3 July 2008
Oil Fundamentals: $200/barrel within easy reach.
Posted by Connor under: Energy .
At current pricing structures, $200/barrel works out to about $5.30/gallon or regular unleaded at the pump.
I’m going to hammer at this one last time because it is really imperative that people begin to change their mindsets about oil and energy. There will be no going back to cheap gas, ever.
The good news is, we humans are very adaptable creatures; it is how we got where we are. But to adapt we have to recognize that our environment has changed.
The International Energy Agency is the energy planning and statistics agency for the OECD organization of industrialized countries, of which the United States is a member. In today’s Financial Times (the British equivalent of the Wall Street Journal) the IEA warns of tightening oil supplies:
The oil market will remain tight during the next five years as production from non-Opec countries stalls and demand growth remains relatively strong, the western countries’ energy watchdog warned on Tuesday.
The International Energy Agency’s warning is the starkest sign yet that even record oil prices above $140 a barrel have not yet not done enough to balance demand growth from countries such as China with sluggish supply increases.
The IEA said that annual non-Opec growth would slow to 0.5 per cent between 2008 and 2013, against demand growth of 1.6 per cent per year. The mismatch means the world economy would be more reliant on Opec, the oil cartel, and oil prices are likely to remain at record levels, analysts said.
…
The fast decline of fields – especially in the North Sea and Mexico where production is shrinking by more than 20 per cent each year – means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will go to making up for losses from old fields producing less and less each year.But Opec is also struggling, with project delays impacting its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.
Over at the Oil Drum Europe community blog, the very well-connected Jerome a Paris writes:
I have been told by a reliable source that the IEA has been forbidden by the US administration from updating their absurdly cornucopian oil supply and demand scenarios until the report that comes out late this year (after the election); that report, which will publish the result of a “bottom-up” analysis (ie a summary of all existing oil fields, their production and/or prospects) is expected to show that oil production is unlikely to reach the levels that so many have blithely assumed – notably on the basis of previous optimistic IEA reports. The IEA, which was deeply unhappy about the current lies to was supposed to present and support, has been leaking word of the expected content of that new report for many weeks now, including an increasingly alarmist tone in its official reports, such as today’s Medium Term Market Outlook.
Both articles are worth a full read.
I had a brief e-mail exchange this morning with someone who sent me The Truth About ANWR, A Heritage Foundation plea to drill in ANWR.
Even if we stipulated that ANWR can be exploited in an environmentally acceptable way, what’s the point? Leave the oil in the ground, our grandkids will need it.
If we started exploitation now, we would manage to pretty much pump ANWR dry in our own lifetimes. My own back-of-the-envelope calculations based on having argued this issue for literally the last 20 years are thus:
5-8 years to bring it on-line.
Proven reserves of about 8 billion barrels (bbl), perhaps 11 billion if marginally productive fields are included.
Peak production of about 1.5 million bbl/day ( 18% of national demand)
US oil demand is about 8.2 million bbl/day in 2007
Once production has started ANWR will reach “peak” (50% pumped out, the rest harder and more expensive to get) in about 14 years. In about 19 years it would be essentially, “dry,” producing less than 20% of peak production or about 300,000 bbl/day.
So, start production now, 2008. Oil comes on-line as “cheap” domestic production about 2016. Fields peak out around 2030 (My oldest child will be 32, my youngest 28) and will be pretty much finished by 2039, the year I turn 74.
So what’s the point really? Titanic. Deck chairs.
I think this will be one of my last posts of doom-and-gloom. My attitude is fast becoming one that says, if people can’t overcome their preconceptions and wishful thinking enough to come to grips with the… inconvenient truths of the situation then the Devil take the hindmost. I’m tire of trying to educate people. The markets are going to do that for us.
Time to move on to solutions. Two no-brainers:
1. If you own a vehicle that gets less than 25 MPG highway either mothball it if it is something useful like a pickup truck or van or sell it/trade it in while you can. In another year or two you won’t be able to give them away and you are going to be supporting a bleeding financial sore.
2. Drive better. Just changing the way you drive any vehicle can get you better mileage.