Articles tagged with "oil supply"
Posted by Heading Out on March 24, 2013 - 9:35am
Tags: coal-fired power, demand growth, electric car, electric power, exxonmobil, middle east, natural gas demand, north america, oil demand, oil supply [list all tags]
It is the time of year when the major oil companies issue their predictions for the future, and h/t Art Berman, ExxonMobil just released their view of the world, looking forward to 2040. And this is downloadable. If I remember correctly, I first viewed their future projections back in 2011 and with a two-year step, it might be more interesting to see how differences in their world view have evolved in that period.
By 2040, EM anticipates that the global population will be approaching nine billion, up by around 25% from current numbers. Of that nearly two billion additional folk most are expected to be born in the developing countries such as India and in Africa, with the former gaining 300 million and the latter 800 million. Because the majority of the growth occurs in these countries, and the improvement in living standards and working conditions are more energy intensive, (whether air conditioning or iPhones) from a lower base and demand growth is concentrated more in electrical energy demand than that of transportation fuels.
EM continues to believe that, while the economies of the OECD nations will contribute significantly to global growth, with economic output increasing by 80% over the 27-year period, energy demand will remain stable. Growth in demand for power will come from the rest of the world, powering an average 2.8% growth in the global economy over that interval.
Perhaps the greatest change has been in the amount of energy that the company anticipates will not now be needed in that future, as improving energy efficiency cuts back the amount that must be supplied. If we look at the energy projections through 2030 that were made by BP and EM back in 2011, the total growth was expected to continue in an almost linear mode through 2030.
If one now looks at the shape (the units differ) of the new EM curve, there is a dramatic emphasis on a continued improvement in energy efficiency particularly as we get further into the out years. (Note the remaining illustrations all come from the EM document “The Outlook for Energy: A View to 2040”).
I, along with my editor Sam Avro, recently conducted a broad-ranging interview with John Hofmeister, former President of Shell Oil. The topics touched upon included future oil supplies and prices, climate change, U.S. energy policy, and topics familiar to R-Squared Energy readers such at Peak Lite and the Long Recession.
I will present this interview in a series of stories covering some of the various topics. In this first story, I will discuss Mr. Hofmeister’s detailed answer to the question, “What do you feel is the potential for expanding global oil production, and the time frames?”
Readers may recall that I have put forth a pair of hypotheses with respect to future oil production and prices. One is called Peak Lite. (See also: Five Misconceptions About Peak Oil)
The usual assumption that economists, financial planners, and actuaries make is that future real GDP growth can be expected to be fairly similar to the average past growth rate for some historical time period. This assumption can take a number of forms–how much a portfolio can be expected to yield in a future period, or how high real (that is, net of inflation considerations) interest rates can be expected to be in the future, or what percentage of GDP the government of a country can safely borrow.
But what if this assumption is wrong, and expected growth in real GDP is really declining over time? Then pension funding estimates will prove to be too low, amounts financial planners are telling their clients that invested funds can expect to build to will be too high, and estimates of the amounts that governments of countries can safely borrow will be too high. Other statements may be off as well–such as how much it will cost to mitigate climate change, as a percentage of GDP–since these estimates too depend on GDP growth assumptions.
If we graph historical data, there is significant evidence that growth rates in real GDP are gradually decreasing. In Europe and the United States, expected GDP growth rates appear to be trending toward expected contraction, rather than growth. This could be evidence of Limits to Growth, of the type described in the 1972 book by that name, by Meadows et al.
Figure 1. World Real GDP, with fitted exponential trend lines for selected time periods. World Real GDP from USDA Economic Research Service. Fitted periods are 1969-1973, 1975-1979, 1983-1990, 1993-2007, and 2007-2011.
Trend lines in Figure 1 were fitted to time periods based on oil supply growth patterns (described later in this post), because limited oil supply seems to be one critical factor in real GDP growth. It is important to note that over time, each fitted trend line shows less growth. For example, the earliest fitted period shows average growth of 4.7% per year, and the most recent fitted period shows 1.3% average growth.
In this post we will examine evidence regarding declining economic growth and discuss additional reasons why such a long-term decline in real GDP might be expected.
The US Energy Information Administration (EIA) recently released full-year 2011 world oil production data. In this post, I would like show some graphs of recent data, and provide some views as to where this leads with respect to future production.
World oil supply is not growing very much
The fitted line in Figure 1 suggests a “normal” growth in oil supplies (including substitutes) of 1.6% a year, based on the 1983 to 2005 pattern, or total growth of 10.2% between 2005 and 20011. Instead of 10.2%, actual growth between 2005 and 2010 amounted to only 3.0% including crude oil and substitutes.
The shortfall in oil production relative to what would have been expected based on the 1983-2005 growth pattern amounted to 4.7 million barrels in 2011. This is far more than any country claims as spare capacity. This is no doubt one of the reasons why oil prices are as high they are now. These high oil prices tend to interfere with economic growth of oil importing nations.
The shortfall in growth especially occurred in crude oil. Figure 2, below, shows crude oil production separately from substitutes.
Between 2005 and 2011, crude oil production rose only 0.5%. It was mostly the substitutes that grew.
During the CNN Republican presidential debate Tuesday, November 23, Newt Gingrich made statements about U.S. potential oil supply that reveal either total ignorance of energy or supremely dangerous demagoguery. He stated that the United States could discover and produce enough oil in 2012 to cause a worldwide oil price collapse.
GINGRICH: But let me make a deeper point. There's a core thing that's wrong with this whole city. You said earlier that it would take too long to open up American oil. We defeated Nazi Germany, fascist Italy, and Imperial Japan in three years and eight months because we thought we were serious.
If we were serious, we would open up enough oil fields in the next year that the price of oil worldwide would collapse. Now, that's what we would do if we were a serious country. If we were serious...
Earlier in the debate, when discussing the impact on Europe and the global price of oil of stopping Iranian exports through sanctioning its central bank, Gingrich said that would not be a problem. The United States would simply provide an additional 4 million barrels of oil per day to Europe to cover the Iranian shortfall.
BLITZER: The argument, Speaker Gingrich -- and I know you've studied this, and I want you to weigh in -- on the sanctioning of the Iranian Central Bank, because if you do that, for all practical purposes, it cuts off Iranian oil exports, 4 million barrels a day.
The Europeans get a lot of that oil. They think their economy, if the price of gasoline skyrocketed, which it would, would be disastrous. That's why the pressure is on the U.S. to not impose those sanctions. What say you?
GINGRICH: Well, I say you -- the question you just asked is perfect, because the fact is we ought to have a massive all-sources energy program in the United States designed to, once again, create a surplus of energy here, so we could say to the Europeans pretty cheerfully, that all the various sources of oil we have in the United States, we could literally replace the Iranian oil.
Now that's how we won World War II.
It seems absurd to have to rebut these preposterous statements, but here are the facts.
Editor's Note: After posting this article, we received the cited report thanks to a Goldman Sachs partner. The report does not claim that the present or future liquids production is "oil" although the production levels reported by The Times are corroborated in the report. We have accordingly changed the title and made other minor modifications to the post but remain firm that the message is relevant and important.
On Sunday, September 11, 2011, The Sunday Times quoted a Goldman Sachs (GS) report also summarized by Rigzone that predicted the United States will become the world's largest oil-producing country. This astonishing production increase is accomplished by changing the definition of oil and by using optimistic projections of liquids-rich shale production.
The claim was that U.S. daily production will increase from 8.3 to 10.9 million barrels of oil per day (Mbopd) by 2017. This would surpass Russia and Saudi Arabia according to press reports. While these reports did not mention that Saudi Arabia claims it can produce as much as 12 Mbopd, they did state that Russia would not increase its current production of 10.7 Mbopd by more than 100,000 bopd by 2017. It is curious that the announcement was apparently not carried by any of the major business- or energy-oriented journals (Bloomberg, Wall Street Journal, Oil & Gas Journal, etc.) nor was it featured on the GS website.
This is a guest post by Derik Andreoli, Senior Analyst at Mercator International, LLC
It has been a tumultuous month when it comes to oil and fuel markets. As of the writing of my Oil and Fuel column in the May issue of Logistics Management, which was submitted on the 15th of April, WTI (the crude stream traded on the NYMEX) was at $109.66 per barrel, up 19.8% from $91.55 where it sat at the beginning of the year. Meanwhile, the spot price for Brent Blend, the benchmark crude stream traded on the European Intercontinental Exchange (ICE), had climbed 30.1% from $95.82 on January 3, to $124.63 by the 15th of April. My warning in the May article was that refiners’ costs were better reflected in the price for Brent, and that supply chain and logistics professionals following the WTI price were going to get caught short as the refiner average acquisition cost had diverged from a historical average of $2 to $4 per barrel below the WTI spot price to $4 per barrel above the WTI spot price.
Since the writing of the last column, the prices for a barrel of both WTI and Brent Blend have gone on a roller coaster ride. The spot price for Brent climbed as high as $126.64 by the 2nd of May before falling by nearly 12% over the next three days alone. Meanwhile, the front month WTI futures price reached a peak of $113.93 on April 29 before falling by more than 16% to a low of $95.33 by the 12th of May.
Of course volatility is precisely what should be expected when oil markets are tight, as they have been since the onset of the recovery. Despite living up to expectations, however, the recent volatility has led some to conclude that the prices simply don’t reflect the underlying fundamentals of supply and demand, but such a conclusion is not supported by sober analysis. The precipitous price decline has led others to postulate that the mini-bubble inspired by the shuttering of Libyan production has been popped, and the price of oil has returned to a fair level. Yet others, like ExxonMobil CEO, Rex Tillerson, are all-too-eager to pass the blame of high fuel prices on to Wall Street and the little-understood high-frequency trading of quantitative hedge funds.
This is the second in a series I am just starting on oil production and consumption around the world. While it is going to focus more on individual nations and oil fields, over time, there are some general remarks that I want to use to preface the series and this is one of those. (OGPSS – Oil and Gas Production Sunday Series).
One of the first things that I was told when I started looking into whether there was a coming crisis in oil supply was that oil is fungible. What that meant was that if, for the sake of discussion, the Saudi Arabian government cut off oil supply to the West, then the West could turn around and buy an equivalent amount from somewhere else (it turned out to be the North Slope and the North Sea) and the world could continue on its merry way. In fact if you go to Merriam Webster oil is cited as an example of a fungible commodity.
being of such a nature that one part or quantity may be replaced by another equal part or quantity in the satisfaction of an obligation:- oil, wheat and lumber are fungible commodities.
But that assumption is not totally true, and in the world where matching production to demand is becoming a somewhat more difficult and expensive operation the limits to the fungibility of oil may soon become more evident.