THE International Energy Agency (IEA) Thread pt 2 (merged) A

[Eli]

About a a year ago I thought this is where we were headed.

We will have declining oil prices for awhile but at some point it will turn and we will have the price inflationary pressures of oil as it grows scarce. That may only manifest itself in relative price, with oil remaining stable in price as everything else collapses around it.

The portions of the economy that manage to survive this deflationary collapse will not survive the inflationary spike that will come about when oil grows scarce. It will complete destroy what is left of the oil economy.

[Aaron]

PreCog

[DefiledEngine]

It all depends on how deep and how long the recession is. If we have a global depression thats lasts 10+ years, then we'll see continued demand destruction and deflationary pressure on oil prices for 10 years.......

If we have oil production entering a steep decline now, the depression is going to last a lot longer than 10 years.

[yesplease]

I disagree, there is no recorded proof that demand destruction has ever been sustained for more than a year or two and even if we destroyed 10 Mbbl/d of demand it would not take more than a few short years for 9% depletion rates to catch up to that level of production, which in turn drives prices back in the other direction, encourages investment and slows declines even if it doesn't cause things to go back up.

World dropped consumption by ~13% over about four years last time oil prices went up, and there's a chance we could see a greater drop since we could see a global recession as opposed to the global stagnation seen in the early 80s. To add to that, there's nothing that says we'll see 9% since $40-50/bbl is still better than a kick in the head and the costs of field maintenance can easily be below the current price, making it worthwhile to do a bit of housekeeping. Not to mention that according to one of the resident posters intheknow, even when oil was nearly $150/bbl, no one was using above $70-80/bbl for the analysis.

As far as the oil patch goes, we've been booming ever since oil went over $50/bbl. Virtually every well drilled in 2005-07 was based on oil/NG prices much lower than we've seen the last 8 months. Even when oil hit $147 no one I know was using a price over $70-80 for their economic analysis. And most of them actually had oil dropping a bit after the first two years. No one but promoters would sell a prospect on the high prices we've seen recently.

Furthermore, once a certain amount of investment is made in a project, it tends to be more economical to produce what's there rather than just let the infrastructure rot even if the overall operation is at a loss. Given the nature of a lot of oil/NG production, we're looking a large initial investment, so after that's made, even if prices tank, it can be better to get back some of the initial investment compared to little or none of it.

I've seen many wells completed even though it was obvious the well would never recover the ENTIRE investment. An example: it cost $10 million (sunk cost) to drill down to the target sand. When you reach it instead of having the $100 million of oil/NG you had hoped for it only has $10 million worth of reserves. But at that point it will only cost you $3 million to complete and produce it. So you complete it because you make back 3X the completion cost. But the entire project cost you $13 million and you make back $10 million. Thus you lost money on the over all project but made money on the completion decision

Now, that isn't to say we won't see 9% production decline rates over the next half decade, just that I don't think the odds of it are very high. What would be really interesting is if someone w/ a lot of insight into the industry could compile a list of projects/likely costs so far and run a Monte Carlo given some range of oil prices over the next half decade in order to get a good idea of what production will look like. I don't think we're going to see companies continuing full speed w/ tar sands, but I also don't think we're going to see no investment at all in current infrastructure as well as everyone dropping current projects completely, which seems to be what we would have to see in order to get a 9% decline rate.

[yesplease]

PreCog

Calling something after it happens generally tends to be post, and adding the obvious (increased volatility) doesn't make it any more pre anything.

[TheDude]

The early 80s decline in consumption can be in part chalked up to fuel switching from petroleum to NG in electrical generation. You might remember me pointing this out to you yesplease, here's a chart I made this morning:



That's 1.23 mb/d we excised in the US. Can't repeat that accomplishment. The early gains in vehicle fuel efficiency are the easiest as well. That early 80s dip is largely chimerical I think. Toyota having to unload 1.3 billion and wait two years to build 200k more Prii per year doesn't bode well for this Al Gore fantasy of reducing OPEC to groveling paupers. And now that new Prii plant is likely facing delays, too.

Also the poorest consumers of oil still use a lot of it for electrical generation, and won't have an alternative like NG to turn to when supply peaks; they'll simply go Olduvai whole hog, barring ultra cheap wind or the like. One bright spot for the poorest sections of Africa is the promise the Grand Inga hydro project holds, but I doubt transmission lines will be built in time to help people outside of those nations bordering Mali before we hit a peak.

[yesplease]

The early 80s decline in consumption can be in part chalked up to fuel switching from petroleum to NG in electrical generation.

According to your figures that part has already been eclipsed by the current drop in demand, in a ~quarter of the time.

That's 1.23 mb/d we excised in the US. Can't repeat that accomplishment.

Can't repeat it? We already did. Check out the thread on U.S. demand. Down by a maximum of 1.87mbpd yoy according to the 2004 average for consumption, maybe more compared to the current average? We've done in six to eight months recently what took two years during the 80s. That, combined w/ a stronger dollar and a world economy that's supposedly the weakest (growth) since the great depression has result in oil's fastest drop in history. Not to say it won't go back up again, but reducing consumption by ~1.3-1.9mbpd yoy over the past eight months really put the brakes on further price increases, at least fer now. Given the outlook for supply over the next decade I could see another price rally, kinda like the two during the 70s/80s.

The early gains in vehicle fuel efficiency are the easiest as well.

Nope. Fuel efficiency remained flat before the oil price spike in the 80s, and afterwards increased substantially. Similarly, after that spike fuel efficiency has remained flat until relatively recently, and even then we haven't even touched the gains seen in 1980s yet since we haven't implemented increased fuel efficiency standards yet. Sure, it was easy for the big three to drive up oil prices by pumping out guzzlers, but they'll get smacked down like anyone else for selling what the public isn't very interested in. The easiest gains are made after we've ignored fuel efficiency for decades, which is precisely what we did in the 70s and what we've done recently.

That early 80s dip is largely chimerical I think. Toyota having to unload 1.3 billion and wait two years to build 200k more Prii per year doesn't bode well for this Al Gore fantasy of reducing OPEC to groveling paupers. And now that new Prii plant is likely facing delays, too.

Any dip in oil consumption is largely chemical since oil is, well, chemical. In terms of a transition I think we're closer to the dip in 70s consumption as opposed to the dip in 80s consumption from the POV of auto manufacturing.

Also the poorest consumers of oil still use a lot of it for electrical generation, and won't have an alternative like NG to turn to when supply peaks; they'll simply go Olduvai whole hog, barring ultra cheap wind or the like. One bright spot for the poorest sections of Africa is the promise the Grand Inga hydro project holds, but I doubt transmission lines will be built in time to help people outside of those nations bordering Mali before we hit a peak.

What countries and how much of their, as well as world, electricity are you referring to? In terms of the poorest consumers going Olduvai, they were already there for all intents and purposes. Someplace like Somalia didn't descend into it's current state thanks to higher oil prices.

[Tanada]

The early 80s decline in consumption can be in part chalked up to fuel switching from petroleum to NG in electrical generation. You might remember me pointing this out to you yesplease, here's a chart I made this morning:

That's 1.23 mb/d we excised in the US. Can't repeat that accomplishment. The early gains in vehicle fuel efficiency are the easiest as well. That early 80s dip is largely chimerical I think. Toyota having to unload 1.3 billion and wait two years to build 200k more Prii per year doesn't bode well for this Al Gore fantasy of reducing OPEC to groveling paupers. And now that new Prii plant is likely facing delays, too.

Thanx for the graph Dude, the most surprising thing about it to me is that after the early 70's spike things went back to bussiness as usual and it took the '78 Iran embargo and crisis to actually convince the electrical industry to switch away.

I am wondering about the same phenomenom for NatGas for electrical production, but the Marcellus and other shale formations seem to have put a cap of around $8.00 mcf, and that might be long term sustainable for the industry. Despite all the doomsayers shouting from the roof tops about Peak Natgas new technology has given us some breathing room by opening up resource beds that were not viable at the lower price.

The only place I know of that still uses oil/bunker fuel for the majority of its electrical production in the USA is Hawaii, and given recent high prices people there have to at least be considering switching their grids over to Geothermal.

[dohboi]

"Are the tar sands even viable at $40/barrel?"

No, not at anything below 50, as far as I've heard.

Scrapping tar sands would be a very good thing.

Actually a 9% decline rate is too slow, as far as I can see.

We need to halt all extraction and burning of ff pretty much immediately if we want any glimmering chance of avoiding run away global warming that pushes the earth's climate into a deadly spiral. It may well be too late already, but this is our last chance to change course.

Jim Hansen and Ban Ki-Moon agree that we have only about a year to radically change course. It's now everyone's responsibility to move quickly to de-carbonize their energy inputs.

[Tanada]

Actually a 9% decline rate is too slow, as far as I can see.

We need to halt all extraction and burning of ff pretty much immediately if we want any glimmering chance of avoiding run away global warming that pushes the earth's climate into a deadly spiral. It may well be too late already, but this is our last chance to change course.

Jim Hansen and Ban Ki-Moon agree that we have only about a year to radically change course. It's now everyone's responsibility to move quickly to de-carbonize their energy inputs.

I agree, however I also know the only way it will happen is a major nuclear weapon exchange that destroys the capability to extract and combust FF on an industrial scale. Therefore I turned my attention to CCS and found to hopeful low tech solutions which could be deployed, but we have to do so aggressively and beuracracies sre not known for speed or commitment.

[seahorse]

Another article confirming we walk the path to the IEA nightmare scenario.

When crude prices hit unprecedented highs last summer, followed closely by gasoline and diesel, consumers reacted by driving less and conserving more.

Then prices began an equally dramatic fall to levels not seen since 2004, exacerbated by the growing global recession.

However, increasing delays in new production projects could create an energy crunch and choke off an economic recovery when demand rebounds, Richard Jones, deputy executive director of the International Energy Agency, said Tuesday in a presentation at Rice University’s James A. Baker III Institute for Public Policy.

"We believe these developments have diverted world attention from energy security and climate change," he said. "In times of economic hardship, it’s all too easy to lose sight of longer-term concerns."

The IEA’s 2008 World Energy Outlook, compiled in the first half of this year as oil marched toward the $140s, calls for worldwide energy investments of $26.3 trillion through 2030, or more than $1 trillion each year. It also says under current policies, global demand will rise 1.6 percent a year, or 45 percent by 2030.

"We don’t think current worries justify backtracking or delay," Jones said Tuesday. "Investment will be a sound way to increase jobs and get out of the economic crisis we’re in."


Doubt about projects

The Energy Information Administration, which is part of the U.S. Energy Department, expressed similar concern in its Short-Term Energy Outlook, which was released Tuesday.

The agency said lower oil prices generate doubt about the viability of expensive oil- and gas-producing projects outside of the Organization of the Petroleum Exporting Countries, particularly those using unconventional technology or in frontier basins. These include Canada’s oil sands, where several companies have delayed final decisions to move ahead on expansions or new projects.

"If problems in global financial markets lead to delayed investment in existing and new oil fields, then even a short-lived economic downturn could have longer-term ramifications for world oil supply," the EIA said. "This would heighten the risk of a return to a tight supply situation once the world economy and oil demand growth recover."


Accelerating declines

The IEA’s outlook said accelerating declines in current producing oil fields increase the uncertainty. The agency’s analysis of 800 oil fields show decline rates are expected to rise over time, from 6.7 percent today to 8.6 percent in 2030. That amounts to a need for the equivalent of four more Saudi Arabias just to offset decline, then another two to meet future demand.

"It’s almost like you’re on a treadmill, and you have to run faster to stay in place," he said.

Amy Myers Jaffe, an energy fellow at the Baker Institute, said the year’s ups and downs in oil prices and demand debunked several myths that gained strength during oil’s rise. Those included that economies would keep growing rapidly no matter how high oil prices rose and that American drivers were immune to high prices. When gasoline hit $4 a gallon and higher, demand took a dive and energy-efficient cars became a priority.

"The market has now corrected itself based on the fact that prices do cause a contraction in demand," she said.

But the lull is temporary, Jones noted. When economies recover, demand will return, making it all the more critical that investment continues despite the recession. He said that the IEA outlook foresees an average oil price between now and 2015 of $100 a barrel.

"Even though it’s now down to $44 today, given the gyrations of the last year, we’re not prepared to say the average between now and 2015 is wrong," he said.

kristen.hays@chron.com

News

[TheDude]

Equivalent graphs for the rest of the world can be found at the IEA's Statistics page. Select a region, then the graph for "Evolution of Electricity Generation by Fuel." Most show a contraction of use of oil in the early 80s - permanent demand destruction. The current crunch in the transportation sector will largely be transitory.

[Revi]

I think we are poised on the edge of a new low fossil fuel world. A lot of people who were totally addicted to fossil fuel have begun to find ways of breaking the habit. They aren't driving their SUV's, not towing the RV's and aren't riding their ATV's. Even with gas at $1.75 a gallon the spell is broken. They were yesterday's toys.

If we drop at 9% a year it's not going to be much fun.

Who's going to drill baby drill at $40 a barrel?

[mos6507]

A lot of people who were totally addicted to fossil fuel have begun to find ways of breaking the habit. They aren't driving their SUV's, not towing the RV's and aren't riding their ATV's. Even with gas at $1.75 a gallon the spell is broken.

Those SUVs might not be on the road because their owners no longer have a job to commute to anymore. I think it's too soon to pat people on the back for cutting back on gas consumption as a matter of principle. People are a still shell-shocked right now about the price swings.

[OilFinder2]

'Bout time to update this thread. Looks like the IEA has done an about-face.

--> Reuters <--

Global oil demand could fall in 2009: IEA
Mon 8 Dec 2008, 19:23 GMT
By Gabriela Baczynska

POZNAN, Poland (Reuters) - Global oil demand may fall in 2009 if the economies of developing countries slow further, the head of the International Energy Agency said on Monday.

An absolute fall in global demand would be the first for decades but appears increasingly possible as motorists desert their cars and industrial output plummets.

Asked if global oil demand could drop in 2009, IEA chief Nobuo Tanaka said: "It's possible. If the big non-OECD economies like China or India decline further, that is possible."

"Especially in the OECD countries the decline is clear and is getting sharper and sharper. In non-OECD economies like China, India and the Middle East, the oil demand is robust," he added on the fringe of U.N. climate talks in the western Polish city of Poznan.

In the latest in a series of downward revisions, the IEA last week cut forecast growth in global oil demand to about 220,000 barrels per day (bpd) higher than 2008 levels -- far below recent trends of an around 1 million bpd annual increase.

[...]

[yesplease]

Equivalent graphs for the rest of the world can be found at the IEA's Statistics page. Select a region, then the graph for "Evolution of Electricity Generation by Fuel." Most show a contraction of use of oil in the early 80s - permanent demand destruction. The current crunch in the transportation sector will largely be transitory.

I'm not seeing the permanent demand destruction in oil used for electricity you're referring to. Here's the data for world electricity generation by fuel source from 1971 to 2005, and according to my ruler the amount of electricity from fuel oil is the greater in 2005 than in 1971. It's definitely fluctuated in the interim, but I don't see this permanent demand destruction you've been posting about. World electricity from oil in 2005 is greater, or at the very least roughly the same as it was in 1971.

[rockdoc123]

They aren't driving their SUV's, not towing the RV's and aren't riding their ATV's. Even with gas at $1.75 a gallon the spell is broken. They were yesterday's toys.

I'm not sure that's the case, I haven't seen data that supports it directly and I sure haven't seen an absence of drivers on the roads. I think much of the demand destruction in fuel is in the industrial side of things...factories shutting down, sizing down etc., less stuff being shipped by truck. My bet is once the economy turns around and people start to consume willynilly again demand will take a sharp upturn. The industrial part of demand is just a bit less than half of the total I think.

[ki11ercane]

Are the tar sands even viable at $40/barrel? that's a million barrels a day gone ..

A million barrels a day is only 365 million barrels less per year, or 4.3 days of lost production over 365 or about 1.2% annually.

The IEA estimates a 9% decrease in oil availability per year. If we simplify things and say production and consumption are par and we produce/consume 85 million barrels a day, that's a loss of another 2793 million barrels a year.

Add them both together and we get 3158 million barrels of oil, or 37 days lost annually. It would take 10 years of time to pass to lose one year.

This calculation is not taking into consideration anything reducing consumption, however we have seen demand destruction occurring and not making a DENT in consumption.

So a million barrels a day on it's own is of no significance.

[dohboi]

Thanks Tanada. Did you see thisarticle about problems with insuring carbon capture and sequestration facilities? A big leak could be quite disastrous.

I like the organic rather than the high-tech approaches to CCS--native grasses, trees...

At 387+ppm we need to both halt further emissions and start sequestering like mad. Almost none of this is happening (deliberately) as far as I can see, and certainly not at the rate the facts call for.

We're still mostly sleep walking into the apocalypse.

[yeahbut]

They aren't driving their SUV's, not towing the RV's and aren't riding their ATV's. Even with gas at $1.75 a gallon the spell is broken. They were yesterday's toys.

I'm not sure that's the case, I haven't seen data that supports it directly and I sure haven't seen an absence of drivers on the roads.

A quick search brought up this:

The number of miles traveled by American drivers fell 5.6 percent in August, according to an Oct. 23 report. That was the biggest single-month drop ever recorded by the U.S. Department of Transportation, which started keeping track in 1970.

It also brings to a record 10 months in a row, the number of months “vehicle miles traveled” have fallen versus the year-ago month. The state of Florida, which has been hard hit by the housing bust, fell the most in August of any state, down 9.7 percent, the DOT said.

All told, the latest data means Americans have driven 78.1 billion fewer miles in 2008 year to date, than the same eight-month period a year ago.

link I couldn't find anything more up to date but I'm sure it's out there, it would be interesting to know if that trend has stopped with gas prices dropping, or if the uncertain economic times and new consumer behaviour has continued it. Anyone?