“Really Bad Days”

The normally optimistic International Energy Agency (IEA) made some very pessimistic comments in Time yesterday:

Oil Prices: It Gets Worse

Oil prices hit a record high of $97 a barrel on Tuesday, but the next generation of consumers could look back on that price with envy. The dire predictions of a key report on international oil supplies released Wednesday suggest that oil prices could move irreversibly over the $100-a-barrel threshold in the not too distant future, as the global economy faces a serious energy shortage.

In a marked change from its traditionally bland, measured tones, the IEA’s 2007 report says governments need to make urgent, bold decisions on energy policy, or risk massive environmental and energy-supply crises within two decades — crises and shortages that could spark serious global conflicts.

“I am sorry to say this, but we are headed toward really bad days,” IEA chief economist Fatih Birol told TIME this week. “Lots of targets have been set but very little has been done. There is a lot of talk and no action.”

If you have followed the IEA’s forecasts for any length of time, you will recognize this as an incredible about-face by them.

11 thoughts on ““Really Bad Days””

  1. Energy will be a top priority for the next US administration, regardless of which party wins. Unfortunately both parties have dug themselves into positions that would allow the crisis to continue. The GOP is in denial about greenhouse gasses, and is loathe to force conservation measures. The Dems still live in renewable energy fantasy-land and are in denial about the need for more nuclear power. Sadly, I see a lot more coal use in our future.

  2. Why $100 Oil Can’t Float: Justifications for the Price, Like Supply and the Dollar, Crumble Under Economics by Cyrus Sanati in the Wall Street Journal on November 8, 2007 at Page C14

    … The price is too high to be sustainable. There are 10 solid reasons why:

    1. Supply above ground is abundant. The amount of oil in storage tanks around the world is near all-time highs — 4.2 billion barrels at the end of June in the industrialized countries of the Organization for Economic Cooperation and Development alone, according to the U.S. Energy Information Administration.

    Falling inventories in the U.S. have received a lot of attention, and the EIA does predict slightly lower stocks by year-end. But this has more to do with inventory management than a lack of supply.

    2. Supply below ground is abundant. The world’s proven reserves are now at 1.4 trillion barrels, up 12% in the past 10 years, according to BP. …

    3. Production is set to increase. Sustained high oil prices have encouraged drilling. There are 45% more oil rigs in service today than there were three years ago. New rigs are more productive than old ones and new technology is helping to squeeze more oil out of old fields.

    4. The cost of production is much less than $100 a barrel. Even with oil-services costs soaring, Royal Dutch Shell’s lifting cost per barrel of oil equivalent in 2006 was about $9, according to energy research firm John S. Herold. Extracting oil costs Saudi Aramco, the Saudi Arabian producer, an estimated $4 to $5 a barrel.

    The full cost of new production — including both capital and operating-cost components — in the most challenging oil fields, for example in Canada’s oil sands, is perhaps $30 a barrel. Oil prices can fall heavily without making any of this production uneconomic.

    5. Iranian exports aren’t likely to be cut. … In any event, the world has the equivalent of nearly three years of Iranian production in storage, according to research from Oppenheimer. …

    6. High prices are pulling back demand. Oil consumption in the U.S. fell by 1.3% in 2006 and world-wide demand grew a measly 0.6%, according to BP. World-wide, demand this year is expected to be flat compared with last year. …

    7. High prices are forcing governments to cut subsidies. Iran is rationing gasoline, and last week China ordered a 10% increase in oil-product prices. That should curb demand growth, too.

    8. Energy from oil is looking expensive compared with energy from gas. Oil by the barrel has usually traded at six to 10 times the price of natural gas (measured per million British thermal units). It is currently at 13 times.

    9. The weak dollar is a poor excuse for high oil prices. Since Aug. 22, the dollar is down by only 8% against a basket of currencies while the oil price has risen by 40%.

    10. Speculation is artificially boosting prices. A speculator needs to put down only $4 per barrel as margin to bet on the oil price in futures markets. The net volume of open crude-oil contracts held by financial players is up 50% since August, when the credit crunch made it harder to make leveraged bets in some other markets. This looks like short-term, hot money.

  3. I have my Oil Watchdog press release all ready to go. Just some finishing touches.

    It was snowing in Aberdeen earlier. It went from sunny to snowing in about 10 minutes.

  4. What can be the meaning of such an instant 180 degree turn of that institution?

    (a) They are clueless and lost in the fog

    (b) They hacked Saudi government abacus computers and accessed secret data

    (c) An angel of light appeared in their dreams and they had a Revelation

  5. Mocking oilwatchdog is the way to deal with them. But at least you let people know you are mocking them.

    BTW – it is no secret that I am a man-made GW agnostic. I got this link sent to me yesterday by a “Dr. Mark Cox” but I was too busy to read it:

    Hoax: Journal of Geoclimatic Studies

    It turns out to be a very amateur but elaborate hoax by a UK based environmental blogger. It appears he has briefly duped a few people. The purpose is to expose GW skeptics as knuckle dragging neanderthals. The alledged hoaxster appears to have NO science or technical training. Pathetic.

  6. Perhaps if oil reaches $100/barrel there will be real steps to automotive fuel efficiency in North America.

    I read a comment somewhere a while ago (probably on The Oil Drum) that struck me as highly plausible. The gist of it was that it wasn’t the high prices of ’73 and ’79 that pushed the US consumer (and auto industry) towards more fuel-efficient vehicles – it was the shortages. I think of that every time I see a prediction that “gas prices hitting $x per gallon” will finally jolt the US auto market into behavioral change (which, as far as I can see, hasn’t happened yet, the abovementioned flattening of demand being imperceptible from where I sit).

    I think a 15% reduction in availability (i.e. if one out of every 7 days or so, at random, there was no gas available for retail purchase) would be far more of a shock to the average US consumer than a 15% (or 30%, or maybe even 50%) increase in price.

  7. Gas reaches $5 a gallon in California

    Gorda is an isolated outpost on scenic Highway 1 along the Big Sur coast. I love that stretch of coastline and usually stopped at Gorda or Lucia when I’d drive through. I don’t ever remember gas being less than $2.50 there even when it was a buck and change in the rest of the state.

Comments are closed.