Here’s a bit of context missing from the IEA report: the oil industry is actually cutting back on upstream investment. Why? Global oil prices—which, at the current $90 to $110 per barrel range, are at historically high levels—are nevertheless too low to justify tackling ever-more challenging geology. The industry needs an oil price of at least $120 per barrel to fund exploration in the Arctic and in some ultra-deepwater plays. And let us not forget: current interest rates are ultra-low (thanks to the Federal Reserve’s quantitative easing), so marshalling investment capital should be about as easy now as it is ever likely to get. If QE ends and if interest rates rise, the ability of industry and governments to dramatically increase investment in future energy production capacity will wane.

Other items from the report should be equally capable of inducing policy maker freak-out:

The shale bubble’s-a-poppin’. In 2012, the IEA forecast that oil extraction rates from US shale formations (primarily the Bakken in North Dakota and the Eagle Ford in Texas) would continue growing for many years, with America overtaking Saudia Arabia in rate of oil production by 2020 and becoming a net oil exporter by 2030. In its new report, the IEA says US tight oil production will start to decline around 2020. One might almost think the IEA folks have been reading Post Carbon Institute’s analysis of tight oil and shale gas prospects! www.shalebubble.org This is a welcome dose of realism, though the IEA is probably still erring on the side of optimism: our own reading of the data suggests the decline will start sooner and will probably be steep.

Help us, OPEC—you’re our only hope! Here’s how the Wall Street Journal frames its story about the report: “A top energy watchdog said the world will need more Middle Eastern oil in the next decade, as the current U.S. boom wanes. But the International Energy Agency warned that Persian Gulf producers may still fail to fill the gap, risking higher oil prices.” Let’s see, how is OPEC doing these days? Iraq, Syria, and Libya are in turmoil. Iran is languishing under US trade sanctions. OPEC’s petroleum reserves are still ludicrously over-stated. And while the Saudis have made up for declines in old oilfields by bringing new ones on line, they’ve run out of new fields to develop. So it looks as if that risk of higher oil prices is quite a strong one.

A “what-me-worry?” price forecast. Despite all these dire developments, the IEA offers no change from its 2013 oil price forecast (that is, a gradual increase in world petroleum prices to $128 per barrel by 2035). The new report says the oil industry will need to increase its upstream investment over the forecast period by $2 trillion above the IEA’s previous investment forecast. From where is the oil industry supposed to derive that $2 trillion if not from significantly higher prices—higher over the short run, perhaps, than the IEA’s long-range 2035 forecast price of $128 per barrel, and ascending higher still? This price forecast is obviously unreliable, but that’s nothing new. The IEA has been issuing wildly inaccurate price forecasts for the past decade. In fact, if the massive increase in energy investment advised by the IEA is to occur, both electricity and oil are about to become significantly less affordable. For a global economy tightly tied to consumer behavior and markets, and one that is already stagnant or contracting, energy constraints mean one thing and one thing only: hard times.

What about renewables? The IEA forecasts that only 15 percent of the needed $48 trillion will go to renewable energy. All the rest is required just to patch up our current oil-coal-gas energy system so that it doesn’t run into the ditch for lack of fuel. But how much investment would be required if climate change were to be seriously addressed? Most estimates look only at electricity (that is, they gloss over the pivotal and problematic transportation sector) and ignore the question of energy returned on energy invested. Even when we artificially simplify the problem this way, $7.2 trillion spread out over twenty years simply doesn’t cut it. One researcher estimates that investments will have to ramp up to $1.5 to $2.5 trillion per year. In effect, the IEA is telling us that we don’t have what it takes to sustain our current energy regime, and we’re not likely to invest enough to switch to a different one.

If you look at the trends cited and ignore misleading explicit price forecasts, the IEA’s implicit message is clear: continued oil price stability looks problematic. And with fossil fuel prices high and volatile, governments will likely find it even more difficult to devote increasingly scarce investment capital toward the development of renewable energy capacity.

17 Comments on "Heinberg: IEA Says the Party’s Over"

Aaron on Thu, 5th Jun 2014 8:11 am 



I think we might see a number of key policy makers retiring just before SHTF. They are your canary down the mine.

shortonoil on Thu, 5th Jun 2014 9:59 am 



Anyone got a little extra change: like $48 trillion. In regard to petroleum it won’t make any difference; our study shows that between 2030 and 2035 the average barrel of oil will no longer be able to supply energy to the economy. You can’t buy something that doesn’t exist! True, renewables might prevent a few from starving to death, but they are not going to prevent the the BIG decline ahead.

The oil industry is not going to go on a major investment binge. Our study also indicates that the cost of production will increase faster than the price until we have reached the end of the oil age. They will cash out their assets to continue operating as long as possible. New investment projects are going to be far, and few between over the next two decades. Oil prices will continue to rise, and by 2020 they will be at the nose bleed level of $200/b. The IEA’s estimate of $120 is a pipe dream.
The ironic part is that the US could continue to exist as some sort of civilization for the next 50 years by shepherding the depreciation of its existing assets. Of course, Wall Street would find that completely unacceptable. The oligarchs that rule the world will be the seeds of their own destruction, and everyone else unless we begin to realize that the game we have known for the last two centuries is ending. Without a functioning society, oligarchs mutate into peasants!

http://www.thehillsgroup.org

Northwest Resident on Thu, 5th Jun 2014 10:09 am 



“Without a functioning society, oligarchs mutate into peasants!”

If they’re lucky…

I read an article — actually several — explaining how IBM and other major corporations have been buying back their own stock (with all the free QE money) to keep their stock prices pumped up. Imagine that. Major movers and shakers in the global economy have to buy their own stock to keep the value from plummeting. Is that a sustainable business model? Definitely not. That funny feeling that you’re experiencing is the slowly but surely increasing pressure from the expanding global financial bubble which like all bubbles will finally reach a point where it can expand no more and it will burst. When it does, you better be ready.

shortonoil on Thu, 5th Jun 2014 10:55 am 



It’s not just IBM, NR. Last year every major corporation on the S&P was doing that. EXXON, Shell, and Chevron borrowed money to pay their dividends. The Central Banks game of creating fiat out of thin is much more likely to end with a bang – than a wimpier!

Davy, Hermann, MO on Thu, 5th Jun 2014 10:56 am 



“Without a functioning society, oligarchs mutate into peasants!”

Or get guillotined!

Juan Pueblo on Thu, 5th Jun 2014 10:57 am 



“One researcher estimates that investments will have to ramp up to $1.5 to $2.5 trillion per year. In effect”
I remember reading that article in Prof. Bardi’s blog. It is a lot more realistic than the IEA’s BS.
It seems things will come to a head before this decaed is over.
I am going raft fishing now.
Carpe Diem

Northwest Resident on Thu, 5th Jun 2014 11:03 am 



“Or get guillotined!”

Yeah — that’s the “if they’re lucky” part of my previous post.

GregT on Thu, 5th Jun 2014 11:26 am 



“Without a functioning society, oligarchs mutate into peasants!”

OR, they gain control over the militaries, and turn the rest into slave labor to produce their food and energy for them. Kind of like most of human history. I hope I’m wrong, but somehow I don’t see their plans including the other 99.9999 percent.

One more reason to get as far away from large population centres as possible.

Davy, Hermann, MO on Thu, 5th Jun 2014 11:30 am 



Hear this Mak:

One more reason to get as far away from large population centers as possible.

clueless on Thu, 5th Jun 2014 11:54 am 



Davy, come that day, there isn’t a single crumb for you in the US, because you’re idiotic nation will seize everything you have. Bwahahaha.

clueless on Thu, 5th Jun 2014 11:58 am 



Davy, btw your best bet is to migrate south…in Mexico, a third world nation you hate so much. Food will be much more abundant there than you’re stupic nation that will forcibly take all your guns, gold, and food before SHTF. LOL

Davy, Hermann, MO on Thu, 5th Jun 2014 12:03 pm 



Cluester (Coward), how do you know what I hate mate? Who made you God to know the future of what will or will not be taken? Tell me what country you are from Coward (your new name) so we can debate your wonderful future. You and Noob are pussies that are afraid to stand and debate like real men. climb back in your hole squirl!

Perk Earl on Thu, 5th Jun 2014 1:03 pm 



“Our study also indicates that the cost of production will increase faster than the price until we have reached the end of the oil age.”

That’s it in a nutshell, shortonoil. When the cost to produce a product exceeds the price it will fetch on the open market, because the price it should sell for craters demand and thus the economy, it’s over.

I’ve been wondering lately how it is that 4 plus bucks a gallon here in CA is not causing as much economic trouble as it did in 08, and I think it’s because the great recession reduced the number of ‘loose hands’. A term used for people getting out of stocks when there is any kind of negative news. In this case the one’s remaining are holding out better, but it is just a matter of continued pressure until they begin going into default also.

This unrelenting downward economic pressure via too high priced energy is going to get really hard to watch in 2-3 years time. All the radical fiscal adjustments have been made to tweak as much out of the system as can be mustered under these energy predicament circumstances, but it is like a tire being inflated with too much pressure, that suddenly bursts. Watch out when it does and fiat currency has no more value than wallpaper.

clueless on Thu, 5th Jun 2014 10:11 pm 



Davy, like you, i’m here in this stupid nation called USA. I’m just bidding my time, for i’ve been here for quite a while now and was able to save more than enough to bring to my beloved country. Just like everyone from Asia, Europe and elsewhere who are here for the green buck, which happened to be the former power currency. Now that your dollars are useless, majority of us are going back where we originally came from. This is what you call “retaliation”. America invaded and exploited other nations, but what american didn’t know is that the immigrants, your immigrants, are the termites of your stupid nation…why?…because we’re sucking all the “honey” you got. Goodbye.

clueless on Thu, 5th Jun 2014 10:24 pm 



Davy, btw, i’ve sold all my properties, and wired all my bucks, and brought all my jewelry and important papers from this idiotic nation to where i belong. I guess you should start planning of migrating somewhere in Mexico and start the next chapter of your life there. I’ve lived there for a year during the early part of 2000, and i’ve learned that some part of mexico were more livable than majority of your idiotic cities. I swear!!!!

You’re gonna thank me later for this warning. USA is a wasteland, with stupid government, and much stupid people like the kardashians. lol

Northwest Resident on Thu, 5th Jun 2014 11:26 pm 



clueless — Actually, by far the vast majority of immigrants who come to America stay right here. You’re flat-out wrong when you say that “majority of us are going back where we originally came from.” I live with and know by association many immigrants — they love it in America, they’re bringing their relatives to live here and the families back home can’t wait to get here.

Why was your experience so negative?

But hey, I don’t blame you for your bitterness and anger at “America”. You probably worked as a janitor or a landscaper or a toilet scrubber, you brought your hatred and anger with you and because your attitude sucked you had a baaaad experience in America. Now you’re taking your money you earned here — money you couldn’t have earned in your homeland — and taking your hate and anger back to wherever the hell you are from. Hey — Austa La Vista, Baby! There were so many good people and good things here to experience, but you blew it. Your loss.

Davy, Hermann, MO on Fri, 6th Jun 2014 4:36 am 



Cluester, you haven’t read about what is occurring now and will be occurring in Mexico from climate change. Just like the southwest US drought is ruining the agricultural potential in Mexico. You still haven’t said where you are from “coward”. That tells me your homeland is pretty bad place to live. This leads me to believe this awful experience has made you bitter and prone to lashing out at someone and something. This is human nature but it does show a lower level of maturity and intellect. Maybe you should join up with the Noob/Mak tag-team. They will invite you in to wallow in the filth they spew.