It’s looking like recent oil prices are not simply a reflection of margin speculators (something I pondered a few weeks ago). It appears we have hit a fundamental supply / demand bottleneck. Peak Oil researchers have been warning of this for years, and we have probably “officially” entered the era of energy scarcity.
At this week’s world energy summit in Madrid, comments were made by highly placed energy officials that indicate a global energy crisis.
IEA chief Nobuo Tanaka said “We are clearly in the third oil price shock” – referring to 1970’s and 1980’s as the first and second shock. He notes that the first shocks “forced consumers into saving oil and oil companies to look for new wells, but now the biggest energy savings have been made and the easy oil, outside of a few countries, has been found.“
The IEA estimates that global estimated daily oil needs would rise from 86 million barrels this year to 94 million barrels in 2013. But many energy researchers are wondering if we can meet these goals. President Bush’s energy advisor Mat Simmons says that world oil supplies simply won’t allow for more than 90M bbls per day, and maybe less from here on. Simmons believes that Saudi Arabia has reached their supply limit.
OPEC chief Chakib Khelil identified the main drivers of energy prices as (1) a weak U.S. dollar, (2) the subprime crisis in America, (3) geopolitical tensions, and (4) increased emphasis on U.S. bioethanol production, which he suggested diverted diesel production and led to shortages.
Christophe de Margerie, CEO of France’s #1 energy company (Total), said the world must now brace for a “really big reshuffle in energy expectations.” He expects oil production to plateau in 12 years at 94 million barrels a day — less than 10 million barrels more than available today. He also said his forecast is optimistic. “We will have to fight against the natural decline of today’s oil fields. It will not go smoothly.”
In a related development, on June 27 the Vice President of Kuwait’s national oil company gave a talk to a group of energy industry who’s whos. He claims:
(1) “By 2010, the production of the fuel that has driven the world’s economy will start to rapidly decline. This will conflict with the steadily increasing demand for oil. The collision of these two trends will lead to shortages and increased prices, providing a strong incentive to shift to alternative fuel resources…Due to unequal distribution through the world of oil and gas supply and consumption, [the upcoming] transition will result in significant shifts in global power and wealth.”
(2) the world will “hit an oil production wall at 90 million barrels per day by 2010.”
(3) “a moderate rise in OPEC production will be partially offset by decreasing production in the Rest of World, with FSU production steady. A production peak of ultradeep water fields will allow the “peak” to be a “plateau during the coming decade, followed by a sharp fall. An increase in production of unconventional oil and natural gas liquids can add 5 million b/day during the coming decade. The current supply-side crisis is due to peak oil reached in the Rest of World in 2003, combined with a cessation of significant production growth in Russia after 2004.
(4) “We are nearing World Peak Oil, with resulting high prices and associated political and economic disruptions….What I have presented is a most-likely scenario.”
Energy drives everything. Facing supply limitations, we enter into a new social paradigm never before seen, and to which we are unprepared. Energy limitations impact economic growth in every respect. The most energy intensive luxuries will be the first to fall, such as imported speciality foods, gas guzzling vehicles, unessential travel, etc..
The next few years will bring bankruptcies among unprepared automakers, airlines, travel sectors, and energy-intensive luxury industries. This will ripple through the economy, taking down many related service and supply businesses.
There’s irony in this. We will all be simplifying our lives due to new economic realties. This is a very healthy transition in many respects. But with simplification comes lower economic expectations. Economists will call this “recession” or perhaps “stagflation” or worse – jobs will be lost, families will be dislocated, and lives will be changed.
Life in the peak oil era will be not be business as usual.