Today the International Energy Agency (IEA) released their much anticipated (and previously leaked) World Energy Outlook 2008. The full report costs €150, but there is a lot of publicly available information on their website. They have a presentation for the press, an executive summary, and key graphs available. I will comment in more detail after I have had time to read through the report.
A preliminary look appears to me to be a full-fledged endorsement of the possibilities of peak lite. Reuters has more on that:
Credit crisis adds to risk of oil supply crunch
The agency’s World Energy Outlook for 2008 stopped short of sounding the alarm that oil supplies may have peaked, but highlighted obstacles to accessing new fields that include the increasing dominance of national oil companies.
The gap between what was being built in terms of new capacity and what would be needed to keep pace with demand was set to widen sharply after 2010, the IEA said.
More later, but for now here is the press release that accompanied the report:
New Energy Realities – WEO Calls for Global Energy Revolution Despite Economic Crisis
12 November 2008 London —
“We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure secure energy supplies and to curtail rising emissions of greenhouse gases. We must usher in a global energy revolution by improving energy efficiency and increasing the deployment of low-carbon energy,” said Nobuo Tanaka, Executive Director of the International Energy Agency (IEA) today in London at the launch of the World Energy Outlook (WEO) 2008 – the latest edition of the annual IEA flagship publication. The WEO-2008 provides invaluable analysis to help policy makers around the world assess and address the challenges posed by worsening oil supply prospects, higher energy prices and rising emissions of greenhouse gases.
In the WEO-2008 Reference Scenario, which assumes no new government policies, world primary energy demand grows by 1.6% per year on average between 2006 and 2030 – an increase of 45%. This is slower than projected last year, mainly due to the impact of the economic slowdown, prospects for higher energy prices and some new policy initiatives. Demand for oil rises from 85 million barrels per day now to 106 mb/d in 2030 – 10 mb/d less than projected last year. Demand for coal rises more than any other fuel in absolute terms, accounting for over a third of the increase in energy use. Modern renewables grow most rapidly, overtaking gas to become the second-largest source of electricity soon after 2010. China and India account for over half of incremental energy demand to 2030 while the Middle East emerges as a major new demand centre. The share of the world’s energy consumed in cities grows from two-thirds to almost three-quarters in 2030. Almost all of the increase in fossil-energy production occurs in non-OECD countries. These trends call for energy-supply investment of $26.3 trillion to 2030, or over $1 trillion/year. Yet the credit squeeze could delay spending, potentially setting up a supply-crunch that could choke economic recovery.
“Current trends in energy supply and consumption are patently unsustainable – environmentally, economically and socially – they can and must be altered”, said Nobuo Tanaka. “Rising imports of oil and gas into OECD regions and developing Asia, together with the growing concentration of production in a small number of countries, would increase our susceptibility to supply disruptions and sharp price hikes. At the same time, greenhouse-gas emissions would be driven up inexorably, putting the world on track for an eventual global temperature increase of up to 6°C.”
In addition to providing a comprehensive update of long-term energy projections to 2030, WEO-2008 takes a detailed look at the prospects for oil and gas production. Oil will remain the world’s main source of energy for many years to come, even under the most optimistic of assumptions about the development of alternative technology. But the sources of oil, the cost of producing it and the prices that consumers will have to pay for it are extremely uncertain. “One thing is certain”, stated Mr. Tanaka, “while market imbalances will feed volatility, the era of cheap oil is over”.
“A sea change is underway in the upstream oil and gas industry with international oil companies facing dwindling opportunities to increase their reserves and production. In contrast, national companies are projected to account for about 80% of the increase of both oil and gas production to 2030”, said Mr. Tanaka. But it is far from certain that these companies will be willing to make this investment themselves or to attract sufficient capital to keep up the necessary pace of investment. Upstream investment has been rising rapidly in the last few years, but much of the increase is due to surging costs. Expanding production in the lowest-cost countries – most of them in OPEC – will be central to meeting the world’s oil needs at reasonable cost.
The prospect of accelerating declines in production at individual oilfields is adding to these uncertainties. The findings of an unprecedented field-by-field analysis of the historical production trends of 800 oilfields indicate that decline rates are likely to rise significantly in the long term, from an average of 6.7% today to 8.6% in 2030. “Despite all the attention that is given to demand growth, decline rates are actually a far more important determinant of investment needs. Even if oil demand was to remain flat to 2030, 45 mb/d of gross capacity – roughly four times the current capacity of Saudi Arabia – would need to be built by 2030 just to offset the effect of oilfield decline”, Mr. Tanaka added.
WEO-2008 also analyses policy options for tackling climate change after 2012, when a new global agreement – to be negotiated at the UN Conference of the Parties in Copenhagen next year – is due to take effect. This analysis assumes a hybrid policy approach, comprising a plausible combination of cap-and-trade systems, sectoral agreements and national measures. On current trends, energy-related CO2 emissions are set to increase by 45% between 2006 and 2030, reaching 41 Gt. Three-quarters of the increase arises in China, India and the Middle East, and 97% in non-OECD countries as a whole.
Stabilising greenhouse gas concentration at 550 ppm of CO2-equivalent, which would limit the temperature increase to about 3°C, would require emissions to rise to no more than 33 Gt in 2030 and to fall in the longer term. The share of low-carbon energy – hydropower, nuclear, biomass, other renewables and fossil-fuel power plants equipped with carbon capture and storage (CCS) – in the world primary energy mix would need to expand from 19% in 2006 to 26% in 2030. This would call for $4.1 trillion more investment in energy-related infrastructure and equipment than in the Reference Scenario – equal to 0.2% of annual world GDP. Most of the increase is on the demand side, with $17 per person per year spent worldwide on more efficient cars, appliances and buildings. On the other hand, improved energy efficiency would deliver fuel-cost savings of over $7 trillion.
The scale of the challenge in limiting greenhouse gas concentration to 450 ppm of CO2-eq, which would involve a temperature rise of about 2°C, is much greater. World energy-related CO2 emissions would need to drop sharply from 2020 onwards, reaching less than 26 Gt in 2030. “We would need concerted action from all major emitters. Our analysis shows that OECD countries alone cannot put the world onto a 450-ppm trajectory, even if they were to reduce their emissions to zero”, Mr. Tanaka warned. Achieving such an outcome would require even faster growth in the use of low-carbon energy – to account for 36% of global primary energy mix by 2030. In this case, global energy investment needs are $9.3 trillion (0.6% of annual world GDP) higher; fuel savings total $5.8 trillion.
WEO-2008 demonstrates that measures to curb CO2 emissions will also improve energy security by reducing global fossil-fuel energy use. But the world’s major oil producers should not be alarmed. “Even in the 450 Policy Scenario, OPEC production will need to be 12 mb/d higher in 2030 than today.” Mr. Tanaka noted. “It is clear that the energy sector will have to play the central role in tackling climate change. The analysis set out in this Outlook will provide a solid basis for all countries seeking to negotiate a new global climate deal in Copenhagen.”
Today the USGS released its assesment of gas hydrates potential.
The report is here.
There is some intersting technology for hydrates including a way to take a CO2 molecule to displace the methane molecule inside the hyrdrate frame. I find it intersting that 35 years ago we didn’t even know that hydrates existed naturally.
My first job as a young process engineer was working at a cryogenic gas plant. Taped to the operating panel was a hand drawn pressure-temperature graph with a shaded area and the notice in block letters “DO NOT OPERATE HERE!” The graph defined the conditions where gas hydrates could form in the pipeline. Apparently the operators had learned an expensive lesson on forming hydrates in a pipeline.
oftmatMaybe there will be oil scarciity in 2030. In the meantime, don’t get MOAGed. Oil at $52 on the dated Brent Spot.
The IEA report is worth noting. As is the fact that willy-nilly, the IEA now says 10 mbd of demand disappears in 2030, compared to last year’s projection. Now they say there will be 106 mbd of demand in 2030, not 116 mbd.
Okay.
And next year’s report?
And why assume global demand for crude oil will rise at all, if oil can stabilize at more than $100 a barrel? Past history suggests demand moderates, and possibly even contracts, at more than $100 a barrel, current prices.
Sheesh, Japan uses less crude now than in 1972, and that nation is hot for PHEVs. The real reductions may lie ahead. Japan is obtaining higher living standards yet reducing crude oil demand.
Why assume China and India will follow development patterns associated with cheap oil eras?
But then, maybe we are entering another cheap oil era. Brent Spot oil now at $52 a barrel.
If global demand for oil declines by 10 percent in the next two-three years, we see 3 billion barrels of oil a year piling up, no one to sell it to.
I call this the Mother Of All Gluts (MOAG).
It may be we need to more seriously consider the long-term effects of the price mechanism.
We ever seem to be on the cusp of scarce oil, and ever it slips away into glut.
By the way, for those who do believe in Peak Lite or Peak Oil, COP is now trading at a sub 4 p/e, and a 4 percent dividend.
If RR is right, that is a honking buy.
But, you may wish to wait for the next shoe to drop on oil prices. This could be just the first round of oil price cuts.
Yergin “does” Robert Rapier in this opinion piece in the Financial Times.
Yergin says: What was all the more odd about this “contagious excitement” is that, while the price was going up, the energy fundamentals were declining along with the overall economy. Petrol consumption in the US had hit “peak demand” in 2007 and was beginning to decline. On a global basis, estimates for demand growth for 2008 have fallen from as high as 2.1m barrels a day at the beginning of the year to 200,000 barrels a day now. Or perhaps zero.
RR should get some kind of royalty every time someone says “peak demand”.
No, Benny coined peak demand. I coined a few of my own, like “Peak Lite” and “XTL.” But Benny is the “Peak Demand” king.
RR
Hey, “Peak Demand” is so yesterday. I have gone to “MOAG,” The Mother Of All Gluts.
Seriously, I am glad we can disagree at times about these issues, but have a little fun along the way. I have learned much reading RR’s blog.
And seriously again, RR is the king of energy issues. I am just a wag who likes to post.
Just a question, Benny. Where do you see the decrease in global oil demand coming from? From developed or the developing countries? Is it going to be a result of further economic slowdown or permanent changes in behavior?
I’m just wondering, because it seems that as long as we have a world economy so dependent upon growth, a sustained slowdown like this will be painful for everyone. It may be that what we’re seeing now is the growing pains of a change in the fundamentals of the economy, and that things will eventually get better, even without the return of growth, but I just don’t know.
If it’s a permanent change in behavior, I’m somewhat doubtful that people will continue to conserve with a continued drop in oil prices.
I’m not attacking you at all, I’m just curious, since you seem to have a unique viewpoint. It seems like both the peakniks and the Yerginites view the long-term increase in oil demand, whether it can be met or not, as a given.
Texbuck-
I think we may see a 10 percent decline in oil demand in the next two-three years, as we did following the 1979-80 price spike. Back then higher prices and slow global growth reduced global crude demand by 11 percent annual peak to trough (there was also the famous switching of power plants to coal from oil). Global demand did not recover to 1979 levels for 10 years — when oil was cheap again.
As Casey Stengel said, making predictions is hard, especially about the future.
But this time around, the global slowdown may be deeper.
If China is growing by 8 percent annually, why have used cardboard and paper exports to China from the Los Angeles area suddenly cratered? Why does the LA Times report waves of Chinese factory closings? Why are imports through the ports of Long Beach and Los Angeles down by 15 percent and more from last year?
Okay, so let’s assume a global slowdown, on the heels of 10 years of oil prices ratcheting up. We get a confluence of trends — slower general demand for oil, just as oil demand was withering anyway due to adoption of conservation or fuel switching. A double whammey on crude oil demand.
Okay, based on past trends, it is then reasonable to assume oil demand in 10 years will be…yes, right where it is now, about 86 mbd. It will takes 10 years to recover, just like the last time. So, we get to 2018 and we use 86 mbd, except a larger fraction of it biofuels, especially palm oil.
And that is assuming oil stays in its current price range. If oil sticks its head above $100 a abrrel, then demand begins to slow, and ultimately reverse.
Also, the game-changer in all of this is the PHEV.
The PHEV switches energy demand away from liquid fuels to the grid. The grid can be powered by coal, nukes, wind, solar, natural gas, hyrdo, geothermal, or (effectively) through conservation. A surfeit of options, all domestic.
But, in the end, you are right: A glut, and lower prices, will stall all this for years and years.
I am beginning to wonder if all “oil shortages” end this way. In gluts, with the day of reckonig receding further into the future.
Sure we need a global energy revolution to help us with coming up with alternatives to rapidly depleting resources, but what good is coming up with new sources if all our devices/everyday tools hog the same amount of power? It’s going to take cooperation between the private sector and governments. Here in the States, the group The Technology CEO Council is trying to do that very thing, and have set up a blog around their efforts at behindthegreen.org
King-
Recently, you said $50 a barrel might be the bottom. Maybe so, but dated Brent spot is trading right now for $50 plus change. And this recession has ugly written all over it.
Next stop $40? $30? $10
Benny “I was Peak Demand, Now I MOAG, Tomorrow I am TKOAP” Cole said
“Japan is obtaining higher living standards yet reducing crude oil demand.”
Benny, have you ever been here? The middle class is shrinking and nearly everyone’s purchasing power is sliding fast. Bonuses are being cut and unemployment will likely rise. IMHO, the only thing we can hope for is a full-on charge towards hybrids, plug-in hybrids, and BEV. I am hoping that cheap electric scooters are produced by the 100,000’s and quick. This place walks along an economic tight rope and spikes in oil prices will certainly upset that precarious balance. At least Toyota has gone public with admitting the coming oil crisis.
Stuck in Shizuoka
Benny-
I think you’re right about this being a prolonged slump, so it’s hard to say what’s going to happen to demand. The IEA is still forecasting about 0.5% demand growth for this year over last, but my guess is the majority of that came before the economy took a downturn in August.
It will be interesting to see what happens if it does take 10 years for demand to reach 86 mbpd again. On one hand, it will give alternatives/biofuels a chance to catch up. On the other hand, if oil remains cheap and the economy still struggles during that period, a lot of oil projects will fall by the wayside and alternatives may have trouble gaining market share, so we may be in just as bad a situation at that point.
When it comes down to it, you’re right when you say that making predictions about the future is difficult. All we can do is make the best decision possible with the information that is available to us. My dad always tells me to hope for the best, but plan for the worst. I wish our politicians showed that kind of common sense.
recktso – I said that $50 wouldn’t surprise me. I have no idea where the bottom might be, $40, $30? As prices drop at some point you hit the marginal cost of production and producers lose money on individual wells. They may run at a loss for some time in hopes that prices rise again. But at some point they just shut down. Benny thinks $10. At that price Alaskan crude, oil sands, heavy oil in Venezuela, and just about all the production outside the Middle East would lose money. So, I would guess the bottom is somewhere between $10 and $50. But in this crazy market, who really knows?