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.
Continued violence in the Middle East kept oil prices high this week. Libyan exports are down at least 1 million barrels a day and fears are escalating that the stand-off there could turn in to a protracted civil war. The unrest spread to Oman this week where security forces clashed with demonstrators. Meanwhile news of the arrest of a Shi’ite cleric demanding democratic reforms in Saudi Arabia sent the Saudi Tadawul stock exchange down 11%.
According to the US Energy Information Administration (EIA) oil production in the US increased by 3% last year. The rise is apparently due to increased fracking, the technology that has revolutionised US gas production. But the controversy around the dangers of fracking is hotting up, following the Oscar nominated film Gaslands, and more recently a series of reports in the New York Times. The paper reports that internal documents from the Environmental Protection Agency show the danger to drinking water from fracking is even greater than previously understood. At issue are high levels of radioactivity and inadequate waste water treatment plants. The paper also alleges industry and political pressure on the EPA to limit the scope of its safety enquiry. Meanwhile the first UK fracking project is getting underway in Lancashire.
In the UK this week energy minister Chris Huhne used the current oil crisis to underline the need to embrace a low carbon energy future. In a speech on Thursday he said “I asked economists at DECC to look at how a 1970s style oil price shock would play out today. They found that if the oil price doubled, as from $80 last year to $160 this year, it could lead to a cumulative loss of GDP of around £45 billion over 2 years.” The speech coincided with the release of the Department of Energy and Climate Change’s new 2050 pathways consultation tools aimed at broadening public engagement over energy choices.
ODAC welcomes the call to reduce our reliance on oil, but is concerned that progress will lack the necessary urgency so long as policy relies on IEA forecasts. In a paper published this week in Energy Policy Journal, ODAC calls on the government to reassess its reliance on the IEA’s forecasts, and begin urgently to prepare for an oil crisis far more severe than the current upheavals in the Middle East and North Africa.
The report’s author, ODAC trustee Dr Richard Miller said, “Events in the Middle East have grabbed attention, but the flaws in the IEA’s analysis are potentially more serious in the longer term. We are flying blind into an even more dangerous crisis.”
Oil
Crude Oil Heads for Its Third Weekly Gain as Unrest Spreads to Middle East
Oil rose, heading for a third weekly gain, as unrest in Libya renewed concern supply disruptions may spread to the Middle East while signs of U.S. economic recovery stoked speculation fuel demand will increase.
Futures are 5 percent higher this week, after surging to the highest in 29 months, as Libyan forces loyal to Muammar Qaddafi continued attacks on rebels and protests spread to Iran and Oman. Oil climbed as much as 0.9 percent today before a report that will probably show U.S. employers added more workers last month…
Oil shakes starting to unsettle Saudi Arabia
FEARS that Saudi Arabia, the world’s biggest oil exporter, could be destabilised and rock global economic recovery have edged closer to reality.
As oil prices reached a fresh 2½ year high – just shy of $US100 a barrel – on Tuesday night, the Saudi stockmarket dropped to its lowest since April 2009, shedding 6.8 per cent…
Market turmoil as IEA warns ‘age of cheap oil is over’
Unrest in the Middle East drives Brent crude above the $117 per barrel mark
Growing fears of an enduring oil crisis prompted huge volatility on investment markets yesterday — with shares in the world’s biggest oil producer, Saudi Arabia, slumping to a 22-month low — as a top energy official warned that the “age of cheap oil is over”…
Future oil supply: The changing stance of the International Energy Agency
Abstract
The IEA was established in 1974 with a mandate to promote energy security amongst its members, namely the states of the OECD, and to advise those members on sound energy policy. Its recent forecasts of the medium and long term prospects for oil supply, however, have wavered, alternating from optimistic to pessimistic and back again. For policy-makers, such inconsistency is difficult to deal with. Firstly we examine whether the changing outlooks seen in IEA forecasts made between 2007 and 2010 truly reflect a demonstrable, underlying change in the known facts, and we can find no such factual changes reported by the IEA. Secondly we examine whether the serious criticisms of the IEA’s (2008) forecast made by other analysts have yet been addressed, and we conclude that they have not. Thirdly we consider the possible effects of the current economic downturn upon the IEA’s assumptions and upon future oil supply. We conclude that all the forecasts made by the IEA appear to be too optimistic throughout this period.
Research highlights
• IEA forecasts of oil supply have changed from optimistic to pessimistic and back.
• The reasons for the changes are listed, examined and found wanting.
• The most appropriate IEA forecast is nevertheless the most pessimistic one.
• Some criticisms of the forecast methodology and assumptions are described.
Commentary: ODAC Press Release
Press Release: IEA forecasts conceal bigger oil crisis to come
04 March 2011
British energy policy is founded on dangerously optimistic assumptions that need to be urgently reassessed, according to a paper from the Oil Depletion Analysis Centre (ODAC) published today.
As the upheavals in the Middle East drive the oil price ever higher, the report identifies a litany of questionable assumptions that underpin the forecasts of the International Energy Agency (IEA), on which UK policy is based.
Energy Secretary Chris Huhne has recently acknowledged the potential economic impact of the recent surge in oil prices, but not yet the much greater risks the government is running by relying on IEA forecasts of the oil supply.
The paper, Future oil supply: The changing stance of the International Energy Agency, published in the Energy Policy Journal, shows how IEA forecasts in recent years have shifted from optimistic to pessimistic and back again, as assumptions changed, and how its methodology is flawed.
The report’s author, ODAC trustee Dr Richard Miller said, “Events in the Middle East have grabbed attention, but the flaws in the IEA’s analysis are potentially more serious in the longer term. We are flying blind into an even more dangerous crisis.”
In recent years, the IEA’s annual World Energy Outlook has consistently forecast that oil supply will match demand until at least 2030 — even while warning of the enormity of the challenge. In WEO 2008, for instance, the Agency warned that 64 million barrels per day (mb/d) of additional gross production capacity would be needed by 2030, the equivalent of almost six times that of Saudi Arabia today — but insisted it could be done.
In the paper, Dr Miller highlights several changes the IEA has made to its technical assumptions since 2008, which undermine its conclusion that supply and demand will balance at a tolerable oil price for decades to come. Specifically:
• The IEA has cut its assumed annual decline in existing oil production capacity, from 3.5—3.7 mb/d to 3.1 mb/d (see notes). This may be valid, but no-one can verify the change without access to the IEA’s confidential data. It could also be a temporary effect caused by the economic downturn. If so, global production capacity would have to expand by an additional 10 million b/d by 2030 to meet the IEA’s demand forecast, equivalent to an entire new Saudi Arabia.
• The IEA has raised its assumed efficiency gain in oil use from 2% to 3% per annum. The Agency has not justified this change or provided any evidence to support it. If such evidence exists, again it could be a temporary effect of the recession. If the assumption is wrong, production would have to expand by an additional 2 million b/d every five years to meet the IEA’s demand forecast.
• The IEA assumes higher oil production from Brazil (an additional 3.2 mb/d by 2030), Iraq (+4.5 mb/d), and the Canadian oil sands (+1.7 mb/d). All three sources have significant obstacles to growth, such as environmental issues or insurgency, and all are competing for the same investment cash. It is not clear that the IEA has fully considered these difficulties. Together, the IEA expects these three regions to produce an extra 9.4 million b/d by 2030.
Dr Miller also reaffirms two key flaws in the IEA’s methodology originally exposed in 2009 by Aleklett et al, UKERC and others:
• The IEA appears to count every fallow field (discovered but with no development plans) as economically viable. It is likely that a significant proportion, perhaps 25—50%, can never be exploited at an affordable price.
• In the IEA modelling, the required rate of production from both fallow fields and yet-to-find fields appears implausibly high against the industry’s past performance. In the IEA’s model, the implied depletion rate (see notes) in these fields is as high as 16% per year, whereas the highest rate achieved to date, in the North Sea, is 7%.
Taken together, these points suggest that the IEA’s oil supply forecast are not credible, and that global oil production is likely to peak with a few years. Given the vital importance of oil to the economy, ODAC urges government to reassess its reliance on the IEA’s forecasts, and begin urgently to prepare for an oil crisis far more severe than the current upheavals in the Middle East and North Africa.
Asia moves to shore up strategic oil reserves
As oil prices spiral higher amid turmoil in Libya, developing countries across Asia are taking evasive action, shoring up their strategic petroleum reserves against the risk of a prolonged supply shock. Their actions could propel crude even higher…
History tells us that a surge in fuel costs makes a US recession likely
Economics is not a science. There are no laws or cast iron relationships — as there are in “pure sciences”, such as physics or chemistry. Throughout recent history, though, there have been a handful of economic variables between which the links have been pretty solid.
Ever since the early 1970s, every single time oil prices have spiked sharply (rising by 80pc or more), regular as clockwork the US has entered recession. Given America’s massive influence on worldwide economic sentiment, the past five global recessions have all come in the wake of sharp jumps in the price of crude…
Bombing Damages Iraq’s Largest Oil Refinery
Iraq’s largest oil refinery, in Baiji, was crippled by a predawn attack on Saturday in which gunmen stormed the vast complex, killed one engineer and set off several bombs.
The attack shut down parts of the Baiji Refinery, halting the production of about 150,000 barrels per day of petroleum products and threatening to interrupt supplies of heating oil, gasoline and oil for generators for millions of people in northern Iraq…
Spain adopts energy saving measures to combat oil price hike
Spain announced Friday a series of energy saving measures, including a lower speed limit and cuts to train ticket prices, in response to the rise in world oil prices due to unrest in the Middle East.
“The goal is to reduce the consumption of oil and gas to reduce our energy bill which has risen in recent days and which we do not forecast will drop,” Deputy Prime Minister Alfredo Perez Rubalcaba told a news conference…
US oil production revives despite offshore disruption
US oil production last year rose to its highest level in almost a decade, thanks to an increase in the use of “unconventional” extraction techniques…
Texas activists ready to fight over $7bn oil pipeline in the home of black gold
In an earlier life, David Daniel jumped through fire and performed a motorcycle stunt called the Wheel of Death. For his second act, he picked a fight with a $7bn oil pipeline set to run through Texas.
He is not doing badly for a man taking on big oil in the home of black gold. Growing opposition to a Canadian project to pump crude from tar sands in Alberta across six American states to the Gulf coast could force the Obama administration to reconsider — and possibly delay — the project…
TNK-BP proposes taking BP’s place in Rosneft deal
TNK-BP’s management has proposed taking BP’s place in the controversial £10bn Rosneft deal in a plan that would give the British oil giant £5bn in cash, according to sources.
The Russian joint venture’s executives last week put forward a plan to gatecrash the deal amid a boardroom split between its two 50pc shareholders, BP and four Russian billionaires…
Gas
Results of controversial ‘fracking’ for shale gas in UK will be kept secret
The results of the first attempt to extract shale gas in the UK using a controversial technique known as hydraulic fracturing, or “fracking”, will be kept secret for four years, the Guardian has learned.
Cuadrilla Resources, a US private equity backed firm, told MPs at the energy and climate change committee that it will begin this month to pump 1,200 cubic metres of highly pressurised water mixed with chemicals and sand nearly 3,000 metres underground into an onshore shale gas reservoir near Blackpool…
E.P.A. Struggles to Regulate Natural Gas Industry
When Congress considered whether to regulate more closely the handling of wastes from oil and gas drilling in the 1980s, it turned to the Environmental Protection Agency to research the matter. E.P.A. researchers concluded that some of the drillers’ waste was hazardous and should be tightly controlled.
But that is not what Congress heard. Some of the recommendations concerning oil and gas waste were eliminated in the final report handed to lawmakers in 1987…
Gazprom wins long Kovykta battle over TNK-BP gas
Gazprom has finally won its 10-year battle to take control of Russia’s biggest undeveloped gas field, marking a victory over the asset’s previous owner, TNK-BP.
It bought the prize Kovykta field at auction for $776m – substantially lower than the $2bn estimates of its value once given by analysts…
Biofuels
Biofuels only major way to decarbonise road fuel – BP
Biofuels represent the only way to significantly reduce carbon emissions in road transport fuel and are likely to account for at least 12 percent of supply by 2030, an official with oil giant BP (BP.L) said on Wednesday.
“There is no other alternative that I can really subscribe to in terms of decarbonising road transport,” Olivier Mace, head of strategy, regulatory affairs and communications at BP unit BP Biofuels, told a conference organised by Agra Europe…
Jay Keasling: ‘We can use synthetic biology to make jet fuel’
In 1974, Waclaw Szybalski, a cancer specialist at the University of Wisconsin-Madison, described a radical vision of the future. He foresaw a world where scientists had mastered biology to the point of creating life from scratch. His prediction was not far off the mark. Today, “synthetic biology” — the phrase was coined by Szybalski — is one of the most exciting avenues of modern science. Research on artificial life is under way; synthetic viruses a reality. But the swift progress of the field has raised hopes and fears in equal measure. While some argue that the work points the way to green energy and greater food production, others fear synthetic bugs might escape from the lab and spark a catastrophe…
UK
UK facing 1970s-style oil shock which could cost economy £45bn — Huhne
Britain is facing a 1970s-style oil price shock that could cost the UK economy £45bn over two years, the climate and energy secretary, Chris Huhne, is expected to warn in his first intervention on the issue since the start of Middle East political crisis.
In Thursday’s keynote speech on the impact of the oil crisis, Huhne will argue that an $100 (£61) a barrel price for oil transforms the economics of climate change in Britain…
Pull the levers of power in the UK with Decc’s new carbon calculator
You’ve read the book, now play the game. Sustainable Energy — Without the Hot Air by David MacKay, professor of physics at Cambridge University, was one of the 2008 cult hits for anyone with an interest in the green future of the planet.
For the first time, the book laid out in great detail the options that the UK must choose from if we are to meet our stated goals of cutting emissions by 32% by 2020 and 80% by 2050…
U.K. Government Ready to Pay Power Users to Switch Off in ‘Negawatt’ Plan
The U.K. is ready to step up payments for factories, offices and supermarkets that switch off electricity as rising demand drives up prices and the nation turns to cleaner but less-reliable power.
The government, planning for a six-fold jump in wind capacity in the next decade, is seeking comment from power suppliers and consumers until March 10 on its so-called Electricity Market Reform. The unpredictable nature of wind generation, combined with rising electricity consumption, is likely to drive up U.K. power prices as plants that burn coal are phased out to help reduce pollution…
Cuts threaten green energy growth, says Ernst & Young
Ernst & Young will on Monday release the latest analysis of global renewable energy markets with a warning that government spending cuts are threatening to undermine the industry’s continued expansion.
The latest update of the consultancy giant’s Renewable Energy Country Attractiveness Indices confirms that overall investment in clean energy hit record levels during 2010, rising 30 per cent year-on-year to $243bn, according to figures from analyst firm Bloomberg Energy Finance…
National Grid chief says 2011 is ‘pivotal’ year for UK energy market
Government interventions in the energy market this year will be crucial in determining whether the UK can meet its targets of meeting energy demand and reducing carbon dioxide emissions, the chief executive of National Grid is to say on Tuesday.
Energy market reform, which the government is embarking on, is needed to create the right incentives to invest in renewable power generation and encourage a viable energy mix, according to Steve Holliday…
Sheffield bids to become the UK’s first energy self-sufficient city
Sheffield City Council has announced plans, in partnership with energy company E.ON, to become the UK’s first energy self-sufficient city.
The plan was endorsed by Energy and Climate Change Secretary Chris Huhne yesterday during a visit to the city’s University and Sheffield College…
Transport
Iata cuts its airline profits forecast on high oil cost
Airlines will see their profits almost halve this year because of the recent jump in oil prices, the International Air Transport Association (Iata) says.
Net profit for the industry will be $8.6bn (£5.3bn) in 2011, down from $16bn in 2010, Iata said. It had previously forecast earnings of $9.1bn…
‘Air hybrid’ cars would be cheaper than electric hybrids, claims researcher
Electric cars and electric hybrid cars already make use of brake energy to power a generator that charges the batteries. However, according to Per Tunestål, a researcher in Combustion Engines at Lund University in Sweden, air hybrids, or pneumatic hybrids as they are also known, would be much cheaper to manufacture.
“The technology is fully realistic. I was recently contacted by a vehicle manufacturer in India which wanted to start making air hybrids,” he says…
The technology is particularly attractive for jerky and slow driving, for example for buses in urban traffic.
Thomson and Thomas Cook add fuel surcharges to holiday flights
The modern habit of taking annual family holidays abroad is under further threat after the UK’s biggest holiday companies announced fuel surcharges that could add as much as £160 to the price of a long-haul trip.
The charges come as oil prices soar to a record high of $114 a barrel, pushing up the cost of fuelling aircraft and cruise liners alike…
Package giants Thomson and Thomas Cook are adding the supplements for customers of their charter airlines, ranging from £15-£40 a person depending on the duration of a flight. Other companies are likely to follow suit.
