IEA Report Predicts Oil Supply Crunch

by: Tim Iacono November 13, 2008    

Tim Iacono

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The IEA (International Energy Agency) released their 2008 World Energy Outlook yesterday and it included a few sobering surprises.

Recall that back in early July, after the IEA released their "Medium-Term Oil Market Report" and just before the spot price of crude oil reached the unfathomable level of $147 a barrel, a post titled "We're going to need a good recession" appeared here in which it was theorized that a big slowdown in the world economy would be needed to reduce energy price pressures in the coming years given the current trajectories of supply and demand.

Well, a lot has happened in the last four months.

The needed recession has arrived - that much is clear. Demand estimates are now being slashed with abandon, helping to pull the rug out from under the price of oil which has since tumbled more than 60 percent.

You'd think that oil market prognosticators would be happy with that development (at least the ones who are hoping there's going to be enough of the stuff to go around for a while), but apparently they are not.

In fact, in the IEA's latest report, they have turned downright alarmist on the subject of the long-term balance between supply and demand, acknowledging that the current system can not endure.

Here's the opening paragraph of the Executive Summary:

The world’s energy system is at a crossroads. Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution. This World Energy Outlook demonstrates how that might be achieved through decisive policy action and at what cost. It also describes the consequences of failure.

That sounds like pretty serious stuff, as do their price predictions of an average of $100 a barrel over the next eight years.


For the first time in a decade, they've actually predicted a higher energy price in the future than the current price, as indicated below in a handy chart whipped up by Nate Hagens at The Oil Drum in their initial review of the IEA report.
IMAGEThey're apparently not on board with the groundswell of opinion that Steve Forbes' prediction of $35 oil will be a long-lasting event, if indeed it does occur (which seems increasingly likely every day).There's going to be a lot of discussion on this topic over at The Oil Drum during the next week or two - those interested in the new energy market realities may want to check in from time to time to see the latest.

Contrary to popular belief, it is high oil prices that are the cure for high oil prices, not the low oil prices that we have today. All low oil prices do is reduce infrastructure investment and exploration - why go to the trouble if you can't pump the stuff out of the ground at a profit?

Of course if you believe that we've entered a deflationary black hole from which there is no escape, then $35 oil might seem pricey to you.

Nate sums up the "non-deflationary black hole" case thusly:

As has been written here often, the world's fiat currency reserves and financial assets, which works as a system of exchange and store of value because everyone agrees that it does, nominally dwarfs the amount of real commodities. Leverage, and leverage upon leverage provided by easy credit not checked by biophysical realities unleashed a massive speculative bubble in financial asset classes in recent years.
...
Those who rationalize the recent crash in oil prices as evidence of an oil bubble are only partially correct, and miss the greater point entirely. We are in the midst of a global deleveraging of an enormous bubble in financial assets, of which oil futures contracts, is just one.
...
In sum, recent events in the real economy have put us in the liminal space where drops in demand will temporarily exceed drops in supply. Our energy future is a battle being fought between depletion and investment/technology in a world that is not only interconnected and complex but increasingly fragile. Counterintuitively to most, the lower oil prices go and the longer they stay below $80-$100 per barrel, the steeper the fall off of the crude oil plateau will be, and the dimmer our energy future.

Here, I'll save you some time:

* liminal - of, relating to, or being an intermediate state, phase, or condition : in-between, transitional

Liminal space with no progress is not good when it comes to our energy future.

* Source Blog
 

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This article has 7 comments:

  •  
    Nov 13 09:13 AM
    There is an even more important report coming out soon that indicates that alternative energies will not fill the gap.The Energy Watch Group (funded by the German Parliament) in PEAK OIL COULD TRIGGER MELTDOWN OF SOCIETY, concludes:

    "By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."

    www.globaliamagazine.c...

    According to most independent scientific studies, global oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time demand will increase 9%.

    No one can reverse this trend, nor can we conserve our way out of this catastrophe. Because the demand for oil is so high, it will always exceed production levels; thus oil depletion will continue steadily until all recoverable oil is extracted.

    Alternatives will not even begin to fill the gap. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment.

    We are facing the collapse of the highways that depend on diesel trucks for maintenance of bridges, cleaning culverts to avoid road washouts, snow plowing, roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, transformers, steel for pylons, and high tension cables, all from far away. With the highways out, there will be no food coming in from "outside," and without the power grid virtually nothing works, including home heating, pumping of gasoline and diesel, airports, communications, and automated systems.

    This is documented in a free 48 page report that can be downloaded, website posted, distributed, and emailed: www.peakoilassociates....

    I used to live in NH-USA, but moved to a sustainable place. Anyone interested in relocating to a nice, pretty, sustainable area with a good climate and good soil? Email: clifford dot wirth at yahoo dot com or give me a phone call which operates here as my old USA-NH number 603-668-4207. survivingpeakoil.blogs.../
    Reply | Link to Comment
  •  
    Nov 13 11:22 AM
    Alternatives can only work to replace a large portion of transportation fuels if nuclear power is rolled out. Gauging the investments into batteries shows that is what the market is expecting as an interim solution. For the shipping industries like trucking, a natural gas solution appears viable under the Pickens plan. To avoid a speculative run up while nuclear and nat gas are implemented, Washington should also be favorable toward all drilling options as well.
    Reply | Link to Comment
  •  
    Nov 13 12:53 PM
    though it may not seem like it now, longer term horizon for both oil and alternative energies is excellent. Now is the time to begin investing.

    I am looking at CNQ, PBR, XOM, and RIO as far as traditional oil which we still have a long way to go before weaning ourselves off.

    As far as alts, I like VRNM for cellulose ethanol, BCON for grid technology, and too many solar stocks to mention.

    But indeed, you have to brave to buy now...but I think energy is the safest bet. No matter what happens almost everything depends on energy!
    Reply | Link to Comment
  •  
    Nov 13 01:56 PM
    How many times do the "lacking in common sense" with "no knowledge of the oil industry" PHD's with economic degrees that staff the IEA have to make illogical world oil supply/demand and price predictions before the organization is deemed incompetent and shut down? Its funding could more wisely be used to educate a new generation of oilfield technicians needed to rebuild the oil industry's infrastructure that was destroyed by illogical, academia generated, economic growth policies based falsely upon the ready availability of cheap, non-inflation adjusted, oil prices.
    Reply | Link to Comment
  •  
    Nov 14 09:06 AM
    I gave a talk in Paris some time ago, and shortly after received a mail from the Big Boss of the IEA asking me if my head was screwed on right.

    He told me that the IEA does not predict production, but only consumption. That's when I caught on: he was an ignoramus, because predicting consumption without saying something about production would hardly be acceptable at a storefront university on Wall Street or Rodeo Drive.

    Now they have apparently predicted an oil price for 2030. When I taught in Thailand last year I discussed their PRODUCTION forecast for 2030, and proved - to my satisfaction at least - that it was nonsense. Now those know-nothings want to tell us about price. Isn't it clear that there is more intelligence in the comments above than in all the work on oil by the IEA since the first oil price shock, although that IEA (so-called) research must have cost tens of millions of dollars.

    But no Oil Daddy, it shouldn't be shut down. It should be visited by the CIA and similar organizations in order to find out just who set up that incompetent organization, and most important whose stupid idea that originally was. Hopefully this could be done before Guantanamo is closed.

    About the Pickens plan, forget it, because when the price of oil starts up again it will pull the price of natural gas with it. Of course, there is always the Pickens 'wind corridor' from the Rio Grande to the Canadian border.
    I think that the experts of the IEA should have a look at that one.
    Reply | Link to Comment
  •  
    Nov 14 09:35 AM
    synthetic crude oil from coal to the rescue.

    but we have to start now, it takes time to get the plants running & work the kinks out.

    we started in 1974 but r.reagan killed the program because his houston friends/campaign contributors wanted it killed.
    > jack
    Reply | Link to Comment
  •  
    Nov 14 08:49 PM
    The IEA has their heads so far up their asses its hilarious. Take your head out your rear end big guy and look at it this way:

    I am Exxon Mobil and I just invested 4 billion in a new oil field. Prices plummet and my oil field development is 75% done. I will do:

    A. Stop building out my infrastructure and do nothing. All of my 4 billion has gone down the toilet

    B. Finish the development program. Yes I lose some money but I lose alot more by stopping work.

    Hmmm...I'd pick B.

    Ok...time for scenario 2....

    I am Venezuela and I need $90 oil to survive. It is now worth $55. I do:

    A. Cut my oil investments back and watch my govt revenue go down the toilet even more than what has happened from the market.

    Or...

    B. Invest in new production. Yes I might not make a big profit, but at least I have money flowing into the system.

    The point of this analysis is that lower prices is NOT going to stop investment but will intensify investment in already existing projects. Exploration will probably slow down but NOC and IOC are going to be desperate to develop resources to at least capture some of the losses in price appreciation through VOLUME.

    In other words for those of your who are looking for a reflation....LOOK OUT BELOW
    Reply | Link to Comment
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