High oil prices 'here to stay' says EU energy commissionerHigh oil prices are here to stay, the European Union's energy commissioner has warned. Guenther Oettinger said on Thursday that the lower prices of the past three years had been the result of the financial crisis and recession, and that companies should plan for higher prices. "The oil price will not go back to $60 [a barrel]," as it did in 2008, Oettinger said. "As a normal perspective, you have to accept the oil price will be near to $90 a barrel or some more." But he suggested that the current price of around $100 a barrel could be problematic. "No one, neither oil producers nor consumers, have an interest in a long-term price higher than $95," he told reporters in London. "All stakeholders have an interest in stabilising the oil price." Current oil prices of around $100 a barrel could hurt the European economy if they persist for a long period, he said, adding that companies should adjust their planning accordingly, and try to become more energy efficient or turn to other sources of fuel... my commentary:So, what Oettinger is basically saying is that oil will not ever be lower than $90 per barrel...that oil prices will be higher in the future...but that oil prices should not exceed $95 per barrel in the long-term. What Oettinger's claim then means for Europe is that Europe - and therefore the rest of the world - does not have much wiggle room for oil prices. Oil prices will be $90+ per barrel, but can't be above $95 for the long-term. Peak production of conventional oil has likely occurred, oil prices are only going to increase in the near- to long-term. It is very unlikely that global oil prices will ever return to below $95 per barrel for any extended period of time. With oil prices currently above $100 per barrel (Brent Oil Price) for the past couple weeks, it would seem that Europe's economy is in for more and bigger problems soon...further recession, no recovery, and an eventual collapse. All it would take is one big oil price shock like what happened in the Summer of 2008 to derail Europe and the rest of the world....Whatever happens to Europe's economies affects all other economies...and vice versa. for complete article:2011.02.11 http://www.guardian.co.uk/environment/2011/feb/11/high-oil-prices-guenther-oettinger
In the latest monthly IEA oil report, the agency makes a special comment about oil prices as a percentage of global GDP:
At 4.1%, the 2010 global oil burden, albeit below that of 2008 (5.1%), was already the second highest
following a major recession (the highest was reached in 1980, at 8.0%). Put differently, the oil burden rose
by roughly a quarter in 2010. For the OECD, this was equivalent to roughly 0.8% of its collective GDP.
Moreover, under current assumptions for global GDP, oil price and oil demand, the global oil burden could
rise to 4.7% in 2011, getting close to levels that have coincided in the past with a marked economic
slowdown. Indeed, the combination of higher prices with a fragile economic recovery, emerging inflationary
pressures and instability in the Middle East is not a healthy one. A sensitivity analysis for 2011, on a ceteris
paribus basis (holding GDP and oil demand constant), indicates that, at current prices of around $90/bbl
(WTI), the global oil burden is rapidly approaching the 2008 ‘recession threshold’ – and is already well above
the $70‐80/bbl price range described as ‘preferred’ or ‘ideal’ by some producing countries, which would
entail an oil burden of 3.5‐4.0%.
My commentary:
But, since Brent crude oil prices are now above $100 per barrel (whereas the WTI prices is $86-92 per barrel)...the "true" oil price is probably higher than the $90 oil price discussed in the above article. All it would take to cause a catastrophic oil price spike would be a disruption in the global oil supplies and/or a crash in the economic system (which would result in oil price increases). "Disruptions" include social unrest in oil producing countries, market disruptions (economic crashes), terrorist and pirate attacks (such as in the Gulf region and along oil trade routes), the alarming decay of the world's oil infrastructure, etc. The upheaval in the Middle East and North Africa (including the turmoil in the Gulf region and the Suez Canal, which are all major oil trade routes). One way or another, from the perspective of oil prices it seems that the world may be at the threshold of economic collapse whatever the "true price" of oil actually is.
~TM
Oil supplies declining...demand increasing...oil prices already above $100...food and commodities prices skyrocketing...the global economy unraveling... ~ WikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on prices ~ World oil demand to rise in 2011 ~ Brent crude stays above $100 ...there can be no economic "recovery" back to business as usual without more abundant cheap oil. By the way, in the peak energy and climate change report, I wrote about Sadad al-Husseini's admission (see Wikileaks article below) that Saudi Arabia's oil reserve and production estimates were inflated and that they have reached peak production. It seems that Wikileaks is a bit slow to to release the news... World oil demand to rise in 2011Global oil demand rose more strongly than previously thought last year, with the world consuming an extra 2.8m barrels a day, 3.3 per cent more than in 2009, according to the International Energy Agency. The latest oil market report, released by the IEA on Thursday, reinforced the picture of a powerful recovery in demand, forecasting a further increase of 1.5m b/d in 2011. For the third month in a row, earlier estimates were revised up, with the IEA adding another 120,000 b/d to its figures for total oil product demand in 2010 and 2011. complete articles:World oil demand to rise in 2011 02.10.2011 http://www.irishtimes.com/newspaper/breaking/2011/0210/breaking14.htmlRise in oil demand beats expectations02.10.2011 http://www.ft.com/cms/s/2c4f1bc8-353e-11e0-aa6c-00144feabdc0,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F2c4f1bc8-353e-11e0-aa6c-00144feabdc0.html&_i_referer=http%3A%2F%2Fwww.ft.com%2Fintl%2FworldBrent crude stays above $100...possible or ongoing tension especially in the Middle East will cause oil prices to escalate. Investors remained concerned that the unrest in Tunisia and Egypt could ignite similar protests in bigger oil producers such as Libya - or even Saudi Arabia. 02.10.2011 http://www.irishtimes.com/newspaper/breaking/2011/0210/breaking20.htmlWikiLeaks cables: Saudi Arabia cannot pump enough oil to keep a lid on pricesUS diplomat convinced by Saudi expert that reserves of world's biggest oil exporter have been overstated by nearly 40%The US fears that Saudi Arabia, the world's largest crude oil exporter, may not have enough reserves to prevent oil prices escalating, confidential cables from its embassy in Riyadh show. The cables, released by WikiLeaks, urge Washington to take seriously a warning from a senior Saudi government oil executive that the kingdom's crude oil reserves may have been overstated by as much as 300bn barrels – nearly 40%. The revelation comes as the oil price has soared in recent weeks to more than $100 a barrel on global demand and tensions in the Middle East. Sadad al-Husseini, a geologist and former head of exploration at the Saudi oil monopoly Aramco, met the US consul general in Riyadh in November 2007 and told the US diplomat that Aramco's 12.5m barrel-a-day capacity needed to keep a lid on prices could not be reached. According to the cables, which date between 2007-09, Husseini said Saudi Arabia might reach an output of 12m barrels a day in 10 years but before then – possibly as early as 2012 – global oil production would have hit its highest point. This crunch point is known as "peak oil". Husseini said that at that point Aramco would not be able to stop the rise of global oil prices because the Saudi energy industry had overstated its recoverable reserves to spur foreign investment. He argued that Aramco had badly underestimated the time needed to bring new oil on tap. "Al-Husseini is no doomsday theorist," the cable concludes. "His pedigree, experience and outlook demand that his predictions be thoughtfully considered." He told the Americans plainly that the Saudis will not be able to ride to the rescue: the Saudi oil industry was overstating its recoverable reserves so as to spur foreign investment, he alleged, at the same time as it was badly underestimating the time needed for bringing new oil on tap. No US government official has come close to saying this in public. It is a conclusion of profound significance for the world economy, if correct. The June 2008 cable reports major project delays and accidents as "evidence that the Saudi Aramco is having to run harder to stay in place – to replace the decline in existing production." complete article:02.08.2011 http://www.guardian.co.uk/business/2011/feb/08/saudi-oil-reserves-overstated-wikileaks
Recent world developments are supporting the findings and projections discussed in Peak energy, Climate Change, and the Collapse of Global Civilization - i.e., soaring oil and food prices, economic collapse, and social upheaval in the Middle East and the rest of the world. Signs for global economic collapse are very clear... The following is a select, but not complete, list of news articles published this January 2011: Oil and EnergyPeak Oil is Past Tense: Exxon, Shell, and Aramco Admit the Peak is RealIEA: Oil Output Needs to Increase
Commodities daily: Say hello to $100 crudeOil May Reach $117 by Year-End, Auerbach Grayson Says: Technical AnalysisGrowth hopes push oil within reach of $100
How sustainable is growth with triple-digit oil? EIA: Global oil markets to tighten in next 2 yearsGoldman Sees Oil ‘Bull Market’ on OPEC Capacity DropThe EIA warns that average gasoline prices could soar over $4 next summerSaudi: 2011 oil demand to grow 1.8M barrels a dayToday's Trends: China Oil Demand Hits Record, to Keep Climbing in 2011China Turns Net Diesel Importer on Domestic ShortageChina’s energy use could fox the bears British lawmakers propose energy rationingWorld will be forced to depend on OPEC oil, believes BPBut OPEC doesn't have enough oil to share... ~TMOpec's grip on oil market to return to 1970s levelsContainer Ship Rates Rally as Fuel Prices Rise: Freight MarketsChina May Face Diesel Shortage This Year, CNPC SaysKorea scrambles to cut electricity useVietnam to face power shortfalls in dry season, EVN says Chile evacuates tourists stranded by violent protests (over rising energy prices)Europe Gasoline-Rallies further to 28-mth highsPetrol prices to hit £6 a gallonEurozone inflation pushed up by soaring energy pricesFood Security Era of low-cost food is over, study warnsGlobal Price Fears Mount World moves closer to food price shockGlobal food system must be transformed 'on industrial revolution scale'Goverments stockpile food staplesBet the farm: Cropland prices soar 20%The world is only one poor harvest away from chaosSarkozy urges financial reform to avoid unrestBuy Food, China Is Hungry: Analysts Asia expects hard fight against rising food, fuel pricesFood prices to rise sharply as more struggle to put meals on their tables (Africa)African Food Riots Spread To Persian Gulf As Oman Is Next; Adverse Implications For Oil Prices?Record Food Prices Causing Africa Riots Stoking U.S. India may opt for ban on wheat product exportsHundreds protest over high prices in south JordanSri Lanka fears food crisis after floodingMcDonald's likely to raise prices in 2011 United StatesU.S. Treasury Secretary Admits U.S. Default Is ImminentSecretary Geithner Sends Debt Limit Letter to CongressPlans being drawn up to let states declare bankruptcy State bankruptcy bill imminent, Gingrich saysCalifornia governor declares fiscal emergencyVallejo Bankruptcy Plan Offers Unsecured Creditors 5-20%; JPMorgan CEO Forecasts More Municipal Bankruptcies; Bernanke Will Not Rescue CitiesEuropeSarkozy urges financial reform to avoid unrestSpain to rescue its banksEurozone inflation pushed up by soaring energy pricesChina
China Turns Net Diesel Importer on Domestic ShortageMiddle East
Arab leaders warned of 'revolution'Arab League chief warns regional leaders that recent political upheaval is linked to deteriorating economic conditions.Latest Inflation Riot Tally: Algeria, Tunisia, Morocco, Yemen And JordanTunisian President Dissolves GovernmentReports: Tunisian President Ben Ali has fled the countryProtests in Egypt and unrest in Middle EastCairo protesters in violent clashes with policeEgypt: President's son and family 'have fled to the UK'Hundreds protest over high prices in south JordanArab rulers use handouts to ward off unrestArab world needs 40m new jobs in next 20 years
The cost of imported food, particularly wheat, has risen, partly because of the relatively smaller harvest, and partly because the cost of production and transport is rising because of rising oil prices. Figure 1 shows the close relationship food prices and oil prices. The Food Price Index used in this graph is the FAO’s Food Price Index related to food for export; Brent oil prices are spot prices from the EIA.  .............................................................. Figure 1. World food price trend is similar to Brent oil price trend.With oil prices higher now (because world production is close to flat, and as countries come out of recession, they want more), food prices of all types are higher as well. Oil is used directly in the production of grain and indirectly in storage and transit, so its cost becomes important. Figure and text from: The Oil Drumhttp://www.theoildrum.com/node/7425
Some relevant publications on peak oil and climate change. This list is not a complete list, but rather a list of some of the pertinent publications referred to in Peak Energy, Climate Change, and the Collapse of Civilization. Tipping Point: Near-Term Systemic Implications of a Peak in Global Oil Production ( download) David Korowicz, 2010 Feasta and The Risk/Resilience Network Joint Operating Environment 2010 ( download) U.S. Joint Forces Command, Department of Defense, 2010New Zealand parliament report: The next oil shock? ( access) New Zealand Parliament, 2010 The Oil Crunch - a wake-up call for the UK economy ( access) UK Industry Task Force on Peak Oil and Energy Security, 2010Global Climate Change Impacts in the United States ( access) ( download) U.S. Global Change Research Program, 2009 The U.S. Global Change Research Program (USGCRP) coordinates and integrates federal research on changes in the global environment and their implications for society. The USGCRP began as a presidential initiative in 1989 and was mandated by Congress in the Global Change Research Act of 1990 (P.L. 101-606), which called for "a comprehensive and integrated United States research program which will assist the Nation and the world to understand, assess, predict, and respond to human-induced and natural processes of global change.Preparing for Peak Oil: Local Authorities and the Energy Crisis ( download) The Oil Depletion Analysis Centre (ODAC) and Post Carbon Institute, 2008 ODAC's report provides an introduction to peak oil with a focus on the impacts for Local Government. The report sets out steps for Local Authorities to begin to address the issues.Peaking of World Oil Production: Impacts, Mitigation, & Risk Management ( download) (a.k.a., The Hirsch Report) Robert L. Hirsch, Roger Bezdek, Robert Wendling, 2005
U.S. Department of Energy
The International Energy Agency (IEA) published its annual World Energy Outlook (WEO) this month. The IEA states in its WEO 2010 - Executive Summary: "Crude oil output reaches an undulating plateau of around 68-69 mb/d by 2020, but never regains its all-time peak of 70 mb/d reached in 2006, while production of natural gas liquids (NGL) and unconventional oil grows quickly."The introductory paragraphs of John Collins Rudolf's recent article in the New York Times comments on this key point from the WEO 2010: "Peak oil is not just here — it’s behind us already. "That’s the conclusion of the International Energy Agency, the Paris-based organization that provides energy analysis to 28 industrialized nations. According to a projection in the agency’s latest annual report, released last week, production of conventional crude oil — the black liquid stuff that rigs pump out of the ground — probably topped out for good in 2006, at about 70 million barrels a day. Production from currently producing oil fields will drop sharply in coming decades, the report suggests." Figure 1: Projections of the world’s liquid energy sources to 2035.
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It is interesting to note that in the WEO 2010 figure for "World oil production by type in the New Policies Scenario" (see Figure 1 and 2), the decline in production of "currently producing fields" of crude oil is suspiciously offset by crude oil production from "fields yet to be developed" and "fields yet to be found", thereby keeping global conventional oil production flat through until 2035 (see Figure 2). Coincidentally, this offset in decline helps the projected global oil production to be able to nearly supply global demand by 2035. The IEA published a similar graph in the WEO 2009, in which the decline of global conventional crude oil production was offset almost exactly from "fields yet to be developed" and "fields yet to be found" (see Figure 3). Figure 3 was published in Peak Energy, Climate Change, and the Collapse of Global Civilization as Figure 15.
 Figure 2: Projections of the world’s liquid energy sources to 2035. Nevertheless, these supposed "yet to be developed" and "yet to be discovered' fields will unlikely be able to offset the terminal decline of global oil production as depicted in the IEA's graph: 1. Many of the "yet to be developed" fields cannot be developed due to high capital and production costs, and because of a substantial lack of investment and decaying infrastructure. The current global economic crisis will further limit access to investment. While reduced demand due to high oil prices will make the remaining hard to get, low quality oil too expensive to produce. 2. No one knows whether the "yet to be discovered" oil fields actually exist, much less whether they are even viable to produce at a market price. Since oil field discoveries peaked in 1960 and have seriously declined since, it is very unlikely that much or any of this supposed undiscovered oil will be ever found or put into production at a market price. If the IEA projection that global oil production peaked in 2006 is accurate within +/- 4 years, then it is likely that global civilization is currently experiencing the terminal decline of oil production. Without tremendous amounts of energy to support the current global economy and its requirement for unlimited growth, the systemic collapse of the economy and industrialized society will likely accelerate. These points are all discussed in detail in Peak Energy, Climate Change, and the Collapse of Global Civilization.
 Figure 3: World oil production by source in the IEA's WEO 2008 Reference Scenario2. The red wedge denoting “crude oil - fields yet to be found” increases the upward trend of the overall production curve above it to about 103 mbpd by 2030, which allows this supply curve to nearly match the IEA's projected rate of oil demand of 105.3 mbpd by the same year. .The WEO 2010 and further analyses and commentaries can be found at the links below:World Energy Outlook 2010 (€150) International Energy Agency (IEA)
http://www.worldenergyoutlook.org/Executive Summary (in English; other languages available at above website) (free download)http://www.worldenergyoutlook.org/docs/weo2010/WEO2010_ES_English.pdf source of second quote in this blog: Is ‘Peak Oil’ Behind Us?John Collins Rudolf 2010.11.14 http://green.blogs.nytimes.com/2010/11/14/is-peak-oil-behind-us/Other relevant articles:The age of cheap oil is overNafeez Mosaddeq Ahmed 2010. 11.12http://www.newstatesman.com/blogs/the-staggers/2010/11/post-peak-world-oil-food-priceThe IEA’s New PeakTom Whipple2010.11.24http://www.postcarbon.org/blog-post/188071-the-iea-s-new-peak#IEA World Energy Outlook 2010: questionable assumptions and major omissionsGail Tverberg2010.11.13http://www.theoildrum.com/node/7102World Energy Outlook 2010 – a cry for helpKjell Alekletthttp://peakoil.com/consumption/kjell-aleklett-world-energy-outlook-2010-%E2%80%93-a-cry-for-help/IEA's 2010 report and the outlook for peak oil - Nov 10Staff (Energy Bulletin) 2010. 11.10
http://www.energybulletin.net/stories/2010-11-10/ieas-2010-report-and-outlook-peak-oil-nov-10
Recommended Readings from Peak Energy, Climate Change, and the Collapse of Global Civilization
Peak Energy, Climate Change, and the Collapse of Global Civilization is a rather long book. For some, reading the entire book is not practical.
Therefore, the following are highly recommended "quick" readings from the book, in order to get a general overview of the issues facing humanity:
- Executive Summary
- Figures: 1, 3, 4, 8a, 8b, 9a, 9b, 10, 15, 20a, 22, 23, 24, 60, 61, 72, 73 (the page numbers are listed in the table of contents)
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