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Speaking At Jackson Hole

Andrew McKillop, Financial Sense
“Strains persist” in the world banking system and finance markets across the globe, Ben Bernanke said on August 21 at the Jackson Hole, Wyoming annual Federal Reserve meeting of banking and finance deciders. He of course cautioned, like other leading bankers that the economic recovery “…is likely to be relatively slow at first, with unemployment declining only gradually from high levels.”

Energy and food prices are rising faster than warranted by fundamentals, in the opinion of many deciders, including Bernanke. As these deciders, and influential purveyors of market comment such as Nouriel Roubini and The Economist’s columnists will quickly add, higher food and energy prices could increase the risk of double-dip recession. This outlook, they say, is driven faster by “speculative trades”, working exactly like, and hand-in-hand with those which have driven equity values up by around 40% in the past 4 months on most major markets.

…As Bernanke and others said at the Jackson Hole meeting, global finance and economic trends are for the least complex, even contrarian and opaque – and OPEC seems to be adding a wild card. In fact Bernanke, Trichet and other G20 central bankers could add fuel to the fire, when or if they raise interest rates too far and too soon. Adding higher borrowing costs, to higher food and energy, and other raw material commodity prices would be the worst thing, at the worst time. Helping the Cleantech revolution to shift the global economy away from fossil energy is one sure solution, but it takes time, and will need its own spending packages…
(25 August 2009)

Peak Oil: Supply Data Doesn’t Lie

Puru Saxena, Agora Financial
Despite the ‘demand destruction’ hype, it is interesting to note that during this severe global recession, worldwide oil usage has dropped by a minuscule 2.7%. So, what will happen when the world comes out of this recession? Who will rise up to the challenge and meet our insatiable thirst for energy? These are critical questions not many are willing to ask.

According to the US Department of Energy, liquid fuel demand in the developed nations peaked in August 2005 at 41.89 million barrels per day. Since then, it has plunged by 3.6 million barrels per day to 38.27 million barrels per day. However, you may want to note that despite these tough economic conditions, consumption has been extremely resilient in the emerging world. For instance, demand in the developing countries peaked in October 2008 at 46.33 million barrels per day and it is down by only 0.36 million barrels per day! I am amazed that the worst global recession in decades has barely managed to shrink energy demand in the developing world. Whilst this is wonderful news for the energy investor, it is a terrible sign for society.

At present, our world is using up roughly 84 million barrels of liquid fuels per day and for the moment at least, there is sufficient supply to meet demand (Figure 1). However, when economic activity picks up, it won’t take much for demand to zip right past supply. Remember, it is much easier to increase usage, but it takes a long time to ramp up production. So, unless this is a permanent global recession (which I doubt), it is inevitable that the price of oil will go up significantly over the medium to long-term…
(26 August 2009)

Peak Oil around 2030 says IEA

David Strahan, blog
An article in the Independent caused a stir recently by claiming that the International Energy Agency’s chief economist Fatih Birol had predicted peak oil in ‘about ten years’ – a radical departure from the IEA’s position to date.

Under the headline Warning: oil supplies are running out fast, the Independent’s science editor Steve Connor wrote: “In an interview with The Independent, Dr Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.”

If true, this would be a significant shift for the IEA. Although the Agency has for some time been forecasting a “supply crunch” around the middle of the next decade, it has always stressed that it sees this as the result of underinvestment rather than geological limits. And in its most recent long term forecast, published in the World Energy Outlook 2008, the IEA predicted output would rise to 106 million barrels per day in 2030, up from around 84 mb/d today.

Since Independent’s story was not backed up by a direct quote from Dr Birol, I asked the IEA press office for confirmation. A spokesman emailed:

“Fatih Birol feels that the article was confusing. Concerning peak oil, his position is clear and has not changed since WEO 2008. WEO 2008 said in chapter 11 (highlights page 249) that global conventional oil production will peak around 2020. The article incorrectly made it sound that the total oil production (including unconventional oil etc.) is going to peak at that time. Taking into consideration gains from unconventional oil, oil peak will be later than 2020, more around 2030. Also, oil peak can be delayed by improving energy efficiency, therefore consuming less oil and consequently producing less oil…”
(27 August 2009)
David Strahan updated this article August 28 with new information from the IEA.