[Graeme]

Peak oil is approaching

$this->bbcode_second_pass_quote('', '�')��By 2030, the growth in fossil fuel use will almost have stopped,” Bloomberg New Energy Finance founder Michael Liebreich told renewable-energy investors at the BNEF 2013 annual summit in New York last month.

The concept of “peak oil”, coined by a Shell Oil geologist named M. King Hubbert, implies that world oil production will plateau and decline, and hence cause prices to sky rocket, as less oil is supplied while demand increase. Recent research shows that we might experience the opposite scenario; demand peaks and decreases gradually as new forms of renewable energy becomes increasingly more available.

There are several factors pointing towards the new “peak oil” situation according to Seth M. Kleinman, a Citi Commodities Researcher. “Higher [oil] prices, the removal of many fuel subsidies and rising fuel economy mandates have dramatically improved the outlook for fuel efficiency in global automotive and truck fleets. [In combination with an] accelerating push to substitute natural gas for oil and ongoing improvements in fuel economy is enough to mean that oil demand growth may be topping out much sooner than the market expects”, Kleinman states in a recent report, and in this manner supports Liebreich’s view.

The Boston Company Asset Management’s recent analysis concluded that “consumers are finally thinking about consumption and exhibiting price-elastic behavior.” Meaning that price and consumption have become more closely coupled than the previously almost price inelastic consumer behavior towards oil, reported by IMF in 2011.

«These reports confirm what we have been stressing for years”, says Ina Bjørnrå from Young Friends of the Earth Norway. “Drilling for oil in the Arctic is a short-term race for short-term profits, as we in the near future we will see an energy revolution transitioning the world’s energy demands from fossil fuels to renewable energy sources. Arctic drilling is a crucial misinvestment,” she argues.

[Keith_McClary]

$this->bbcode_second_pass_quote('Graeme', '[')b]Peak oil is approaching$this->bbcode_second_pass_quote('', 'T')here are several factors pointing towards the new “peak oil” situation according to Seth M. Kleinman, a Citi Commodities Researcher. “Higher [oil] prices ...

[ROCKMAN]

Graeme – Interesting perspective. Though titled “peak oil” the discussion seems more about peak consumption and price induced demand destruction. Which does obviously relate to PO on some levels: the world can’t produce more than the consumers can afford to buy regardless of the max rate oil could be achieved. Consider how much folks make of the recent increase in US oil production thanks to the priced induced drilling of the unconventional reservoirs. But in reality US oil consumption, on a PER CAPITA basis has been on a fairly steady plateau for more than 20 years. And recently even absolute consumption has declined a bit. The increase in US oil production hasn’t improved the conditions for US consumption but just replaced a portion of the imported oil. Demand destruction, both involuntary price induced consumption decrease as well as voluntary improved efficiency, has actually lead to peak in US oil requirements. The increased US oil production doesn’t appear to have provided much direct benefit to the overall economy except for a reduction in our trade deficit. It has certainly improved my economic wellbeing and that of my brothers. But for most everyone else…not so much.

Which may be part of the reason why our economic “recovery” is somewhat lacking in the opinion of many despite the fact that we’re experiencing the first domestic oil boom we’ve seen in many years. That does make one wonder why many folks (outside of the oil patch) appear so gleeful.

[Pops]

$this->bbcode_second_pass_quote('Graeme', 'R')ecent research shows that we might experience the opposite scenario; demand peaks and decreases gradually as new forms of renewable energy becomes increasingly more available.

[Lore]

This doesn't even touch on the fact that oil is a globally traded commodity. For which, there is no energy substitute in terms of energy density, portability and simplicity of use. While poor Americans eventually get priced out of the market, along with many third world countries, there will still be a growing appetite for fossil fuels by emerging nations absorbing any slack.

[Buddy_J]

$this->bbcode_second_pass_quote('ROCKMAN', ' ')The increased US oil production doesn’t appear to have provided much direct benefit to the overall economy except for a reduction in our trade deficit.

[ROCKMAN]

Buddy – The point I was making was that the increased US production just replaced the same amount of imported oil. As I said that’s a good thing from for our trade imbalance. The GDP doesn’t know where our oil comes from. Of course the increased drilling activity helps the GDP to some degree and has certainly helped unemployment in those active states. And it certainly improved the tax and royalty income of various private and govt entities. All good things. But at tghe emd of the day the economy had to payout large regardless of who they bought the oil from.

But as much as those factors add I suspect, given the size of the US economy, the drilling boom hasn’t added a big chunk of GDP. But that’s just my WAG. I’ll let the macro-econ boys jump on that. The drilling boom has been going on for a number of years now and there doesn’t seem to have been a big surge in GDP. Of course, one might argue the GDP gain produced by the oil patch kept the GDP from dropping like a rock. For those who believe so: YOU’RE WELCOME! LOL.

[shortonoil]

$this->bbcode_second_pass_quote('', 'B')y 2030, the growth in fossil fuel use will almost have stopped,”

[SamInNebraska]

$this->bbcode_second_pass_quote('shortonoil', '
')The state of the world's petroleum reserves does not revolve around economics, it is determined by its energy potential. That means it is thermodynamics that controls the world's petroleum production.

[Graeme]

Pops, First of all, I posted this because there are so few news articles on peak oil in the media. Secondly, you shouldn't assume that the content of the articles I post are my views nor should you assume that I think that everything will be alright. Right now, it isn't. I would like us to find a way out but it will take quite considerable time to do so. I do understand that broad thrust of where we should be going - that is away from fossil fuels and toward a 100% renewable energy future. This transition will be economically painful - no question. It will be up the individual businesses, states and nations to manage this transition the best they can. At the other end, we expect the global economy to be in better shape to deal with other pressing issues like environmental degradation. The devil is in the details.

If I look at the content of the article, the title is terrible as ROCKMAN pointed out. The article is about demand destruction. It wasn't only about renewables but several other factors as well which contribute to this. The first sentence struck me as sensible given that we are in a peak oil scenario now. The oil industry is winding down. This is their last hurrah and, according to Liebrich, it will be over by 2030.

I was tempted to put the article I'm about the post in a separate thread but it is really appropriate here. I would suggest you read the entire article but here are key excerpts.

The Oil and Gold Booms Are Over

$this->bbcode_second_pass_quote('', 'T')he wreckage caused by China’s great, juddering slowdown continues to spread far beyond the country’s shores. Although most commodities enjoyed a bounce on May 3, after better-than-expected U.S. employment data, the plunge in their prices over the past few months suggests the past decade’s rally is truly broken.


High commodity prices enrich a class whose corrupting influence is legend, and whose chief skill is the ability to secure the right political contacts. Meanwhile, high commodity prices, particularly for oil, squeeze the poor and the middle class, and act as a brake on growth in the industrial world. During the 2000s, the U.S. fretted over the rise of corrupt oil tycoons and unstable dictators in nasty petro-states, and rightly so.


That’s why falling commodity prices -- both gold and copper are still down more than 10 percent this year despite the latest bounce -- are good news. The China-commodity connection is breaking. After three straight decades of ultrafast growth, China’s inevitable slowdown has let air out of the bubble: Since the peak in April 2011, the broadest available measure of commodity prices has fallen 16 percent. In recent months, money has started flowing out of exchange-traded funds for most commodities.

The Malthusian specter of rising demand and shrinking supply has been replaced by a new realization that, for most commodities, demand is flat and supply is rising fast. Oil demand in developed nations has been stable since 1995, because high oil prices have inspired conservation efforts in countries such as Japan and the U.S.

Now, as emerging nations begin to embrace energy efficiency as well -- China is working hard on electric cars, for instance, despite continuing to build dozens of coal plants -- global demand might flatten out this decade. The debate over “peak oil” scenarios may shift from the threat of dwindling supply to the threat of peaking demand.


If the historical pattern holds, we are now entering a long period of falling commodity prices, which could last two decades. That is good for importers such as the U.S., as was the case in the 1980s and 1990s when commodity prices were falling. The current fall in retail gasoline prices should increase the purchasing power of the American consumer and offset the fiscal drag from the government sequestration cuts.

[Buddy_J]

$this->bbcode_second_pass_quote('Graeme', '
')I was tempted to put the article I'm about the post in a separate thread but it is really appropriate here. I would suggest you read the entire article but here are key excerpts.

The Oil and Gold Booms Are Over

$this->bbcode_second_pass_quote('', '
')If the historical pattern holds, we are now entering a long period of falling commodity prices, which could last two decades. That is good for importers such as the U.S., as was the case in the 1980s and 1990s when commodity prices were falling. The current fall in retail gasoline prices should increase the purchasing power of the American consumer and offset the fiscal drag from the government sequestration cuts.

[Lore]

A view separated by many degrees from the facts.

[Beery1]

$this->bbcode_second_pass_quote('', 'T')he concept of “peak oil”... implies that world oil production will plateau and decline, and hence cause prices to sky rocket, as less oil is supplied while demand increase. Recent research shows that we might experience the opposite scenario; demand peaks and decreases gradually as new forms of renewable energy becomes increasingly more available.

[ROCKMAN]

Beery – “They're focusing on a symptom of the disease”. Well put. Except they often don’t even focus on the symptoms adequately IMHO. This is why I get a tad frustrated reading some of these endless debates about the date of PO. Besides a meaningless distraction IMHO it also allows the opportunity to question the accuracy of such predictions to refute the entire dynamic. Which is why I periodically fight an uphill battle to inject the POD (Peak Oil Dynamic) as a sub for PO.

This allows a focus on multiple symptoms beyond simple production curves and their projections. An easy target in this effort is the oil export number. It seems that the vast majority of discussions focus on this one metric. Which is a fine starting point but often the conversations go no further. Consider just one example: Saudi Arabia. Maybe they are close to peak production…may be not. But what isn’t in dispute is that they’ve been having a population boom and have been steadily increasing their internal consumption of oil. This is Jeff Brown’s ELM: Export Land Model. Folks might want to research his work. It isn’t some off the cuff guess work. He has analysed the data in great detail. So the important metric isn’t how much the KSA will or won’t produce in the future but how much will they export.

But it doesn’t stop with the KSA exports. The KSA and China have entered a JV to build a 400,000 BOPD refinery of the Red Sea. The KSA will own 2/3 and China 1/3. Is there any reason to believe the KSA won’t use their own production to supply this operation? According to the EIA the KSA is producing around 11.5 million bopd. But only export 8.3 million bopd due to 3.2 million bopd internal consumption. If the assumption is correct when the new refinery begins operation KSA net exports to the rest of the world will drop almost 5% literally overnight.

Of course, the world won’t lose 5% of products as a result…they will still be created. But who will get to buy those products and at what price? And this isn’t a new tactic by China. Some years ago they cut a similar deal with Venezuela. Not sure but I think the current volume going to Chinese refineries is in the 300K to 450K bopd range. Just one more cog in the POD. And if you saw my recent post China is running the same game with the largest refinery to ever be built in Egypt and one of the largest refineries to ever be built on the continent in South Africa. And closer to home the largest refinery upgrade in the history of the US: Motiva in Port Arthur, Texas. A refinery owned by two foreign companies: one Dutch and the other Saudi. The plant is well designed to crack Saudi heavy as well as Canadian oil sand production. Oil sand production whose transport to the Texas coast has been significantly expanded recently and will be increased more so in the near future. In both cases the plant will be cracking foreign sourced oil with the products owned by foreign companies, who, under US law, can export those products. My bet would be the US market but that’s not guaranteed.

And this is just a few of the components of the POD. There’s the direct ownership of oil production the Chinese have been acquiring for the last 10+ years. There’s the finances China has made available to Brazil to help fund their Deep Water oil development. A deal which I hear involves rights to a certain volume of future Brazilian oil exports. And then there’s the increase in US production as a result of higher oil prices making the long known but previously non-commercial resource plays viable. IMHO this increase in production is a valid point of proof that global oil production has or will shortly peak. And as pointed out the involuntary portion of demand/consumption decrease stands as more evidence. Which, IMHO, is why some cornucopians are grasping this straw to argue their point. In reality it does just the opposite IMHO: demand will always equal supply because prices will balance the equation. Demand isn’t what consumers want to buy but what they can afford to buy. And what they can afford to buy will be based upon the price of oil. Which takes one full circle: consumption will move counter to oil prices. Which means that future consumption (less that achieved by greater efficiency and voluntary conservation) will be determined by the price of oil.

And the future price of oil will be determined by all those components of the POD I mentioned in addition to many others such as geopolitics, efforts to curb AGW, military adventures, etc. All of which combined relegate the date of PO to a footnote IMHO.

[dorlomin]

$this->bbcode_second_pass_quote('ROCKMAN', '.') Consider just one example: Saudi Arabia. Maybe they are close to peak production…may be not. But what isn’t in dispute is that they’ve been having a population boom and have been steadily increasing their internal consumption of oil. This is Jeff Brown’s ELM: Export Land Model. Folks might want to research his work. It isn’t some off the cuff guess work. He has analysed the data in great detail. So the important metric isn’t how much the KSA will or won’t produce in the future but how much will they export.

But it doesn’t stop with the KSA exports. The KSA and China have entered a JV to build a 400,000 BOPD refinery of the Red Sea. The KSA will own 2/3 and China 1/3. Is there any reason to believe the KSA won’t use their own production to supply this operation? According to the EIA the KSA is producing around 11.5 million bopd. But only export 8.3 million bopd due to 3.2 million bopd internal consumption. If the assumption is correct when the new refinery begins operation KSA net exports to the rest of the world will drop almost 5% literally overnight.

[ROCKMAN]

d – Great chart. Mucho thanks. By definition one aspect of a Black Swan is its unpredictability. So seeing a rapid and radical change in the Saudi govt may or may not be a BS depending on one’s view of the future. Given the wealth and dictatorial control of the Saudi leadership one might not predict such a swing. OTOH I recall the Shah of Iran had the most powerful army in the ME as well as the third largest helicopter force in the world after the US and Russia.

How did that work for him? LOL

[Subjectivist]

I think peak might have been mid 2015, but it will be another five years before we know for certain.

[Subjectivist]

This graph says 2015 was higher than 2016, then projects 2017 will be even higher. I just don't see growth this year, first because OPEC s cutting and second because unless prices go a lot higher the American frackers will continue losing ground year over year.