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Ronald Stoeferle

Ronald Stoeferle

Ronald is a metals analyst at Erste Group. Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4…

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Peak Oil – Scaremongering or Soon Reality?

As pointed out in previous reports we think that the maximum global production of conventional oil could soon be reached. There is no doubt that peak oil is more than simple scaremongering. The production profile of specific fields, regions, and countries has the same structure, i.e. that of a bell-shaped curve. According to Robert Hirsch 64 countries have already reached their maximum production levels. Nevertheless peak oil seems to remain a contrarian topic. According to a Credit Suisse poll, only 5% of investors currently regard peak oil as a threat. The remaining 95% expect peak oil in 20 years or not at all.

The following chart supports the notion that we may have seen peak oil in conventional oil production. The stacked-up bars symbolise the supply of conventional oil, LNG, ethanol, and bio diesel. The chart also highlights the fact that oil production is at the same level as 2005 in spite of the substantially higher price. This clearly indicates production problems in conventional oil.

World Oil Supplies
Source: Rune Likvern, www.theoildrum.com

More and more official institutions are dealing with this issue, which underlines the fact that peak oil is not just a chimaera of doomsday prophets, scaremongers, and congenital pessimists, but rather imminent reality. For example, the British Department of Energy and Climate Change is collaborating with the Ministry of Defence and the Bank of England on a study about the consequences of peak oil. The US Department of Defense also published a study , which called for the US military to be made independent of oil by the year 2030. The growing influence of oil nations such as Iran and Venezuela and the resulting dependence are regarded as threat. The only countries with a reserve/production ratio of more than 75 years are currently Iraq, Iran, Saudi Arabia, Venezuela, Kuwait, and the United Arab Emirates. The rising demand for oil in China is also regarded as detrimental to the interests of the USA.

Reserve/production ratio in years

Reserve/production ratio in years
Source: BP Statistical Review of World Energy 2010

The study “Peak Oil - Sicherheitspolitische Implikationen knapper Ressourcen” (Peak oil – implications of scarce resources on the safety policy) by the German Department for Future Analysis, a think tank of the German Bundeswehr, is particularly interesting and delicate. The study, which is well worth a read, describes how as a result of the declining oil production a tipping point could be reached, from which point onwards the economic system would tip over and the following consequences are possible:

- The Western industrialised powers lose their influence
- Dramatic shifts of political and economic balances of power
- Massive reduction of mobility
- Further erosion of trust in governmental institutions and politics
- Negative impact on democracy, since a systemic crisis would create “space for ideological and extremist
  alternatives to existing forms of government”
- Possible partial or full failure of the markets, which could result in a regression to barter trade
- Shortages in the supply of essentially important goods, such as food, and famine as a result
- Price shocks in practically all areas of the industry and in almost all stages of the value chain
- Banks would lose their basis of business, since companies with low creditworthiness would not survive
- Loss of confidence in currencies, as a result hyperinflation, and return to barter trade on local level
- Mass unemployment and state bankruptcies

Due to the massive dependence on oil imports, Germany should apply a higher degree of pragmatism vis-à-vis oil exporters. The study was not supposed to cause panic, but to appeal to take pre-emptive steps and embark on a thought process on the issue. The psychological thought pattern is thus described: “… it is therefore difficult to imagine what impact the gradual withdrawal of one of the most important sources of energy of our civilisation would have. Psychological barriers make us disregard the undeniable facts and cause an almost intuitive refusal to deal with this difficult topic in depth”. 

"People only accept change when they are faced with necessity, and only recognize necessity when a crisis is upon them” (Jean Monnet)

By. Ronald Stoeferle of Erste Group

Erste Group is the leading financial provider in the Eastern EU. More than 50,000 employees serve 17.4 million clients in 3,200 branches in 8 countries (Austria, Czech Republic, Slovakia, Romania, Hungary, Croatia, Serbia, Ukraine). As of 31 December 2010 Erste Group has reached EUR 205.9 billion in total assets, a net profit of EUR 1,015.4 million and cost-income-ratio of 48.9%.

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  • Anonymous on March 14 2011 said:
    It is a little of both.It is real in the sense that we have hit production ceilings at our current price point range.If consumers cannot stomach oil north of $150 per barrel then expect oil to get scarce if consumers can stomach higher prices expect production to hang in their for a while with all of the unconventional oil out there. It is all about price point.Red

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