October 30 2008 / by Garry Golden
Category: Energy Year: 2009 Rating: 3 Hot
[IEA’s official response to the leaked report]
The Financial Times has obtained a draft copy of the International Energy Agency annual World Energy Outlook. The Paris-based IEA is a highly regarded information agency on the global energy sector. The report, which will be officially released next month, states that the world’s largest oil fields have a natural annual rate of output decline is 9.1 per cent. This suggests that the world will struggle to add capacity against such a steep decline. [We will not know IEA’s official figures until November 12th, but the issue of new capacity growth should not be dismissed.]
Peak Production, not Supply
Peak oil relates to extraction, production and new capacity, not total supplies. Even though oil is a finite resource, we are not ‘running out of oil’ – especially around non-conventional hydrocarbon resources. The real concern relates to our ability to increase production to meet growing global demand. The real question is how much can we ‘add’ in new capacity, at what cost and how quickly.
The central element of this story from the IEA, and a key concept to peak oil production, is the ‘rate of decline’ of existing oil field output. The Financial Time reports from the IEA draft “…as they (oil fields) mature it is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand”.
Who is going to add new capacity?
The big question is – where will the oil come from? Forget about claims of ‘known or proven reserves’, there is plenty of oil in the ground. We must ask ourselves which countries and companies can bring massive amounts of oil online at a reasonable cost. This is where things look more uncertain.
Richard Heinberg writes with the Energy Bulletin: “This (9% decline) is a stunning figure. Considering regular crude oil only, this means that 6.825 million barrels a day of new production capacity must come on line each year just to keep up with the aggregate natural decline rate in existing oilfields. That’s a new Saudi Arabia every 18 months.”
Bad news could get worse
The upside of recent high oil prices was that it gave energy companies extra money to invest in bringing new fields online. But the recent global economic slowdown has taken the bottom out of high prices, leaving companies with less near term future revenues. They certainly have enough in the bank, but low oil prices are certain to complicate investments in adding new oil capacity. Low oil prices are also threatening investments available for renewable resources.
Things could get even more complicated! Even the Wall Street Journal is reporting of concerns that falling oil prices will leave energy companies with less capital to invest in adding production capacity. There are also reports that Brazil might not be able to expand deep water drilling to tap their enormous resources-.
Two Scenarios of Peak Oil Production
There are two general scenarios related to a peak oil production futures.
The first is a future shaped by peak production & plateau. The world struggles to increase production to meet demand resulting in higher energy costs around the world. The result could be much slower than expected economic growth and transition to renewable energy resources as emerging economies rely on cheap coal to meet demand.
The second (more emotionally charged) scenario is a ‘peak and collapse’ future where the world economy is unable to overcome the challenges of faster than expected declines in production capacity. The trickle down impact of high energy prices leads to a ‘collapse’ of economic systems that drive all major industries.
Is oil the problem? Or the combustion engine?
Fuel is generally considered a low value product. More forward looking energy pundits argue that oil would get more money as a feedstock for ‘petro products’.
But for now the demand for oil rests on one basic technology- the combustion engine. Take away this 18th century mechanical engine and the market for liquid fuels can be replaced by electricity and hydrogen that power electric motors.
There is another scenario in which the world accelerates the death of the combustion engine and electrification of the global automobile fleet around batteries, hydrogen fuel cells and capacitors.
In this future oil resources shift from energy to feedstocks for materials. And other resources produce electricity and hydrogen to replace oil energy used in the transportation sector. Some futurists believe that the Middle East could emerge as a hub for manufacturing based on their resources in natural gas and oil, imported South Asia labor and Asian financing.
That is one future that might surprise us. Oil doesn’t go away, it just walks up the value chain in the form of petro products.
Stay tuned for the IEA’s announcement on November 12th on its official rate of decline figure!
Image Credit ASPO-Wikimedia