    Stein,

    The bubble graph is interesting, but if it is drawing conclusions from the same source as the table at the bottom of the page then it is questionable. That table is just wrong.

  • avatar
    ra_pro

    Pch101,

    I am glad you and Phil are on the same side this time around. And now just like Phil you are light on facts and long on rhetoric :)

    Here are a few relevant facts regarding oil availability and production. The world is currently producing between 85-87 million barrels per day. The demand is currently for slightly more than that. This has been the case for the last few years. Under normal market conditions this would prompt producers to increase the output to meet the demand. This isn’t happening even as the price has been steadily climbing since 1999, steeply since 2005. Why? the simplest most logical explanation is they can’t because either there isn’t more of it or it’s impossible to get efficiently, whichever it is doesn’t matter.

    The IEA and CERA are finally coming around from their rosy projections to reality. It’s expected that in its report in November IEA will finally acknowledge that their projects up until now were too optimistic and that the oil production will not increase fast enough to meet the projected demand. Not surprising since the IEA predictions were not really predictions at all but assumptions, they just assumed that markets being what they are will automatically meet the projected demand even if with some time-lag.

    But the demand is projected to be 130 mbpd (million barrels per day) by 2030.

    The bosses of ConocoPhillips and Total both stated publicly that the world will not be able to produce more than 100 million barrels per day ever. Because they are heads of 2 oil companies whose stock price is directly linked to their future ability to produce oil we can safely assume that their projections are still a bit too optimistic, after all they don’t want to send their stock into the toilet. If we discount 5-10% due to this we arrive at 90-95 mbpd which is not far off the 90 mbpd that many geologists, chemists , engineers predict at theoildrum.com is the maximum oil production we will ever able to achieve. In other words we see a consensus being formed in the oil business between the wild-eyed optimists, mostly the management of the oil companies (whose pay is linked to the stock performance of their companies) and the doomsayers, specifically the experts working for these oil companies, geologists, chemists, engineers who are paid by doing their job properly meaning being able to estimate, find, extract the actual oil.

    I think last year was the first year ever that the new found estimated oil discoveries didn’t even cover the actual decline in the output of the existing fields. The output of the British North Sea has been steadily going down since 1999, it’s down 40% overall, there is no chance it will ever increase. The output of Mexico is projected to collapse with the next 5 years as their output goes down by as much as 18% a year. Output of Saudi Arabia is at its zenith, numerous knowledgeable people who have worked for Aramco said publicly that Saudi Arabia/Aramco are either at its peak capacity or past it already with some fields declining at the rate of 8% a year; again virtually no possibility that they can ever increase their output. The best hope is that Aramco can continue at the current pace for the next decade.

    There has been no major field discoveries in the last 10 years. One of the biggest I believe is offshore Brazil with estimated 8 billion barrels which is enough to cover US needs for 7-12 months. Whatever discoveries there have been were small barely covering the declines of the existing fields.

    There are numerous oil projects in development but almost all are plagued by delays usually major with big cost overruns. This is due to the fact that the cost of extracting oil is actually going up even faster than the oil price itself and that should tell you something. For good summary see
    http://en.wikipedia.org/wiki/Oil_Megaprojects

    Hence we are in a period of peak oil where a production might still increase slightly but way below the demand. Such a situation hasn’t yet happened in the history of the world so don’t look for a precedent on the commodity markets. The oil market is volatile but the long term trend for oil is to go up as the demand will continue to outstrip the supply.

  • avatar
    Pch101

    I am glad you and Phil are on the same side this time around.

    Actually, we’re not. He thinks that prices are fine and that peak oil is an impossibility. I believe that prices are crippling enough to encourage demand disruptions, and that peak oil could occur at some point in the future. (Sorry to get your hopes up there…)

    The world is currently producing between 85-87 million barrels per day. The demand is currently for slightly more than that. This has been the case for the last few years. Under normal market conditions this would prompt producers to increase the output to meet the demand. This isn’t happening even as the price has been steadily climbing since 1999, steeply since 2005. Why? the simplest most logical explanation is they can’t because either there isn’t more of it or it’s impossible to get efficiently, whichever it is doesn’t matter.

    If you look at EIA’s global figures, supplies matched or exceeded demand in 2003-2005, and demand exceeded supply by a mere 0.029% during 2006.

    2007 was out of balance…by a whopping 1%. That was covered by available stocks, and it is not difficult to decrease global demand by 1%, as the early eighties makes clear.

    There have been supply disruptions in some of the non-OPEC countries, to be sure. Much of that has been offset by increased OPEC production. But it takes time for suppliers to react, they cannot turn on a dime. That’s why supplies are inelastic in the short run, but less so over the medium term. The price run up only really began in 2005, so producers haven’t had long to react.

    Meantime, the rate of demand growth is falling, and if history bears out, could go negative once again. Oil consumption goes hand in hand with prosperity, so a global economic downturn should stunt demand, putting everything back into balance and creating enough supply to naturally push prices down.

    Groups such as the American Petroleum Institute reports increased drilling and rig activity. While these supplies to be added are modest, they will combine with demand growth slowing and alleviate any supply crunches.

    But the demand is projected to be 130 mbpd (million barrels per day) by 2030.

    That’s great (well, actually, it isn’t), but it doesn’t affect the price in 2008. If I walked into my local Apple store and offered a $1 for an Ipod based upon its 2030 value, they’d probably chuck me out the door after thoroughly ridiculing me for such specious logic.

    Once again, the peak oil argument is independent of discussions of the current price and how it got to be at this level. 2030 is 2030, 2008 is 2008.

  • avatar
    Landcrusher

    Hold up.

    If you are going to have an economics discussion, then supply must always meet demand at SOME price.

    Demand cannot, by definition, outstrip supply over the long term unless the market price is being capped artificially.

    When anyone throws out this whole thing about demand being greater than supply over the past few years my BS meter goes off.

    So there, I call BULLSHIT!

  • avatar
    ra_pro

    If there is one simple illustration that explains why oil prices are going up it’s this graph:

    http://www.theoildrum.com/files/luis_exports.png

    It’s taken from this article:

    http://europe.theoildrum.com/node/4007#more

    The graph shows oil exports have been steadily declining since 2005. So unless the demand in the oil importing countries starts declining at least at the same rate as the oil exports, the price of oil ain’t going down, not mid to long-term anyway.

  • avatar
    Alex Rodriguez

    So between 2004 and 2008, Global demand has increased about 5% and oil prices have gone up 500%. Sounds like perfect supply and demand math to me. Equilibrium I tell you, those defenders of integrity, the speculators, are doing the 100 to 1 lambada to keep the market in perfect harmony.

    I’d like to buy the world a coke, and keep it company, that’s the song I sing….

  • avatar
    Phil Ressler

    Speaking of rhetoric…

    The world is currently producing between 85-87 million barrels per day. The demand is currently for slightly more than that. This has been the case for the last few years. Under normal market conditions this would prompt producers to increase the output to meet the demand. This isn’t happening even as the price has been steadily climbing since 1999, steeply since 2005. Why? the simplest most logical explanation is they can’t because either there isn’t more of it or it’s impossible to get efficiently, whichever it is doesn’t matter.

    There’s no conflict between the fact that the world isn’t running out of oil and the situation of the moment where production is flat. Low prices prior to 2005 slackened exploration, and large amounts of oil are kept out of exploitation due to a variety of environmental, aesthetics and vanity concerns, real and imagined. The 85mm barrel/day plateau we have now is a man-made constraint, not natural. BP is not a wildly optimistic assessor of available oil. Their view of extractable oil isn’t in any way in conflict with the current production plateau.

    …in November IEA will finally acknowledge that their projects up until now were too optimistic and that the oil production will not increase fast enough to meet the projected demand.

    Production will not increase fast enough to meet projected demand in what period of time? It’s a moving target. Sustained high prices will boost exploration and also exploitation of more difficult deposits, while same prices will moderate demand as people conserve, upgrade to more efficient consumption machinery or migrate energy demands to other sources.

    The bosses of ConocoPhillips and Total both stated publicly that the world will not be able to produce more than 100 million barrels per day ever.

    I can’t comment on whether they said this or not, but in the 1970s there were “experts” who were certain we’d never be able to push production beyond the 60mm bpd we passed in 1985.

    I think last year was the first year ever that the new found estimated oil discoveries didn’t even cover the actual decline in the output of the existing fields. The output of the British North Sea has been steadily going down since 1999, it’s down 40% overall, there is no chance it will ever increase. The output of Mexico is projected to collapse with the next 5 years as their output goes down by as much as 18% a year. Output of Saudi Arabia is at its zenith, numerous knowledgeable people who have worked for Aramco said publicly that Saudi Arabia/Aramco are either at its peak capacity or past it already with some fields declining at the rate of 8% a year; again virtually no possibility that they can ever increase their output. The best hope is that Aramco can continue at the current pace for the next decade.

    Part of Mexico’s problem is that Pemex, their state-owned oil monopoly lacks the technology and expertise to fully exploit Mexico’s territorial reserves. The North Sea field is declining as it’s exploitation matures. So what? None of this alarm recognizes deep water oil, unconventional oils or that which is held back from development for other reasons.

    Hence we are in a period of peak oil where a production might still increase slightly but way below the demand. Such a situation hasn’t yet happened in the history of the world so don’t look for a precedent on the commodity markets. The oil market is volatile but the long term trend for oil is to go up as the demand will continue to outstrip the supply.

    This is the notion of Peak Oil as an artificial phenomenon, not the idea of P.O. as a natural limit. There is more oil identifiable and known in the planet than has been pumped to date, and the globe hasn’t been comprehensively surveyed. When we have a oil and oil-like energy sources that can extend the utility of current energy infrastructure by *centuries* as previously noted, Peak Oil paranoia isn’t actionable. We might elect to not extend our oil dependency by 200 – 400 years via unconventional oils and coal liquification, curtailing instead and perhaps ending oil’s dominant role within this century. But that would be a choice, not a supply imperative.

    All the necessary facts to understand this situation are in this and other threads here. You just have to distinguish locally and temporally restricted data from the genuine underlying facts and trends. A strong argument can be made that $200 oil is the fastest route to eliminating perceived supply restrictions for a couple centuries or more, by increasing *reserves* faster than demand rises. How rapidly *production* rises under that scenario is a different matter entirely, since sophisticated producers will actively work to tune the market for optimum value.

    Phil

  • avatar
    Phil Ressler

    Actually, we’re not. He thinks that prices are fine and that peak oil is an impossibility. I believe that prices are crippling enough to encourage demand disruptions, and that peak oil could occur at some point in the future.

    Well, not exactly. I think prices aren’t as alarming as people express here but are high enough to affect demand (this has been happening in California for a year-and-a-half.) And I do believe Peak Oil is a legitimate phenomenon, but not today nor anytime soon.

    Phil

  • avatar
    Pch101

    The graph shows oil exports have been steadily declining since 2005.

    Now you’re trying to change the subject. The issue you previously addressed was one of supply — with a free market for oil, the source is irrelevant from an economic standpoint.

    What the peak oil crowd always seems to forget is demand. At most, demand is casually referenced as if it should be assumed that demand is on a constant upward trajectory, case closed.

    As we can see from the historical data, that is anything but true. In fact, demand fluctuates quite a bit and about 1/6th of the time, it falls. Furthermore, the growth of our appetite for oil is slowing down, not increasing. So that is a bad assumption.

    I think prices aren’t as alarming as people express here but are high enough to affect demand (this has been happening in California for a year-and-a-half.) And I do believe Peak Oil is a legitimate phenomenon, but not today nor anytime soon.

    The growing specter of stagflation and the economic downturn suggests that oil prices at their present levels are quite disruptive. Coupled with the credit crisis, it’s a real threat. But yes, I agree, peak oil isn’t here yet, not by a long shot.

  • avatar

    @# Landcrusher :
    June 13th, 2008 at 2:22 pm

    Stein,

    The bubble graph is interesting, but if it is drawing conclusions from the same source as the table at the bottom of the page then it is questionable. That table is just wrong.

    Well, what can you expect from those damned oil companies. Those numbers are actually from BP’s oil and energy survey, much touted, much lauded, much independently audited and much used when it was recently announced …

    Who to believe? Indeed, who to believe? If you won’t believe these numbers, Landcrusher, then we’re flying blind.

    For the whole lying sack of statistics you can go to their site and lodge your complaint. And remember, they’re the good guys, right?
    http://www.bp.com/productlanding.do?categoryId=6929&contentId=7044622

  • avatar

    This guy is right on. Time to short oil…

  • avatar
    ra_pro

    Phil,

    Your rhetorical flourish doesn’t address the hard physical limits that I listed.

    No major oil discoveries in the last 10 years. From last year now forward any new discoveries will most likely not even meet declines in the current fields. It’s not because the world hasn’t been fully surveyed yet; the opposite is the case.
    It’s been surveyed so thoroughly that most of the stuff has already been found. Whatever is left that hasn’t been found yet, hasn’t been found because we don’t even have the technology to find it, never mind to get it out of the ground.

    Constant delays at all major new projects happen because they underestimated the difficulty in extracting the oil. In many cases the technology is not mature enough to attempt the extraction fro instance from 6 miles under the sea bed (where many of the new fields are). The technology is being developed on the fly to meet the specific demands of each new field driving the costs sky high, higher then the cost of the oil that is to be extracted. The incremental technological improvements are not enough to meet these demands.

    Pch101,

    How am I changing subject by pointing you to a graph showing the declining supply of oil on the world markets. The reason this is instructive is that it doesn’t matter how much oil is extracted if that oil doesn’t get to the market because the suppliers keep it to themselves.

    The suppliers are going to extract a bit more oil in the next 5 years but are going to keep even more of it and making even less available to oil importers such as USA. This is a double-whammy, not only is the oil growth minimal and not able to meet projected demand, even less is going to be available on the world markets because of skyrocketing demand in oil-producing countries. Why is the demand going up through the roof in these countries? Because of the price of oil. These countries have so much money now that they can afford to buy new cars like never before, up 60% in Russia.

    In general your arguments are like Phill’s and are based on economics, human nature, stock markets, historical price fluctuations etc.

    My arguments are physical. What I am saying, just repeating for others have been saying for some time, is that there are physical limits to what is in the ground and our ability to get it out. When these 2 meet it’s called PO. Markets, economics, history, the alignment of the starts in the sky, all of that is irrelevant is irrelevant at this point in the overall scheme of the things.

    This physical barrier is already starting to sink in with oil traders that’s why the price is where it is.

  • avatar
    ra_pro

    I have to correct myself, the situations is much more dire described it.

    Here is the exact quote showing that our oil use/depletion is running way ahead of the new discoveries.

    The world now consumes 31.8 billion barrels of oil per year. 1978 was the last year that this volume of oil was discovered and more recently discovery has been running at less than 10 billion barrels per year. It is an utterly forlorn hope that exploration and new discoveries may alleviate the current supply crisis.

    How long can this go on?

  • avatar
    Phil Ressler

    No major oil discoveries in the last 10 years. From last year now forward any new discoveries will most likely not even meet declines in the current fields. It’s not because the world hasn’t been fully surveyed yet; the opposite is the case.
    It’s been surveyed so thoroughly that most of the stuff has already been found. Whatever is left that hasn’t been found yet, hasn’t been found because we don’t even have the technology to find it, never mind to get it out of the ground.

    The discovery record of the last decade is not an indicator that new discoveries aren’t in our future. By the way, that Brazilian offshore field you credit for 8B barrels is estimated by some to be as much as 4X that. It’s too new to know. It hasn’t been drilled. Also dig and note the number of headlines that reported it as a “surprise” discovery. The deep water parts of the globe have not been comprehensively surveyed for oil presence, and frankly the technology for doing so is still evolving. We’re also still finding oil in the Gulf of Mexico. Is the discovery of up to 15B barrels 30,000 feet beneath the Gulf of Mexico announced in 2006 among the absence of “major” oil discoveries you cite for the last decade? Since then, the Gulf is yielding more promise. But the extraction technologies for working at that depth, beneath deep water, is evolving on-the-fly.

    Constant delays at all major new projects happen because they underestimated the difficulty in extracting the oil. In many cases the technology is not mature enough to attempt the extraction fro instance from 6 miles under the sea bed (where many of the new fields are). The technology is being developed on the fly to meet the specific demands of each new field driving the costs sky high, higher then the cost of the oil that is to be extracted. The incremental technological improvements are not enough to meet these demands.

    So what? This is a temporary problem and it has nothing to do with Peak Oil as a supply limit, only as a temporary production constraint. Do you really believe we won’t overcome the current extraction obstacles encountered during the learning curve?

    My arguments are physical. What I am saying, just repeating for others have been saying for some time, is that there are physical limits to what is in the ground and our ability to get it out. When these 2 meet it’s called PO. Markets, economics, history, the alignment of the starts in the sky, all of that is irrelevant is irrelevant at this point in the overall scheme of the things.

    Your argument assumes discovery and extraction techniques remain static. We already can finger the next trillion barrels of oil and that doesn’t exhaust whats in the ground. As has been true for the last 150 years, our ability to extract oil progressively improves against the challenge of going deeper or more remotely for it. Moreover, you and all other Peak Oil fearmongers have been silent on the large amounts of unconventional oils and kerogen that are available at elevated economics. We have barely begun to get on the efficiency evolution curve with respect to those sources.

    Hydrocarbons in the planet aren’t our constraint. The lulls in energy investment when oil prices are low ensure stress when demand inevitably spikes. You can see this today in the lack of drilling equipment and well inventory. It’s not much different than the recurring phenomenon that when commercial real estate markets are hot, too many buildings are built, glutting said markets until they stall and then cessation of building lasts too long until a new shortage develops. It’s a big world and we’ve only lit the match on the first trillion barrels of crude. Relax, don’t panic, use less gasoline and heating oil if you want. Stop flying. Downsize. Get solar panels. Whatever floats you. It all helps. Just stop worrying about running out of oil. Again, BP can finger almost 1.3 trillion barrels of oil we know how to access. We don’t have to discover exactly what you use every decade for long term discoveries to increase the pool. Yet still, unconventional oils and coal liquification offer a multiple of the oil cache when we choose to develop them.

    Phil

  • avatar
    ra_pro

    Phill,

    Your cheerful pep-talk is good at your investor meetings and in your multipage management reports. Unfortunately it doesn’t nothing to dispel the laws of physics in the ground and the practical constraints in our extraction techniques.

    Nothing of major significance was discovered in the last decade or 3. Your dismissal that it doesn’t mean something major will be discovered in the future is meaningless in the practical world. We don’t have time, we need oil now. If we don’t get it our life as we know it will come to a halt. Even exploration presupposes a viable energy source.

    Our ability to extract oil is at the the very top at the moment. From now on the best we can hope for is to stay at the plateau. But even to stand still we must continuously add the depletion loss which is at the very minimum at least 2% a year. After we fail to do that we are going down at the exponential rate of at least 2% a year maybe more, initially slowly and later very fast. This is just exponential growth math.

    Alas, the alternatives. By far the biggest deposit of alternative oil is in the Canadian tar sands. However tar sands don’t scale well because they are a mining operation which is very different from the conventional drilling. The very best that can be expected from this mining technique according to the industry itself is 3 million bpd. This assumes going full tilt regardless of consequence which happen to be total environmental devastation. Even assuming we can decide to turn Alberta into Sahara, but with poison in the ground and water, to convert all the sands to oil we would have to use all natural gas and all fresh water in the world, the two main ingredients in the conversion process. I hope you can see that this again is not very practical.

  • avatar
    Phil Ressler

    Your cheerful pep-talk…

    It’s not pep talk, it’s realism. Doom-saying isn’t a coping strategy.

    Unfortunately it does nothing to dispel the laws of physics…

    No laws of physics are touched, impeded nor challenged.

    We don’t have time, we need oil now.

    We have lots of time relative to our ability to mitigate and migrate. The next trillion barrels are already identified and the trillion after that comes with a little more effort. And that’s before we exploit kerogen or tar sands.

    If we don’t get it our life as we know it will come to a halt.

    You worry too much. If you want to worry about a real crisis, take up fresh water as your cause. That’s a real problem. Do you think this is the first energy crisis people have faced? England denuded itself of wood and then found coal. Coal was barely scratched relative to resources when oil was discovered. Well before we burned the first half-trillion barrels of oil, nuclear energy was developed. We have steady, incremental gains in photovoltaic conversion of solar irradiance to electricity. We have more tools for managing an energy migration than mankind had in any previous such crisis. And global population will peak by mid-century only to moderate and recede after that. The singular energy challenge overshadowing others is ensuring liquid fuels for transportation, or replacing them with other means of storing portable potent energy, hence interest in chemical batteries and that other battery, hydrogen.

    Our ability to extract oil is at the very top at the moment. From now on the best we can hope for is to stay at the plateau.

    This is blind dogma that neither the verifiable presence of oil in the planet, nor economics, nor established trends in technology support. It’s just mindless hand-wringing that ignores every persistent trend in human resourcefulness, especially of the technical variety.

    But even to stand still we must continuously add the depletion loss which is at the very minimum at least 2% a year. After we fail to do that we are going down at the exponential rate of at least 2% a year maybe more, initially slowly and later very fast. This is just exponential growth math.

    2% per year depletion loss is not “exponential math.” You assume the wells we have are all the wells we’re going to get. That’s not remotely true. The next couple trillion barrels will come from a combination of existing wells — some of which are declining — new deep water wells, revived wells, deposits that are surprisingly refilling from below, wells in areas now artificially off limits for drilling. And then we still have unconventional oils that haven’t hit anyone’s gas tank yet. Again, depending what expert you reference, we see 2 – 4 trillion barrels of oil remaining before counting kerogen. Even at 40 or 50 billion barrels consumption annually, we have decades to engineer and plan our transition. It’s already started.

    By far the biggest deposit of alternative oil is in the Canadian tar sands.

    Wrong. Unless you’re a stickler for excluding kerogen from the inventory of oils or oil-like energy, shale oil deposits in the US alone dwarf Canadian tar sands.

    However tar sands don’t scale well because they are a mining operation which is very different from the conventional drilling. The very best that can be expected from this mining technique according to the industry itself is 3 million bpd.

    It’s a questionable claim but OK. You assume today’s constraints will persist and that we’ll learn nothing about how to improve our extraction productivity. History says any such assumption is virtually guaranteed to be wrong.

    This assumes going full tilt regardless of consequence which happen to be total environmental devastation.

    Every existing resource extraction technique was once environmentally devastating, and yet we learned to make them all cleaner and restore extraction sites. This too will happen with tar sands, if we make it a priority. Again, how we do things today is not static.

    Even assuming we can decide to turn Alberta into Sahara, but with poison in the ground and water, to convert all the sands to oil we would have to use all natural gas and all fresh water in the world, the two main ingredients in the conversion process. I hope you can see that this again is not very practical.

    We have many industrial processes that depend on large quantities of fresh water, which we’ve learned to recycle, store, restore and geofilter. Tar sands will be developed when the economics are compelling. But I’m not counting on tar sands in a big way.

    With at least a couple trillion barrels of recoverable oil identified, we not only have time to diversify our energy dependencies, reserving oil for what it’s most appropriate for, we also retain a vast repository of shale oil beyond the crude we now depend upon. Its existence has been known for decades. We know how to begin extracting and using it but at relatively high cost. The knowledge and productivity ramp will improve with experience. And we have the world’s largest deposit of it right here in the continental USA, vastly larger than Saudi Arabia has oil. We also have centuries worth of coal within our borders for which we are still learning how to diversify the matter state of its hydrocarbon energy.

    The answer is in keeping a level head. Market forces are and will trim, even plunge oil demand if the supply constraints you fear aren’t overcome. We have an array of technologies we are under-utilizing today that can take pressure off oil, and we are already on a course to steadily improve efficiency of all machinery that consumes energy. We will choose to move progressively away from oil long before we “run out.” As in freeway traffic ground to a dead halt due to the backwave generated by an incident ahead and long since rectified, just because you’re hamstrung momentarily doesn’t mean you won’t be moving forward soon.

    Phil

  • avatar

    This thread is in serious need of some refreshment

  • avatar
    casper00

    “Saudis to increase oil production by half-million barrels” per day, i just read this article. Not much but it’s a start. In my future I don’t see myself buying any of those hybrid vehicles so hopefully oil will drop like the article says…..

    http://news.yahoo.com/s/afp/20080614/ts_afp/ussaudioil_080614031419

  • avatar
    Phil Ressler

    “Do you like good music? Yeah, yeah…”

    Excellent video.

    I grew up near coal mines in a house heated by coal; went to college in a coal mining area with sons and daughters of coal miners; knew coal miners; worked with Democratic Party UMW members in the 1972, 1974 and 1976 political campaigns; I’ve been in a coal mine. Mining coal is a difficult, dirty, even nasty business.

    Guess what? Coal is going to be mined for generations to come.

    Phil

  • avatar
    mdf

    casper00: “Saudis to increase oil production by half-million barrels” per day [...]

    The meeting hasn’t happened yet, but what else can they realistically offer?

    http://www.arabnews.com/?page=6&section=0&article=110870&d=14&m=6&y=2008

    Arab News is surprisingly bereft of oil related items — probably the message is “there is more to Saudi Arabia than smelly, black sludge” — but the general tone has been “What the hell is the matter with our customers?!” For example:

    http://www.arabnews.com/?page=6&section=0&article=110257&d=26&m=5&y=2008&pix=business.jpg&category=Business

    Long term, the Saudis are more frightened than your average North American SUV owner, the unease notching up with each HEV, PHEV, or BEV announcement.

    http://www.motortrend.com/features/consumer/112_0705_james_woolsey_interview/index.html

    “I had a conversation with a senior Saudi who said that cars getting 500 mpg are going to ruin his country. I told him we don’t want to ruin Saudi Arabia, but we do think maybe you ought to get some other work.”

    It won’t happen overnight, but it is increasingly clear that North America is realizing they don’t need all that oil to maintain the usual standard of living.

    But today the #1 priority is simple market stability. The physics of the situation are with OPEC, but the psychology is against them. So they must increase production … but tempered by the fact that the Saudis (and OPEC in general) have been caught with their robes open in the past, when demand dropped while production was high, and would prefer not to make the mistake again.

    P.S. I’ve only been at TTAC for a few weeks now, and this has been the most interesting thread yet. Aim all the incoming doomers at it!

  • avatar
    Pch101

    Nothing of major significance was discovered in the last decade or 3. Your dismissal that it doesn’t mean something major will be discovered in the future is meaningless in the practical world. We don’t have time, we need oil now. If we don’t get it our life as we know it will come to a halt. Even exploration presupposes a viable energy source.

    That’s fairly alarmist.

    For one, with demand increasing at a pace of 1% or less, and with that figure falling, there isn’t much of a problem. Adjustments to demand are happening as we speak, and our global economic downturn is going to push it down further still.

    For another, the oil industry was not particularly eager to invest a lot in exploration and alternative technologies with oil at $15 per barrel, it just wasn’t worth the bother. Now that oil prices have gone up, this is changing.

    Here’s one example: Between 2000 and 2005, Shell invested an average of about $8.5 billion per year in exploration activities. During the last two years, that figure has increased to an average of $14.7 billion. The higher prices have encouraged them to look for more oil, so they have increased their spending accordingly.

    The other major oil companies are increasing their expenses in a similar fashion. When there is money to be made in it, they jump in with both feet. When oil is cheap, they are less inclined to put nearly so much into it. Judging the present situation based upon activities undertaken when oil was cheap is going to lead to excessively conservative conclusions.

    It is true that we are running out of the low hanging fruit of oil reserves, so the costs of extraction are bound to go up and cause prices that are above the old prices. The days of $15 oil are probably long gone. But that doesn’t mean that $135 is here to stay. It’s quite the opposite — it’s an blatant aberration that doesn’t correlate with the norm.

  • avatar
    cleek

    I’m not in a position forecast oil prices, but me thinks that crack is cheap and plentiful in Frankfurt.


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