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Does peak demand = peak supply?

Kate Mackenzie, Financial Times
… A few commenters raised the contrast or similarity between ‘peak demand’ and ‘peak supply’. Without wanting to stir the pot too much, the demand/supply dichotomy can be seen as just a matter of semantics – or a matter of disciplines. If you look at the likes of Jeff Rubin, a peak oil economist who writes about the effect that more expensive oil will have on the world, then peak demand is a lot like peak supply, only from the economist’s point of view. (For more on that, see James Hamilton’s great ‘how to talk to an economist about peak oil‘ post.)

Commenter Steven.Kopits said BP should be questioned more closely, because Hayward’s comments suggest he thinks oil prices will fall after 2020, as demand dies down. We’ll ask, but we imagine the argument could go like this: oil will become too expensive for some purposes, economies will find substitutes, and once those substitutes are in place, the price falls again.

Which actually describes how demand has been ‘destroyed’ but has, in many places (such as the US), eventually crept back up again, often leading to a supply squeeze again. Economies take time to respond to oil prices; and oil markets take time to respond to demand changes. There’s a lengthy paper by the Oxford Institute for Energy Studies which we wrote about here that addresses that inherent problem with supply/demand and delays in market signals.

Of course if you prefer the peak oil side of the argument – or indeed peak demand – then that cycle doesn’t have much life left in it.
(8 February 2010)
Kate Mckenzie at FT has been making some good posts on peak oil. -BA

Branson warns that oil crunch is coming within five years

Terry Macalister, Guardian
Sir Richard Branson and fellow leading businessmen will warn ministers this week that the world is running out of oil and faces an oil crunch within five years.

The founder of the Virgin group, whose rail, airline and travel companies are sensitive to energy prices, will say that the ­coming crisis could be even more serious than the credit crunch.

“The next five years will see us face another crunch – the oil crunch. This time, we do have the chance to prepare. The challenge is to use that time well,” Branson will say.

“Our message to government and businesses is clear: act,” he says in a foreword to a new report on the crisis. “Don’t let the oil crunch catch us out in the way that the credit crunch did.”

Other British executives who will support the warning include Ian Marchant, chief executive of Scottish and Southern Energy group, and Brian Souter, chief executive of transport operator Stagecoach.
(7 February 2010)
From the Industry Task Force on Peak Oil and Energy Security website:
On 10 February 2010 six UK companies – Arup, Foster + Partners, Scottish and Southern Energy, Solarcentury, Stagecoach Group and Virgin – will launch the second report of the UK Industry Task-Force on Peak Oil and Energy Security (ITPOES). -KS

Tony Hayward: BP’s straight-talking chief on evolution not revolution

Terry Macalister, Guardian
Despite share price worries BP’s chief executive Tony Hayward remains focused on a positive future

… The straight-talking oil explorer who is said to still enjoy the occasional triathlon, is an optimist and has little time for those who argue the world has passed, or is even approaching, peak oil supplies. “I personally – and BP – have never believed we will see peak oil because of supply. We always believed we would see peak oil because of demand. There will come a time – I believe it is beyond 2020 – when because of the changes in the energy portfolio, because of the drive for energy efficiency, because of the introduction of biofuels, demand for oil will peak.”

There is plenty of oil in the world, he argues, not least in Iraq, where BP has staff working on the ground, even ahead of important political elections.

Hayward expects Iraq’s oil production to grow from a couple of million barrels a day today to close to 10m, putting it on par with Saudi Arabia. This makes it “a big part of oil security for the world.”
(4 February 2010)

Endless Oil: Peak Production vs. Oil Price

Ferdinand E. Banks, Seeking Alpha
”Endless Oil” is the title of a piece in BusinessWeek (Jan, 18, 2010) that was written by Stanley Reed. It was interesting for me because I remember a time when BusinessWeek would not have published a tissue of nonsense like that article. Perhaps even more important, I was surprised when I saw the names of some of the persons whose opinions were cited. All I can say is that my dream tonight might involve encountering them in a seminar room or conference; then they would find out the true state of the world oil economy.

Let me begin with the narrative that all of my energy economics students must know perfectly after my second lecture. The Russian oil output is probably close to peaking, and in any event the director of one of the largest Russian firms says that his country will never produce more than 10 million barrels per day (= 10mb/d). This number may be slightly wrong, but it happens to be one-tenth of the amount (= 100 mb/d) that the present CEO of Total (the French oil major) says is the absolute maximum for world production. (Another Total executive recently suggested 95 mb/d).

If this is not sufficient, consider the following. The discovery of what we think of as conventional oil peaked in 1965. In the early 1980s the annual consumption of oil became larger than the annual discovery, and at the present time only about 1 barrel of (conventional or near-conventional) oil is discovered for every 3 consumed. According to a BP (BP) document, of 54 producing nations only 14 still show increasing production. 30 are past peak output, while output rates are declining in 10.

Non-OPEC countries produce 60% of world oil, and that output has peaked. It is also my opinion that while Russia may not join OPEC – or be allowed to join – it will go along with OPEC’s production agenda. OPEC is the arbiter of the world oil economy today and in the future, although that topic is too complex to be taken up in this note. Output in the U.S. peaked in 1970 at 9.5 mb/d, and production turned up when the giant Prudhoe field in Alaska came on line, but the previous peak was never attained. Instead the new peak was 7.5 mb/d. Today it is less than 6 mb/d, and steadily falling. North Sea oil (Norway + UK) peaked just before the end of the 20th century, and the super-giant Cantarell Field in Mexico – the third largest in the world – peaked slightly before that. Its decline is steeper than students of Mexican oil could possibly have expected…
(5 Feb 2010)