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The peak oil crisis: the IEA’s road show

Every November following the publication of the IEA's World Energy Outlook, the leadership of the Agency travels to major capitols in an effort to explain to the world's leaders the conclusions of the new publication. Parts of this year's briefings contain not-so-subtle hints as to what sort of energy policies the world's leaders might like to follow if they want to avoid killing off all life on earth a century or so from now. Earlier this week the travelers stopped in Washington, where sandwiched between visits to various dignitaries they briefed an assemblage of some 200 journalists.

Although I had already plowed through the 600-page report and extracted some wisdom for these columns, I thought it might be interesting to hear about how the IEA's leaders, who oversaw the scope and approved the findings of the new report, saw the global energy situation.

The Agency's new Executive Director and former Economic Affairs Minister for the Netherlands, Maria van der Hoeven, went first, making the point that the global energy situation has become far more challenging during the past year due to the Fukushima nuclear meltdowns, the Arab Spring uprisings, and the financial upheavals in the EU. She emphasized that the world must invest some $38 trillion over the next 25 years to maintain the flow of energy that we have become accustomed to having.

IEA's Chief Economist Fatih Birol gave the heart of the presentation. Birol began with his three principal worries: Despite global lip service to slowing global warming, CO2 concentrations in the atmosphere continued to grow last year; All governments claim to want more efficient use of energy resources, yet efficiency continues to drop; and finally high energy prices with oil prices on track to top $150 a barrel within a few years will kill any economic recovery. As an example, Birol pointed out that coal had been selling for $60 a ton as long as the Chinese were exporting it. This year when China switched from being a coal exporter to becoming even a rather small importer, prices rose to $120 a ton.


The immediate future of oil production, however, is seen as one of adequate investment.

The IEA sees the future of oil as one of demand for more and more automobiles by the peoples of the non-OECD world. Despite automobile sales that now surpass those of the U.S., China currently has only 90 cars per thousand people as compared to 500 in Europe and 700 in the US. Surprisingly, the US is seen as the country making the most progress cutting oil consumption. Not only is there a plan in place to reduce the nation's gasoline consumption by building more efficient cars in the next 20 years, the U.S. is actually increasing its domestic oil production a bit by exploiting tight oils found in shale deposits and deepwater drilling in the Gulf. Birol was too polite to mention that rising unemployment and stagnant industrial production is also contributing to the drop in oil consumption.

The immediate future of oil production, however, is seen as one of adequate investment. The IEA says that the Middle East and North Africa will need at least $100 billion a year in new investment for the foreseeable future even in a place where oil is still cheap to exploit. The problem, however, is that the rising expectations of Arab Spring is rapidly shifting oil revenues from investment in more oil production to the kinds of social spending that will keep people happy and out of the streets. In the closest the IEA comes to predicting peak oil, Birol says that without major increases in investment (an increasingly unlikely occurrence), Middle Eastern oil production will fall by 3.4 million barrels a day (b/d) by 2015 and 6.2 million by 2020. Should this happen, we will have oil prices in excess of $150 a barrel - until of course demand slumps from the high prices.

The IEA is very excited about the prospects for shale gas, calling it the "golden age." On behalf of mankind, the Agency thanks Americans for having discovered how to exploit the stuff and aside from a few regulatory problems having to do with ground water and emissions, shale gas is destined to become an increasing important part of the global energy budget. I know more than one person who has problems with all this optimism.

The nuclear power question is interesting. The IEA says the world is divided into three camps - Russia, China and India considered the Fukushima disaster and decided they have to have nuclear power anyway; Germany and Switzerland decided to call it quits; and the issue is being hotly debated in Japan and France. The big trouble is that without nuclear power plants, CO2 emissions from burning more coal and natural gas go much higher.

Russia comes in for some harsh treatment for being the one of the most inefficient energy users on the earth today. For centuries the Russians had so much cheap energy - wood, coal, oil, natural gas -- that nobody worried about the efficiency of domestic consumption, carbon emissions or anything else. The IEA has calculated that should the Russians start burning their fossil fuels with the efficiency of the OECD nations, they could double their natural gas exports without producing one liter more than they do today.

Climate change remains the 800 pound gorilla on the IEA's agenda, as on the world's present path we are on the way to a 6oC rise in average global temperature which some hold will be synonymous with the end of life on earth. An average global temperature rise of 2oC, however, is thought to be manageable, but there is a big, big problem - we are almost there. Another five years of building cars and CO2-belching power plants will put us over the tipping point and from there on it is all downhill. Now there is a warning for the ages - it could be the last one we receive while there is still time to react.



Tom Whipple is a retired government analyst and has been following the peak oil issue for several years.

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