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Oil up on reduced prognoses

Björn Lindahl, Svenska Dagbladet via ASPO-International
The International Energy Agency, IEA, has made a large downward adjustment in its prognosis for oil production up to 2030. That is an important explanation for the latest rally in oil prices. Yesterday, the price for American oil passed $135 per barrel.

According to the Wall Street Journal, the IEA, that represents 26 industrial nations, will adjust its estimate of oil production in 2030 downwards from 116 million barrels of oil per day to 100 million barrels. The world’s oil production today lies at 85 million barrels per day.

The oil investments that are needed will be very great, much higher than what people have believed. It is a dangerous situation, said the IEA’s chief economist, Fatih Birol, to this newspaper.

However, for those that have, for a long time, been warning that the world is approaching its maximal rate of oil production, (or “Peak Oil” as it is usually called in English), the downward adjustments are too little too late.

The IEA takes one step at a time. Even the prognoses of oil production at 100 million barrels per day in 2030 are completely unrealistic. We will most probably see additional downward revisions, said Kjell Aleklett, who leads research on Global Energy Systems at Uppsala University.

Every year the IEA publishes a study of the world energy situation called World Energy Outlook. For this year’s report, the IEA has used 25 analysts to examine the world’s largest oil fields and how production from these will develo
(23 May 2008)
Contributor Kjell Aleklett writes:
The fact that English is the world language means that many good articles written in other languages will never reach the international readers. Björn Lindahl, who writes about oil for the Swedish newspaper Svenska Dagbladet, is one of those journalists that international readers would love to read. Michael Lardelli has now translated one of his latest articles. The article in Swedish:


Kohler, Gottliebsen, Bartholomeus via Business Spectator
Days after achieving a major milestone in his quest to build a $US11 billion LNG project in Papua New Guinea, Oil Search managing director Peter Botton explains why the oil price could triple and why his project can succeed.

Robert Gottliebsen: Peter, thanks for joining us. Do you believe that the peak oil forecasts of a looming world oil crisis are now starting to come into play?

Peter Botton: I don’t think there’s any doubt that supply/demand scenarios are extremely tight. For the first time ever you see a significant decline in production out of Russia for this year and you see the Middle East frankly struggling to maintain, let alone, increase its production. Put that against the backdrop of an average decline rate across the world of the world’s oilfield of about 11 per cent and there is no doubt that the fundamentals of supply and demand will remain tight. I do believe that we are going to struggle to continue to materially increase production based on an outlook for demand growth.

RG: So unless demand falls we could see an oil price two and three times the present level.

PB: Some people would say that’s probably a matter of ‘when’ rather than a matter of ‘if’ and it really is a question of how do we approach energy usage in a slightly different way, more efficient ways. Technology can help, but broadly speaking, unless there are significant discoveries around the world and there are people and money and time to develop those discoveries which I think will be a struggle, certainly there will be continued pressure in the medium and long term on oil prices.

RG: So you believe that the reason OPEC’s refusing to lift production is simply that they can’t do it?

PB: I genuinely believe they have no capacity to do it. Based on our information out of the Middle East and from where we work ourselves, they’re struggling. Saudi Arabia has got enormous development programmes planned and in part underway, but like everybody else, they’re struggling to find people, struggling to find equipment and it all takes time.
(24 May 2008)
Long interview with an industry insider. -BA

Is the world about to be running on empty?

Stephen Foley, UK Independent
As evidence emerges of dwindling oil reserves, the price of crude hits $135 a barrel

In France, fishermen are blockading oil refineries. In Britain, lorry drivers are planning a day of action. In the US, the car maker Ford is to cut production of gas-guzzling sports utility vehicles and airlines are jacking up ticket prices. Global concerns about fuel prices are reaching fever pitch and the world’s leading energy monitor has issued a disturbing downward revision of the oil industry’s ability to keep pace with soaring demand.

Yesterday’s warning from the International Energy Agency sent the price of a barrel of oil to a new record for the 13th day in a row. The latest high – $135 for a barrel of light sweet crude – was reached in New York barely five months after the price hit $100. Experts in London and on Wall Street predict that prices will rise to $200, regardless of the protests of consumers and the complaints of politicians. It is simple economics, they say: supply and demand. The former is short, the latter growing.

… The Paris-based International Energy Agency (IEA) said yesterday that it might have overestimated the capacity of oil-producing nations to open new fields to keep up with growing demand over the next decade. Global production, which the IEA previously reckoned could reach 116 million barrels a day by 2030, might not even make 100 million.

Fatih Birol, the IEA’s chief economist, said the oil industry had entered “a new energy world order” where it was harder to keep supply and demand in equilibrium. “When the price went up as a result of the Iranian revolution, demand went down,” he added. “But what has happened in the last few years has not been in line with economic theory. The price of oil went up sharply between 2004 and 2006 and demand actually increased. That may seem bizarre but it is the result of new buyers coming in, such as China and the Middle Eastern economies where fuel is subsidised by government and rises are not reflected on the consumer side.”
(23 May 2008)
Contributor Neil notes that the article has a “have your say” section.

Peak oil hits new heights and the view is not pretty

John Garnaut and Matt Wade, Sydney Morning Herald
… Kevin Tu, an energy consultant in Canada, says the earthquake and Chinese Government efforts to build huge strategic reserves in time for the Olympic Games in August will have a “huge impact” on the international market.

And yet oil demand in China and other developing countries is growing so fast, and the international market is so stretched, that international oil prices smashed through to new records this week.

… Traditionally, economists have been sceptical about the idea of “peak oil” – a point at which oil production will necessarily decline – believing that rising prices will drive oil companies to do what ever it takes to extract more oil from previously inaccessible places, such as Canadian oil sands or Brazil’s offshore discoveries, kilometres beneath the seabed.

And yet oil prices have risen seven-fold in five years and there is little in new production or discoveries. Existing oil fields, meanwhile, are running out faster than anyone predicted. The further ahead that analysts look, the worse the problem gets. Investment bank Goldman Sachs now expects oil prices to average $US141 in the second half of this year, before rising as high as $US200.

… Australia remains a lucky country. It may import a lot of oil but it is a huge net exporter of energy and resource commodities. The oil price shock is part of a broader commodities boom that will continue to make Australians richer. Mortgaged home owners will pay the price, if the Reserve Bank is again compelled to raise interest rates to keep inflation under control.
(24 May 2008)