"“We have lent a huge amount of money to the U.S. Of course we are concerned about the safety of our assets. To be honest, I am definitely a little worried.” "

Chinese premier Wen Jiabao 12th March 2009

""We have a financial system that is run by private shareholders, managed by private institutions, and we'd like to do our best to preserve that system."

Timothy Geithner US Secretary of the Treasury, previously President of the Federal Reserve Bank of New York.1/3/2009

Sunday, May 25, 2008

International Energy Agency finally realise that we are actually running out of oil.

Total world Oil production is regularly reported by two bodies, the Paris based International Energy Agency(IEA) and the US Government Energy Information Administration (EIA). Their published figures show considerable conformity athough aggregate totals can (and do)conceal contrasting views. The IEA monitors energy markets for the world's 26 most-advanced economies, including the U.S., Japan and all of Europe who fund their operations.

The major oil companies are obliged to provide their public shareholders with correct information - but we saw recently that Shell needed to re-state their reserves by 40% - the Board had been issuing quite knowingly false figures for many years.They were surely not alone.
There is no control over what nationalised oil companies declare in the way of reserves or production - OPEC members have notoriously overstated rserves to establish larger shares of production quotas. Iraq has in the last 5 years had no oil flows metered or monitored and consequently "official" figures certainly understate production.

On Wednesday and Thursday last week (21/22/5/08) Neil King and Peter Fritsch in an artcile in the Wall Street Journal Energy Watchdog Warns Of Oil-Production Crunch IEA Official Says Supplies May Plateau Below Expected Demand report that the IEA is " preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand." It appears this article has caused many wall Street denizens to visit the toilet at freqent intervals and to send out for fresh supplies of undergarments.

It is a given that fossil oil supplies will reach a peak where demand / extraction exceeds potential supplies and world reserves decline and eventually disappear. The hero of this (now) self evident truth is the late M. King Hubbert who identified the phenomenom in 1956 to accurately predict that United States oil production would peak between 1965 and 1970 and his model has been shown to operate for many other oil fields - notably the North Sea.

The so called "Peak Oilers" claim this point has arrived for global production or just been passed and rely on IEA / EIA figures to make all sorts of predictions of doom about the economic and social consequences of this event.

Nay sayers , point to the fact that as the oil price rises supplies rise ;

1. Human and technical ingenuity find new supplies and new methods of extraction such as the oil sands of Alberta.
2. Substitutes are found to replace fossil fuels as an energy source - biofuels, hydrogen ,solar power, wind power, wave power.
3. Better methods of energy use are developed .
4. There is enough for us , that's the grandchildren's problem.

They also point out that Peak Oilers have beards and infest Universiies.

The IEA has predicted on the basis of their historical records that supplies of crude and other liquid fuels will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day currently. However there are now concerns that production is actually plateauing and that calls for OPEC to pump more are fruitless. IEA suspect aging oil fields and diminished investment in exploration mean that companies could struggle to surpass 100 million barrels a day over the next two decades.

The decision to rigorously survey supply -- instead of just demand, reflects concerns both within the IEA and increasingly in company headquarters that oil-producing regions will struggle to meet demand. More senior people in the oil industry are starting to accept a version of the "peak-oil" theory: that oil production will plateau in coming years, as suppliers fail to replace depleted fields with enough fresh ones to boost overall output.Fatih Birol, the IEA's chief economist and the leader of the study being undertaken by a team of 25 analysts,
told the WSJ , "This is a dangerous situation."

For example one interesting analysis of oil exports is already showing a plateau World average exports for the last 3 years 2005: 42.5 mbpd 2006: 42.0 mbpd 2007: 41.0mbpd - the figures may not be accurate as oil figures never are , but they are frighteningly consistent.(Source)

It seems almost quaint now that oil was at US$93 a barrel in October when Reuters reported Libya's National Oil Corporation chairman Shokri Ghanem at an oil conference saying that "There is a real problem -- that supply may not be possible to increase beyond a certain level, say around 100 million barrels,"

Ghanem observed that BP in its Statistical Review of World Energy said OPEC sits on about 75 percent of the world's total proven oil reserves of 1.208 trillion barrels. he claimed that proven oil "reserves" are overstated by 300 billion barrels of speculative "resources", mainly in OPEC countries. At the time his projection that by 2030, production of oil and natural gas liquids could fall to about 75 million bpd raised few eyebrows..

The IEA's revised and pessimistic outlook has been growing for some time, they advised last year that OPEC's spare capacity could shrink "to minimal levels by 2012." later in November,they hinted at a global shortfall of as much as 12.5 million barrels a day by 2015 on current levels of demand.

The US based EIA have also been making more pessimistic projections and they are now advsing that global daily output of conventional crude oil alone, now about 73 million barrels, will plateau at 84 million barrels. Furthermore it will require a magic growth in onconventional fuels such as ethanol to push global fuel supplies over 100 million barrels a day by 2030.

All this pessimism over supply is also reinforced by repoprts such as one from US based Cambridge Energy Research Associates, who say that the depletion rate of the world's 811 biggest current oil fields is around 4.5% a year. Massive investment has to be made to keep production levels from declining - other voices in the industry say depletion rates arehigher. IEA's Birol told the WSJ , ""We are of the opinion that the public isn't aware of the role of the decline rate of existing fields in the energy supply balance, and that this rate will accelerate in the future."

All this pessimism over supply is re-inforced by the brakes on production caused not by geology but geo-politics, the illegal occupation in Iraq, interruoted development in Iran, political turloil in Venezuela, coninuous and continuing rebel wars in Nigeria and the rapid decline of North Sea, Mexico and Russia - all of which feeds the desire for drilling in the Alaska National Wildlife Refuge and fuck the polar bears.

Already this news has rattled Wall Street U.S. benchmark crude broke a record for the fourth day in a row, rising 3.3% Wednesday to close at $133.17 a barrel on the New York Mercantile Exchange... after the WSJ article prices hit US$135 on Friday.

Sacks of Gold forecast US$140 a barrel oil this summer and was scoffed at, they forecast US$200 next year.

Last week, President Bush asked his Saudi pals for more oil - we are adding 300,000 barrels a day to the market they said .. the price rose.

But the WSJ article is not all gloom. There are still some blinkered bankers on wall Street, they quote a Mr. Morse at Lehman Brothers who says there are plenty of questions about supply yet to be answered. "However confident the IEA may be about the data it has, they know nothing about the resources we've yet to discover in the deep waters or in the arctic," he says.

PS : Please note, we haven't touched on the fact that oil is not a homogenous product - the world wants the fuel oils, for heating, internal combustion engines and jet aircraft fromthe so called lighter "sweeter" oils and much production is the sulphur rich "sour" crudes more costly to refine, clean, and with problems of dealing with waste "petcoke".

Neither have we mentioned the global shortage of refining capacity and the problems of running older plant at very high levels of utilisation - with ageing staffs.

We have long maintained (since 1999) at Forth Coming UK Energy deficit (FCUKED) that their are two Peak Oil Points (POP)

1. When Peak Oil happens.

2. When folks realise Peak Oil is going to happen.

Some very important people are beginning to realise that we are at the beginning of the start of POP2. Those bearded guys in the Universities realised it some time ago.

Final Note Oil tanker rates are at highest ever. AP Very Large Crude Carriers (VLCC) to the U.S. finished higher last week than those making eastbound voyages, which were at their highest levels in nearly six months. VLCCs and Suezmax vessels in West Africa are also both at year-to-date highs, he said, as demand for ships to the U.S. ramps up. (Suezmaxes are the largest carriers that can fit through the Suez Canal.) - At 202.97 Worldscale points, owners of double-hulled VLCCs can earn about $164,737 a day on a 39-day round trip from Saudi Arabia to South Korea.

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