Friend of R-Squared and frequent commenter, Doug MacIntyre from the Energy Information Administration was on CNBC today explaining that demand destruction in the U.S. will be compensated for by increased growth in China. He also said that if we drilled in ANWR, their study showed that it would take 10 years and would only lower oil prices by $2.00/bbl. Check out the interview:
It was good to finally put a face and voice with the name, even if he was delivering news that most of the U.S. won’t want to hear.
Thanks to a reader for sending the link.
That was interesting. You could tell that Doug’s answers didn’t make anyone feel any better! I wonder what Benny’s comments will be on this one?
thank the Lord for fact tellers like Macintyre[oil] and Plosser[inflation].
perhaps in time, with enough said on blogs and video, the SOD will be lifted from sufficient members of the electorate for change to occur.
RIGHT ON SODBUSTERS!!!
fran
Oh! Now that I have been baited…..
I think the EIA and IEA have been overestimating demand. Figs from British Petroleum’s website suggest oil demand was being curtailed even before the price shocks of 2007-8.
Tax agencies in California say gasoline demand now down 6 percent in state y-o-y, monthly. In Seattle (all those greenies, and mass transit) gasoline sales have slumped even more.
Okay, so let’s review global demand 1980 (again, from BP website). Demand fell by 11 percent in the early 1980s. And crude demand did not recover for a full 10 years, and then only when oil was cheap again.
BP says global demand grew by 3.1 percent in 2004, then 1.4 percent in 2005, then 0.7 percent in 2006. I see a pattern. And prices were even higher in 2007 and 2008.
We have already seen Peak Demand in the United States (world’s largest consumer), and if oil prices stay above $80, demand will fall every year for decades.
Globally, it will happen too. Go to Green Car Congress website, and check out China’s lithium-ion battery industry. If oil stays high, China’s fleet of cars will be EV. Toyota has announced it is working on a battery even better than lithium-ion.
The GM Volt is on the way, and that car will shift energy demand from liquid fuels to the grid.
All this, however, is predicated on oil prices staying high. History suggests a big glut is on the way. Time will tell. At more than $80-90 a barrel, forces are set in motion which reduce crude demand. As long as oil stays high, demand keeps falling. Maybe oil producers can continue to reduce output permanently. But Libya, Brazil, Kuwait, KSA and Russia may boost output. Many thug states won’t.
I bet on a glut again in our lifetimes, and I am bald.
I am a fan of Doug M.’s, but the EIA just a few short years ago predicted large increases in global oil production. Now, not so much. So, are they right now, or then, or will they change their minds again tomorrow?
One thing I do know: The price mechanism works wonders in commodities markets.
I think Doug did very well. It’s not going to make much difference, because like Paul Simon said in “The Boxer”: “A man hears what he wants to hear and disregards the rest. do-do-do do-do-dooo-do do-do-do doo-do-doooo”
The next news item this week will be a decision that this is a crisis and the US should start tapping their SPR.
He also made me feel better for missing the timeline on “Peak Oil” mentality by an order of magnitude. Whether there is a real supply/demand issue or not turned irrelevant much quicker than I would have dreamed.
On a related note: I have several friends that are welders. Two years ago, anyone with a pressure ticket and a truck that could pass a drug test could get about $60/hour to weld pipe in Fort McMurray on the Tar Sands projects. Then it went to $78/hour including all expenses (rods, grinding stones, fuel in truck and welder).
The last I heard, it was over $100/hour and they supply the cocaine. 🙂
This is the problem of receding horizons and panic. I would guess that due to the self-inflating infrastructure cost, Tar Sand production is much past the $40/bbl that it was a few years ago and by the time the new production comes online, they are probably going to need $80/bbl to break even.
So, I didn’t get a chance to check out this blog yesterday, I come here today, and this is what I see?!? The Internet can be a crazy thing!
Thanks for the kind comments (so far), and I appreciate Mr. Cole (giving him his due respect) saying kinds things about me, while questioning our data and forecasts. 🙂
Regardless of whose data is correct (BP’s or EIA’s), he does have a point that high prices will eventually cause demand to decline. But there is a big “if” in that statement: IF consumers see market prices. During the Cold War, in large apartment complexes in Moscow, the heating unit for the entire complex would be turned on once a year and maybe turned off once a year. If it got too hot when it was on, people just opened their windows. Energy was essentially a free good, so the means of regulating temperature was opening and closing windows! There was no real relationship between price and demand under this regime.
Right now, China is subsidizing oil prices by compensating refiners who are operating at a loss. They can do this because: 1) the money is coming from taxes the Government is collecting from upstream producers, and 2) the subsidies still represent a very small share of China’s GDP. It appears they can afford this for some time. This is a policy decision their Government has made in order to keep the country’s economy growing. In the Middle East, prices are also subsidized, and the elasticity between crude oil prices and demand might be positive! In other words, the higher oil prices go, the more demand goes up (in reality because the income elasticity is so high). Subsidies may end up being the thorn in the side of Mr. Cole’s “peak demand” theory.
Doug MacIntyre
P.S. to whoever sent the clip to Robert: Why are you watching CNBC at 7:15 in the morning? lol
China is subsidizing oil prices
I wonder what happens when it’s too expensive to drive to Walmart. The small town I grew up near had 2 grocery stores, a hardware store, a credit union, a hotel, a spur and grain elevators and 3 gas stations in my youth and previously it had a lumber yard, a bank and a couple of pool halls. Everything is gone and everyone left in the community drives 40 miles to shop at Walmart and the other big boxes.
The city with the Walmart only has 25,000 people and another 75,000 from a 100 mile radius that shop there. I would think that it would now be a profitable enterprise to take orders, purchase from a wholesaler and deliver goods or even open a store up again.
What happens to Walmart on $5 or $10 gas? What happens to China?
Doug-
Yes, the consumption in the Mideast and China has been relentess, and I expect the Mideast, where the marginal cost of production is $3 a barrel, will continue upwards.
China? Don’t know. They are into every alternative fuel that can be thought of, incluing several million-hectare jatropha plantations in Indonesia.
At some point, they take away the subsidy, and then you will see Chinese crude oil demand go down, not up. (Demand from India is not large, and not growing much).
Oddlt, enough, right now high oil prices mayu actually be suppressing new supply. The world’s thug states can make enough money from their fields, without investing in new production. I think the problem of “Thug Oil,” is more important than China’s growing demand. There is gobs of oil, it is in places like Nigeria, Venezuela, Mexico, Libya, Iran, Iraq …the list is miserable. Even Russia.
Looking out further, the EV, such as the Volt from GM, is a game-changer. Transpotation is 70 percent of oil use.
If cars are powered from the grid, we are going to see radical declines in demand.
Benny… Are you serious? You are implying that the Chinese are going to magically turn to alternatives like jatropha, that are going to drastically reduce their demand for foreign oil, even though they subsidize? You must be in hardcore-denial of everything, I bet are still naive to believe the news headlines that imply oil prices rising from 10 to 139 dollars in 7 years is because of speculators and the falling dollar.
Exxon Exiting Retail Gas Business
benny “peak demand” cole said:
“Oh! Now that I have been baited…..
Figs from British Petroleum’s website suggest oil demand was being curtailed even before the price shocks of 2007-8.“
I read the latest info from BP differently.
http://www.bp.com/sectiongenericarticle.do?categoryId=9023771&contentId=7044470
BP: Global oil consumption grew by 1 mb/d. 2007 global oil consumption growth was stronger than the 0.9 mb/d (1.1%) growth in 2006. China and the Middle East oil exporters accounted for much of the net growth in global oil consumption.
Benny: Tax agencies in California say gasoline demand now down 6 percent in state y-o-y, monthly.
That’s not what I read from California tax agencies.
http://www.boe.ca.gov/sptaxprog/reports/MVF%2010%20Year%20Report.pdf
http://www.boe.ca.gov/news/2008/33-08-C.pdf
CA Board of Equalization: If February 2008 is compared to February 2007, (subtracting the 71 million gallon audit) and converting the data to a daily basis, there is a 2.5% decline rather than a 0.9% increase. This decline is in line with that of previous recent months.
2.5% isn’t 6% y-o-y.
Benny: In Seattle (all those greenies, and mass transit) gasoline sales have slumped even more.
I notice the *note on that graph in
http://seattlepi.nwsource.com/transportation/366371_busriding10.html
says “* Refinery sales through retail outlets“. I found out in the other thread, that such sales represent only about 1/7th of all gasoline consumption, and may not be representative of the whole. To check this out, I looked at Washington State consumption in
http://www.eia.doe.gov/emeu/states/sep_fuel/html/fuel_mg.html
65712 thousand barrels consumed in 2006, or 180 thousand barrels per day, or 7561 thousand barrels per day, which is indeed about 7 times the number on the graph in the article. So that graph doesn’t show the right data. If refiners like Exxon are exiting the retail gas business, it’d be no wonder that their share of the gas sales is declining.
Benny:BP says global demand grew by 3.1 percent in 2004, then 1.4 percent in 2005, then 0.7 percent in 2006. I see a pattern. And prices were even higher in 2007 and 2008.
And yet according to BP, global demand increased 1.1% in 2007. The pattern does not hold.
There was no common sense applied to that ANWR study. On paper,800,000 bpd might mean only $2 a barrel savings. But,look what happens when rebels attack a 25,000 bpd pipeline in Nigeria. Prices jump a lot more than $2. If world demand exceeds supply by 800,000 bpd 10 years from now,I’ll guarantee you oil will be double or triple today’s prices. Heck,they’ll probably double again next year just for the hell of it.
P.S. to whoever sent the clip to Robert: Why are you watching CNBC at 7:15 in the morning? lol
That was me, and I was watching at 11:15pm Eastern Australian time. I usually flick aorund the business channels for an hour so before I go to bed to see what the oil markets are doing.
Last night Doug MacIntyre from the EIA popped up, and I thought, hey I know that guy from RR’s TWIP blog posts.
So I’m in Australia and Robert is in Holland (AFAIK), so yes, the internet is a crazy thing.
Clee-
Yes, the new BP report is out, and it is not as encouraging as I would hope. As you point out, according to BP, world consumption grew in 2007 by 1.1 percent, evidently up from 0.7 percent in 2006, though down from 1.4 percent in 2005, and 3.1 percent in 2003. This means 2006 was not the year of Peak Demand (as I had hoped), and we will have to wait to find out if 2007 earns that title. i hope I do not have to talk about Peak Demand in the permanently future tense, as do the Peak Oilers with their peak.
There is some good news; China’s demand increased by only 4.1 percent in 2007 — in 2004 it was more than 16 percent.
In a sign of what can be done, Germany’s demand fell by 9 percent, and Swtizerland by nearly 10 percent in 2007. Germany, Japan and other countries in which oil is taxed are using less than 20 and 30 years ago — and still going down. So, obviously, we can obtain prosperity and use much less oil. In fact, the USA barely uses more oil now than it did in 1979 (you can download the whole report with figs back to the 1960s).
In other good news, even though 1,1 percent is higher than I hoped, it is much less than the 2 percent anually compounded that doomsters always toss out. Another ray of hope is that oil prices did fall in early 2007, and that may have juiced demand, Since then, it has been relentlessly up.
Obviously, in 2008 it has barely been below $100 a barrel, whereas in 2007 it dropped to $60 or so for a while. We can expect more reductions in demand in 2008.
On Cal. taxable gasoline sales, they are trending down, and I can tell you the really high prices have just hit — about $4.50 a gallon now in L.A. The great Jan. figures i quoted were not duped in Feb., but I think you will see sizable decreases from now on. Annually, the state is using less gasoline every year.
My general idea still holds: We have hit Peak Demand in the USA, and it will spread globally soon.
To Robert Martini: After the drubbing I have taken from clee, I need a drink, and your name reminds me of that. Yes, I think China will start using less foreign oil in the next five years. They are a mercantile nation. Also, these are government programs they are financing, in jatropha, lithium batteries, nuke power, coal-to-liquids etc. Once they are up and running, they will use the alternative sources, by government fiat.
And just because I like good news, here is a short on canadian oil:
Annual production of non-upgraded bitumen and synthetic crude oil from Alberta’s oil sands will increase almost 2.5 times by 2017 from 2007 levels, according to the just-published report Alberta’s Reserves 2007 and Supply/Demand Outlook 2008-2017 by the province’s Energy Resources Conservation Board (ERCB).
That will add a couple mbd to world markets.
“Germany, Japan and other countries in which oil is taxed are using less than 20 and 30 years ago “
The U.S. could say the same thing if we had their declining populations. Our population increased about 35% in the last 30 years.
“That will add a couple mbd to world markets.”
The Saudi’s started pumping ab additional 500,000 bpd recently. That leaves the world with maybe 1.5 million bpd spare capacity,all in KSA. Peakers say production will start declining 4-5% annually,beginning right about now. Those tar sands may eventually make up a single years decline. I think the world goes into a deep,dark depression before Christmas Benny. If world economies shrink by 5% annually,supply should be able to meet demand. It ain’t gonna be pretty.
“Peakers say production will start declining 4-5% annually,beginning right about now.”
Haven’t they been saying “right about now” for years now?
Check this, Iraq’s oil minister says output will increase by 400,000 BPD this year.
They were right about the conventional oil peak Paul. Without tar sands,ethanol,and CTL,we’d be well past crunch time by now. If Iraq can increase production by 4,000,000 barrels in the next year,that might just delay crunch time by a year. We’re gonna get Benny’s demand crunch one way or another. It just won’t be by choice.
Maury,
Not to be argumentative, but why can’t “tar sands,ethanol,and CTL” be included?
I don’t think unconventional sources were included in peak oil calculations Paul. The only question is,how long can unconventional sources meet declining supplies of crude? A 5% annual decline in crude production means we need 4,000,000 new barrels of tar sands etc. each year just to keep supply levels steady. I don’t see it happening.
The unconventional sources category can expand, however, and offset the production needs, no? Example, PHEV’s and the downsizing from SUV’s in general. According to Autobloggreen.com, “Mitsuhiko Yamashita, expects the fourth-generation of lithium ion batteries to yield ranges of about 400 kilometers (248 miles) by 2015. According to an article in the Wall Street Journal, that’s about four times what the current first-gen packs are capable of.”
Maury-
Conventional oil production is not the only source of energy. That is the good news. A EV draws energy from the grid. GM, Toyota and soon everybody will be bring EVs to market. 70 percent of oil is used in transportation. We could see more than 2/3rds of the world’s demand for oil evaporate in the next 25 years.
Even within the conventional sphere, a whole lot of production is capped by thugs. Iran. Iraq, libya, Nigeria, Russia, Venezuela, Mexico, KSA — all are nations that could, in an ideal world, ramp up production. All could add 1 mbd each if even moderately well-run.
Obviously, it is not an ideal world. But what we are seeing now is Thug Oil, not Peak Oil. There is hope (slim) that thug states will evolve.
And we have shale, which Shell says they can develop at $30 a barrel.
All the while, demand for crude will be falling.
It looks tough for several more years. But doomsterism is not the answer. Please put your game face on, and let’s get tough.
And like I said, I hope I do not every year predict Peak Demand just like the doomsters predict Peak Oil.
Well done, Doug.
Benny, you are right about the trends but wrong about the timelines. I’m as big of a PHEV fan as you’ll find, but GM Volt sales won’t hit 0.1% of global car sales until 2012. All PHEVs combined won’t achieve 1% market penetration until at least 2015.
China’s car market grows 15-20% annually. China’s fleet of will increase by almost 10 million non-PHEV cars this year. There is no scenario in which PHEVs overtake gas cars in the next decade and start driving Chinese consumption down.
Talk that China can’t afford to subsidize oil is equally silly. As Doug notes, China can use profits from the 50% of oil it pumps itself to subsidize purchase of the other 50%. Or they can fund the $50 billion oil subsidy with interest they earn on US Treasury Bonds they hold. Or they can use a part of the huge trade surplus they run to fund oil subsidies. This isn’t Indonesia or Malaysia we’re talking about, this is the world’s fastest growing and (soon to be) biggest economy.
Economic or political collapse might drive China’s oil demand down sometime during the next decade, lithium batteries and jatrohpa crops will not.
A 5% annual decline in crude production means we need 4,000,000 new barrels of tar sands etc.
A report last week by Canada’s Energy Resources Conservation Board forecasts production of synthetic crude oil (SCO) will rise from 687,000 barrels/day in 2007, to 2 million barrels per day of SCO in 2017:
Alberta’s Energy Reserves 2007 and Supply/Demand Outlook 2008-2017
That’s around 1.3mbpd in 10 years, which is just a little short of the 4mbpd required per year.
Is anyone else under any illusions unconventional oil will fill the gap?