The Oil Drum | DrumBeat: November 12, 2008

172 comments on DrumBeat: November 12, 2008

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Leanan on November 12, 2008 - 9:44am

The report isn't yet officially released, but there's a bunch of stuff at their web site:

http://www.iea.org/

Including a press release, fact sheets, and key graphs.

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garyp on November 12, 2008 - 9:56am

I've taken this morning since the press release, etc. was put out reversing the one useful graph to look at the assumptions.

This graph:

yields the following for the contribution from new fields not yet developed and new fields not even found yet.

Please excuse the noise, its not easy to pull those figures off the graph.

The immediate reaction is to compare and contrast these assumptions with the megaprojects data, particularly in the short to medium term. An extra 2-3Mbpd from totally new fields every year from 2010-2015 doesn't come anywhere near matching up. Not only that but from 2016 we are supposed to start seeing contributions from fields not even found yet, by 2020 a good 1Mbpd every year from totally new fields.

Sounds like someone has sprinkled the fairydust over this report

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Leanan on November 12, 2008 - 10:01am

I removed the "width" tag, because for people with large screens, it blows the image up to unreadable size.

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woodychuck on November 12, 2008 - 10:21am

If the low price is causing hesitation in the short-term, like the first two links on IEA indicate, but we are OK out to 2030, although demand is outstrripping supply, why are we not all a little confused?

If we have the shortfall, and supply fails to meet demand for the next 12 - 18 months, supply would have to grow faster than projected to make up for that shortfall, spurred by the higher prices brought about by the shortage, but without extreme expansion of infrastructure (like way more rigs, etc) which will be worsened by the low prices in the short term, we can't possibly catch up.

All that, and I don't think a word of it is true. My opinion, like everyone slse's, does not matter though. The shortages are going to hurt the lower income folks in developed countries the worst. The population in sub-Saharan Africa will not be hurt as bad because they do not use fossil fuels at anywhere the rate, per capita, western populations do. Whether we have peaked or not, the demand has been here in the past and will be again in the future, and we will not have another Kuwait to add each and every year as another article linked to Bloomberg suggests.

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VK on November 12, 2008 - 10:38am

Wow, that puts it in perspective. They'll be screaming there's no peak all the way down the long descent. Just the way every market commentator was calling for people to buy buy buy with this bear market downturn. As for those retail sales for China, in a few years they'll be well below where they are today.

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garyp on November 12, 2008 - 10:38am

Some other points that fall out of the graph:

The existing decline rate shown appears to be after infill drilling and other expansions of existing fields. Trying to fit a changing decline rate this I think they assume that the big existing fields will have a decline rate of ~6% by 2020 even with these maintenance activities.
Production from new fields already know but not developed peaks around 2023 - even if they existed, they don't last.
20Mbpd of production from new fields not even found yet by 2030. That's equivalent to finding and bringing onstream 1Mbpd of new oil every year.
New EOR techniques are supposed to bring in 6Mbpd by 2030
Non conventional is supposed to grow to 7Mbpd by 2020, from 1Mbpd now (I thought Canada was more than that?), and reach 9Mbpd by 2030. Where is the obvious question.
NGL is forecast to rise steadily to 20Mbpd by 2030, while oil stays flat at best. Again, where?

Judging by the other comments they make, they still seem to rely on a magic middle east to develop new untapped fields and find more. That's despite the Saudi statement of leaving fields for future generations. I'd love to see their 800 field database justification for that - just where are these uptapped reserves they are so sure can be tapped in 5-10 years?

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NeverLNG on November 12, 2008 - 11:53am

How much of this magical new production is supposed to come from Iraq? There are supposed to be gazillions of barrels of oil out there-- they just haven't been explored or developed. And by destroying the country, TPTB have effectively destroyed domestic demand, so "export land" models are not applicable there.

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Geckolizard on November 12, 2008 - 12:02pm

And by destroying the country, TPTB have effectively destroyed domestic demand, so "export land" models are not applicable there.

That's an interesting thought... Instead of acquiring oil supplies to ensure our energy future, destroy other countries, and implicitly their demand for oil. Imagine the oil demand in France if we nuked it. Repeat this for other countries, and viola! if world supply is only 20 mbpd, and your country demands 15 mbpd but is the only country that has a functioning economy and needs oil, then there's no problem with Peak Oil.

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NeverLNG on November 12, 2008 - 12:15pm

Hardly a new idea. Alexander of Macedon was a pioneering thinker along those lines.

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nelsone on November 12, 2008 - 1:18pm

Pakistan's next in line for infrastructure-destruction-enabled demand destruction.

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Geckolizard on November 12, 2008 - 1:33pm

Yep, and they might just be the first country in the world to nuke themselves. This'll be fun...

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suyog on November 12, 2008 - 1:41pm

Pakistan is nearly bankrupt; see http://www.thenational.ae/article/20081111/FOREIGN/370875226/1002.
They have barely enough money to import food & fuel for another 2 or 3 weeks.
My guess is that US will bail them out again; otherwise we will not get "cooperation" from Pakistan in the war on terror.

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Darwinian on November 12, 2008 - 12:45pm

And by destroying the country, TPTB have effectively destroyed domestic demand,

You are putting the cart before the horse. When oil production stopped growing, the economy stopped growing. Oil prices skyrocketed and these two factors sent the economy into a deep recession. And it will get a lot deeper. TPTP had absolutely nothing to do with it, unless you think they somehow have control over world oil production. And it is the world economy that is being destroyed, not just this country's economy.

High world oil prices have destroyed world world demand and consequently caused world oil prices to fall. These low world oil prices will increase world consumption and cause prices to rise again. This in turn will cause .....

Folks must stop thinking "country" and start thinking "world". Whether you think globalization is a good thing or a bad thing, it still exists. We are all in this together.

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DaveMart on November 12, 2008 - 1:00pm

Globalism is far from complete at the moment, which is one reason why no Chinese banks have failed. They are still under heavy Government control, as is the exchange rate.

That is not to say that there will be no effects on China, but a substantial degree of disconnectedness still survives, fortunately, and the effects of the Global recession may not be quite as universal and especially not as uniform as you imply.

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Darwinian on November 12, 2008 - 1:36pm

China depends on global exports far more than most other countries. And they hold a huge chunk of the US debt. When the world stops buying Chinese exports China will be in deep doo doo. And China is almost totally dependent on imports for iron ore and most other raw materials. China has the the very epitome of "globalists economy".

China Iron Ore Imports to Stall Next Year, Group Says

China this week announced a 4 trillion yuan ($586 billion) stimulus plan to revive growth in the world's fourth-largest economy, investing in housing, railways, roads and airports. Contract iron ore prices may drop next year, the first in seven, hurting profits at Cia. Vale do Rio Doce, Rio Tinto Group and BHP Billiton Ltd., analysts said.

A $586 billion bailout plan! Sure as hell looks a recession to me.

All banks in all different countries have different regulations and different levels of government control. Nothing concerning the global recession dictates that all banks in all countries must fail at the same rate.

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BMW on November 12, 2008 - 1:42pm

China is toast, but you can bet that the Chinese army is going to strenghten.

I wouldn't want to be in their neighbourhood (especially in the Russia).

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DaveMart on November 12, 2008 - 2:01pm

Unlike the US, China has been running a budget surplus, and so has the money available to counter a recession, and although it won't be easy can switch to producing infrastructure, hopefully with a healthy amount of that going to energy, railways and battery technology.
It's situation is more similar to the US in 1929 than to the US today, as it can deploy resources given the political will in a manner the US no longer can.

I was not attempting to argue that China or anywhere else will be unaffected, merely that the situation of various countries is diverse, and that will continue to be the case.

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pi on November 12, 2008 - 3:33pm

I hope they won't build too much infrastructure (or rather I hope oil prices will climb and stymie their plans)...why? Because here all kinds of infrastructure is turning into huge pieces of cement waste. There is even a huge train station one hour away from Tokyo--on a famous old train line that has been running into Tokyo for over 100 years--it is all shuttered as of this past July, you can still board a train there but you can't buy anything (the station shopping center is 7 stories high and two blocks long). I think this train line is getting ready to significantly cut service---I am sure passenger numbers are down. In Japan the built infrastructure is huge. They've been using stimulus schemes to finance all sorts of building projects ever since the bursting of the bubble, all to keep people employed.

And now it doesn't seem to be paying off at all. The economy is still tanking, even the railroads (some are way overbuilt I guess) are feeling the pinch.

But the government announced yesterday that everyone will get a sum to "stimulate" the economy--about $120 per person. So I am planning to buy some socks to keep warm!!

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DaveMart on November 12, 2008 - 3:51pm

Chinese infrastructure is not anywhere near as developed as that of Japan, and hence has more possibility that further work will be useful.
It is not clear how the money will be split, but further investment in the wind, nuclear and residential solar thermal markets would be useful, as would continuing development of battery technology by companies like BYD.

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HARM on November 12, 2008 - 4:47pm

Over here (U.S.), we have bridges collapsing, roads not being repaired, schools still using "temporary" outbuildings some 30+ years later, zero miles of high-speed rail, and no new nuclear power plants built in 20 years. The only new "infrastructure" we've been building here lately is empty McMansions no one except speculators wanted to buy --and all the speculators have left town.

We could really use an infrastructure WPA-style rebuilding program here. At the very least, it would be a FAR better use of the $2 Trillion+ that our Treasury has already blown on the Black Hole of Wall Street bailout programs (TARP, nationalization of Fannie/Freddie, AIG, Bear-Stearns), not to mention our war of choice, unworkable military boondoggles (Star Wars missile defense systems, next-gen ships/planes for a technologically advanced enemy (USSR) that no longer exists), etc. etc...

Having 'too much' infrastructure is quite a nice luxury. Please remind me, who "won" WWII again? ;-)

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Rethin on November 12, 2008 - 9:35pm

What line/station is this?

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enemy of state on November 13, 2008 - 12:30am

Unlike the US, China has been running a budget surplus, and so has the money available to counter a recession.

It is clear we (USA) are going to go for a large Keynesian stimulus as well. Of course that sets up a race condition, will we reach recovery before the debt reaches ruinous levels. I'm not optimistic about the outcome of that race, but we will soon be charging out of the starting blocks.

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the_rage on November 12, 2008 - 1:25pm

Prices will rise again, but will be constrained by the availability of US dollars (as long as oil is priced in dollars). We saw the Fed recently provide $30 billion dollars to each of four G20 nations via currency swaps. The demand for oil will be there, but it's hard to fathom where emerging market countries will get the money to pay for oil (unless the Fed keeps shipping hundreds of billions of dollars to them).

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Leanan on November 12, 2008 - 1:33pm

I'm wondering if we might see more bartering in the future. Like Thailand trading rice for oil.

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NeverLNG on November 12, 2008 - 1:35pm

I think you are right that we will be back to carts and horses.

TPTB created this financial system knowing full well it would "fail." I don't believe there is a "conspiracy." Just a lot of people thinking along the sames lines....

My sources are folks like Illargi and Naomi Klein -- they could be wrong, of course. I don't have any personal knowledge of any of this-- just experience, and a gut feeling that if something seems wrong, it probably is wrong.

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malcolmkettering on November 12, 2008 - 2:59pm

But wait, I'm reading the sentence "And by destroying the country, TPTB have effectively destroyed domestic demand," in the above posts this way:

And by destroying the country (IRAQ), TPTB (us, the USA) have effectively destroyed (IRAQ's) domestic demand,

Given that, the poster's sentence made sense to me. Plenty of evidence of this in other places in history.

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elwoodelmore on November 12, 2008 - 10:49am

havent read the report, but doesnt it appear that they pull new discoveries out of ........um......uh...... somewhere to make up the difference between demand and supply.

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WNC Observer on November 12, 2008 - 4:07pm

Exactly right. As I said in my post over on the IEA report thread, this very much looks like it was simply made up out of thin air to fill the gap between projected supply and demand, rather than being built on any real data.

"Demand creates its own supply" - interesting concept. Too bad the real world doesn't actually work that way.

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