Welcome to the ODAC Newsletter, a weekly roundup from the Oil Depletion Analysis Centre, the UK registered charity dedicated to raising awareness of peak oil.
Oil prices continued to slide overall this week spurred on mainly by fears of demand destruction resulting from economic contraction. Launching the Bank of England quarterly inflation report yesterday Mervyn King effectively predicted a recession in the UK. The economies of both the Eurozone and Japan contracted in the second quarter. At the moment economic news dominates and not even the outbreak of war between Russia and Georgia could change that mood.
To what extent and for how long the demand destruction holds back the price remains to be seen. The US has seen a reduction in driving, but as Tom Whipple of ASPO-USA points out, this has been over the summer months when there is typically a lot of discretionary driving, which can be more easily avoided. In the meantime US gasoline prices have dropped back from their $4/gallon high, and winter will be coming. The economies of China and India are still growing, albeit it at a slightly slower rate than before and demand continues to rise in the oil-producing Gulf nations and Russia. In its monthly report the International Energy Agency predicted oil demand to be roughly flat in 2008, with a 1.1% increase forecast for 2009. Looking ahead in an interview with Der Spiegel however Nobuo Tanaka, head of the IEA, foresees demand side constraints prevailing to keep the price trend high. For commentary on the supply and demand dynamic see ODAC trustee David Strahan’s article Have we Reached the End of the Road for Oil?.
The view that it is fundamentals which underpin the oil price, despite the recent decline, is underlined in The Coming Oil Crunch a report this month by Professor Paul Stevens, senior research fellow for energy at Chatham House. Professor Stevens predicts a further energy crunch by 2013 driven by growing demand along with supply constraints arising from a lack of investment by International Oil Companies and increased resource nationalism of state owned energy companies. Such geopolitical factors were well illustrated this week as Russia ‘came to the aid of’ South Ossetia in its bid to break away from Georgia. BP was forced to shut their South Caucasus pipeline. The larger Baku-Tbilisi-Ceyhan (BTC) pipeline was already closed due to a fire earlier in the week (allegedly the result of an attack by Turkish separatists). The BTC pipeline carries oil to the west from central Asia bypassing Russia. The situation poses another threat to Western efforts to secure fuel supply routes from central Asia which don’t rely on Russia.
What has been demonstrated in the last few months is that high fuel prices can bring about changes in behaviour which lead to reduced consumption. Given the predicted widening gap between supply and demand this is important (Tanaka points to a decrease in the volume in existing oilfields worldwide of an average of 5 percent a year needing an additional 3.5 million barrels of oil a day to offset these losses, while demand is growing by about a million barrels a day).
If governments (and voters) were prepared to learn from the situation and keep a high floor price on oil now, making it clear that there will be no return to ‘normal’, then these behavioural changes could be made permanent. If leadership could be shown to then promote further efficiency and a serious adoption of renewable sources as a real priority, then the future need not look quite so bleak.
IEA cuts oil demand forecasts
Crude Oil Rises a Second Day on Lower U.S. Gasoline Supplies
‘We Live in an Era of High Energy Prices’
BP shuts Georgian pipeline over fears of bombing raid
U.S. learns quickly to live with less oil
Walker’s World: $200 oil is coming
Have we reached the end of the road for oil?
Oil vulnerable as OPEC supply cushion thins: Iran
After slow start, wave energy approaches commercial scales
Conflict Narrows Oil Options for West
Power in the pipeline: Why the BTC matters
Arctic cold war as US sends a ship to claim riches under the ocean
Bleak UK forecast sends pound lower
European economy contracts for first time since euro launch
Spanish inflation at 15-year high
Contraction in Japanese economy
British Energy profits hit by nuclear plant shutdown
Middle East to fund Scotland’s £5bn power grid
Small businesses ask Ofgem to check their soaring energy bills