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43 comments on Is Peak Oil Already Here? Is that why GS Reweighted?
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Although other forecasts show that peak oil is at least a few years away, based on my forecasts below, we are already at peak oil.
The first chart shows forecast crude oil and condensate(C&C).
This chart is a revised first scenario from my guest post
http://www.theoildrum.com/story/2006/12/11/231813/91
However this chart forecast excluded natural gas plant liquids (NGLs ie ethanes, propanes & butanes)
So I did the following forecast which shows an annual NGL production increase of over 2% due mainly to the large Saudi NGL projects Khursaniyah and Hawiyah.
Combining the decline rate of -0.8% for C&C with the 2.3% increase rate for NGLs produced a total liquids decline rate of -0.5%.
The -0.5% decline rate was applied to total liquids supply. The chart below shows a significant demand gap starting in October 2007 causing oil prices to increase.
Forecast assumptions:
World total liquids supply declines at -0.5%/year and demand increases at 1.7%/year.
The demand growth comes mainly from China, Other Asia and Middle East while growth rates from OECD vary from 0.1% to 1.0%. These growth figures are based partly on the IEA monthly market reports. http://omrpublic.iea.org/archiveresults.asp?formsection=tables&formdate=... Liquids include crude oil, lease condensate, NGLs and processing gains. Although forecast demand is greater than supply, the gap is closed by increased price because ultimately demand must be approximately equal to supply.
Mild northern hemisphere winter weather is assumed to continue and the price forecast from Jan2007 to Jun2007 is assumed to be a simple linear regression forecast based on the oil price (SDR) historic trend from Jan2002 to Dec2006.
Price elasticity of oil demand is assumed to increase from 0.10 in Jul2007 to 0.52 in Dec2010. The elasticity is assumed to be the same for increasing and decreasing prices. Elasticities are assumed to constant for all countries. For an interesting paper on elasticities –
http://cta.ornl.gov/cta/Publications/Reports/ORNL_TM2005_45.pdf
The oil price is forecast is SDRs (Special Drawing Rights) which simulate a global currency. The USD has devalued significantly against the Euro during the last few years and oil price increases measured in the USD gives a distorted view. It is assumed that the USD:SDR exchange rate remains constant at 1.50 from Jan2007 to Dec2010. The SDR is explained in http://www.imf.org/external/np/fin/data/param_rms_mth.aspx
The time dimension unit of a month was selected because supply figures are given monthly. Demand data is quarterly and is assumed to be the same for each month in the quarter. Prices are assumed to be month end and are from http://tonto.eia.doe.gov/dnav/pet/pet_pri_wco_k_w.htm
“All Countries Spot Price FOB Weighted by Estimated Export Volume (Dollars per Barrel)”
World total liquids supply declines at -0.5%/year and demand increases at 1.7%/year.
I think your negative decline rate, at least in the next 3 or 4 years is wrong. But I think you are right in that demand increases will outpace supply increases, which will keep the pressure on prices. That's why I am bullish on oil prices (although fairly bearish this year, as demand destruction has created a bit of a glut at the moment).
Thanx Ace for the corrections to your model. By using the EIA price forecast, u have also eliminated the demand destruction concerns that i had for the usa.
I am still surprised that your new "total liquids" scenario sees Demand outstripping Supply in the short term. You have not been clear on how u reconcile your supply projection with the "partly IEA projection". IEA's medium term Outlook of August was bottom up based. It forecast 91.3-mbd by 2010 yet your "IEA modified" supply appears to be only 83-mbd. This implies a diff of 8-mbd in your projection from IEA's. Yet your C+C analysis only shows a 2mbd dropoff which we can extrapolate to a liberal 4-mbd in 2010. Why are u attributing a 4-mbd shortfall from the IEA study over and above C+C attribution?
Freddy,
You don't actually trust IEA forecasts, do you?
As I don't subscribe to IEA, I found their "World Energy Outlook 2004". http://www.worldenergyoutlook.org/free.asp
From page 105: "World oil supply is projected to grow from 77 mb/d in 2002 to 121 mb/d in
2030." 121 million barrels/day in 2030!! Page 106 shows OPEC producing 64.8 million barrels/day in 2030. I'd like to see the spreadsheet they used to calculate that number! As WT says - lets buy more SUVs to drive to the suburban mortgage.
There are different types of bottom up based forecasts - some are based partly on reserves which can be misleading. That is the main reason why I built my own model using only production and decline rates from existing fields and future projects out to Dec 2010. (sourced mainly from Chris Skrebowski's megaproject list). I do not use reserves or yet to be discovered reserves to forecast oil production.
Try building your own model - you will learn a lot about forecasting and also how organisations such as CERA, IEA and others forecast for their clients. If you have already built your own model please post it on TOD!
Cute, Ace. You trust IEA enuf to use their Demand projections but then shit on their Supply targets. And yes, i do subscribe to their targets. When we go back ten years ago, IEA predicted 2006 Supply would be 80-mbd (compared to actual 85-mbd). Within 10%. When we look at the Peakster view of 2006 thru the eyes of Colin Campbell, it was 64-mbd. Out over 20%. The Peaksters should never engage in pissing contests wrt to forecasting, Ace.
BTW, IEA has no spreadsheets to merit the 2030 forecasts. In my criticism of IEA, EIA & others i have condemned their continued use of long term Supply targets based solely on a factor of projected Real GDP growth. OTOH, since 1998 their short and medium term targets are based on bottom-up flow analysis.
U and Bakhtiari are the only folks i know forecasting decreased supply after 2006. Samsam is an idiot and a liar so he's covered. After your two presentations, we have little explanation from u wrt which countries or what components of total liquids will cause a 7-mbd shortfall from the other 2010 Outlooks. If u wish to reside in a realm of smoke&mirrors, that is certainly your privilege...
The weight of the 13 recognized medium term Outlooks say u are very wrong. Bakhtiari has fraudulently changed his definitions to protect the integrity of his forecast that Peak has occured. He credits decline in KSA as his basis for Peak Oil. His 81-mbd Peak is bunk and he is easily dismissed. It is your privilege to defend or choose not to defend where your Scenario differs from consensus; either based on geography or liquid component.
Variability:
According to the EIA weekly stock report over the last four weeks, the US consumption dropped by 890.000 bd as compared to 2005/06, while domestic production of liquids increased by 883.000 bd, reducing the "call" on world markets by 1,77 mbd. Jet fuel demand dropped by 8,8% in the US, in my opinion not a sign of a healty economy.
Austria is one of the three richest nations in the EU besides Denmark and Ireland, not counting Luxemburg , which is a statistical artifact with 400.000 inhabitants. The eight Million Austrians consume 220.000 barrels a day, so with Austrian energy efficiency the US could become "energy independent".
On a side note, the temparature curve in our region (central europe) inverts around the 13th of january. The average daily temparature over thirty years shows increased variability around the seasonal turning point.
Peak oil might be here, but consumption might still drop faster than production.
What do you mean by stating that "the temperature curve inverts"?
point of lowest temperature. Both summer high peak and winter low "peak" (trough) are behind the longest and shorest days of the year by a certain number of days which vary by location. Known as the 'flywheel effect' peak heat is after the longest day(summer solstice) and the reverse for winter solstice(dec 22). The earth takes time to heat up and to cool off - the build up of each is "after the fact" of solstice.
Yup, OB, in Whitehorse Yukon our flip is today (jan 11th) but our coldest day of the winter is usually the 27th in last ten years. Our summer flip is July 20th with hottest summer day on Aug 6th of late.
It was -42 last nite. With the sun setting behind the peaks around 1:20pm, we are looking forward to "warmer" nites and we've been gaining about 1/2 hr of sunlight this past week. We've got 55cm of snow outside in the coldest winter since 1944 thus far...
My new year's resolution was not to respond to trolls, but so many people are listening to Fraudy Nutter that I must point it out - his statements are without exception false, even on the weather outside his window!
http://data.giss.nasa.gov/work/gistemp/STATIONS//tmp.403719640006.1.1/st...
The twentieth most severe winter(November-December)since 1942, and December substantially warmer than the norm!
our one liner from the lunatic fringe has graduated. Two lines today!
Based on the markets it appears that oil demand is much more sensitive to environmental factors. We may be close to peak but the unseasonable weather has resulted in a global surplus.
Would it be possible for Khebab or one of the other statisticians to determine the degree of this sensitivity? It would, I think, make a very interesting article.
Two conjectures for the future:
1) OPEC throttles back production to compensate for reduced demand due to unseasonable warmth. In the subsequent year we encounter unseasonable cold and stocks evaporate, prices surge and . . .?
2) Unseasonable winter warmth is followed by unseasonable summer heat. Given the poor stocks of NA NG and the demand associated with peak cooling what are the impacts?
Acct, lack of heating oil sales is only one-third of the picture. I reming u et al that the inventory buidup started in 2006Q2 and continued in Q3. Some of that was based on false demand by speculators. The end-of-year figures coming in show us something more important.
Non-OPEC supply was up 0.65-mbd in 2006 over 2005. And worse, non-OPEC supply is poised to increase 1.7-mbd in 2007. Concerned OPEC members are shitting bricks at the prospect. Their undiversified economies are critically vulnerable to this combination of both quota cuts and lower prices ...
Your own concerns about NA nat'l gas are unfounded. USA Production was up 2.9% in 2006 over 2005. Stocks are now 12% over last year. Last month i forecast that the Spring trough in working gas would be at least 1500-Bcf. I am increasing that in this month's Report to 1600-Bcf due to continued el nino effects. A nat'l gas spike in the next 12 months is virtually impossible.
The implications are economic problems for KSA and friends. This already a woefully unstable part of the world and if KSA lacks funds to employ the growing population, to continue to increase oil related capex, to revamp the military, and to maintain the 4,000 princes in the style to which they have become accustomed, then what happens next?
If KSA does in fact have shutin supply then I fear we may see a KSA decision to return to the strategy employed in mid-1980's of driving the price of oil down to eliminate competition from present and future non-OPEC production and destroy investment in all renewables and alternates.
This is the complete opposite of current conventional wisdom. I think it is likely.