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Post Carbon

Post Carbon

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IEA Leaders Speak Out on Our Current Energy Situation and Peak Oil

Every November following the publication of the IEA's World Energy Outlook, the leadership of the Agency travels to major capitols in an effort to explain to the world's leaders the conclusions of the new publication. Parts of this year's briefings contain not-so-subtle hints as to what sort of energy policies the world's leaders might like to follow if they want to avoid killing off all life on earth a century or so from now. Earlier this week the travellers stopped in Washington, where sandwiched between visits to various dignitaries they briefed an assemblage of some 200 journalists.

Although I had already ploughed through the 600-page report and extracted some wisdom for these columns, I thought it might be interesting to hear about how the IEA's leaders, who oversaw the scope and approved the findings of the new report, saw the global energy situation.

The Agency's new Executive Director and former Economic Affairs Minister for the Netherlands, Maria van der Hoeven, went first, making the point that the global energy situation has become far more challenging during the past year due to the Fukushima nuclear meltdowns, the Arab Spring uprisings, and the financial upheavals in the EU. She emphasized that the world must invest some $38 trillion over the next 25 years to maintain the flow of energy that we have become accustomed to having.

IEA's Chief Economist Fatih Birol gave the heart of the presentation. Birol began with his three principal worries: Despite global lip service to slowing global warming, CO2 concentrations in the atmosphere continued to grow last year; All governments claim to want more efficient use of energy resources, yet efficiency continues to drop; and finally high energy prices with oil prices on track to top $150 a barrel within a few years will kill any economic recovery. As an example, Birol pointed out that coal had been selling for $60 a ton as long as the Chinese were exporting it. This year when China switched from being a coal exporter to becoming even a rather small importer, prices rose to $120 a ton.

The IEA sees the future of oil as one of demand for more and more automobiles by the peoples of the non-OECD world. Despite automobile sales that now surpass those of the U.S., China currently has only 90 cars per thousand people as compared to 500 in Europe and 700 in the US. Surprisingly, the US is seen as the country making the most progress cutting oil consumption. Not only is there a plan in place to reduce the nation's gasoline consumption by building more efficient cars in the next 20 years, the U.S. is actually increasing its domestic oil production a bit by exploiting tight oils found in shale deposits and deepwater drilling in the Gulf. Birol was too polite to mention that rising unemployment and stagnant industrial production is also contributing to the drop in oil consumption.

The immediate future of oil production, however, is seen as one of adequate investment. The IEA says that the Middle East and North Africa will need at least $100 billion a year in new investment for the foreseeable future even in a place where oil is still cheap to exploit. The problem, however, is that the rising expectations of Arab Spring is rapidly shifting oil revenues from investment in more oil production to the kinds of social spending that will keep people happy and out of the streets. In the closest the IEA comes to predicting peak oil, Birol says that without major increases in investment (an increasingly unlikely occurrence), Middle Eastern oil production will fall by 3.4 million barrels a day (b/d) by 2015 and 6.2 million by 2020. Should this happen, we will have oil prices in excess of $150 a barrel - until of course demand slumps from the high prices.

The IEA is very excited about the prospects for shale gas, calling it the "golden age." On behalf of mankind, the Agency thanks Americans for having discovered how to exploit the stuff and aside from a few regulatory problems having to do with ground water and emissions, shale gas is destined to become an increasing important part of the global energy budget. I know more than one person who has problems with all this optimism.

The nuclear power question is interesting. The IEA says the world is divided into three camps - Russia, China and India considered the Fukushima disaster and decided they have to have nuclear power anyway; Germany and Switzerland decided to call it quits; and the issue is being hotly debated in Japan and France. The big trouble is that without nuclear power plants, CO2 emissions from burning more coal and natural gas go much higher.

Russia comes in for some harsh treatment for being the one of the most inefficient energy users on the earth today. For centuries the Russians had so much cheap energy - wood, coal, oil, natural gas -- that nobody worried about the efficiency of domestic consumption, carbon emissions or anything else. The IEA has calculated that should the Russians start burning their fossil fuels with the efficiency of the OECD nations, they could double their natural gas exports without producing one litre more than they do today.

Climate change remains the 800 pound gorilla on the IEA's agenda, as on the world's present path we are on the way to a 6oC rise in average global temperature which some hold will be synonymous with the end of life on earth. An average global temperature rise of 2oC, however, is thought to be manageable, but there is a big, big problem - we are almost there. Another five years of building cars and CO2-belching power plants will put us over the tipping point and from there on it is all downhill. Now there is a warning for the ages - it could be the last one we receive while there is still time to react.

By. Thom Whipple

Source: Post Carbon




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Leave a comment
  • Fred Banks on December 06 2011 said:
    Will miracles never cease. The last time I taught energy economics (in Bangkok) I had a great time ridiculing IEA forecasts. but now they seem to get the message. Of course, I don't believe that oil prices will go to $150 or slightly higher without an attempt by oil importers to use their military to seize some oil assets, because that price cant be handled, and since the IEA may be too polite to mention the possibility of military intervention, I'll do it...again.As for the Russians doubling their gas exports at the present prices, forget it.In fact, if the gas price keeps dipping, you will se a gas OPEC - guaranteed.
  • Steve in Hungary on December 06 2011 said:
    "Not only is there a plan in place to reduce the nation's gasoline consumption by building more efficient cars in the next 20 years"Sadly I do not think we have twenty years breathing space to do with anything to do with cars. Neighter do I beieve that we have twenty years of stuff delivered to your local supermarket by diesel fueled semi-trailers for the next 20 years either!!
  • John B. on December 15 2011 said:
    More alarmist nonsense. "Peak Oil" and "Global Warming" are nothing more than modern mythology.
  • Fred Banks on December 16 2011 said:
    John B. The oil peak may already be here. What is often called crude oil is to an increasing extent natural gas liquids and very unconventional oils. Of course, conventional oil and unconventional oil are pretty close, or at least that is what they say.Now, how am I going to commence the brilliant short course on energy economics that I will give in Spain next month. The very first diagram that goes on the board shows oil production in the US. For your information that output peaked in 1970, when the US was riding high on its technological horse. They say that oil production has turned up in the US, and happy (economic) days are here again as a result. Go ahead and believe that if you want, because if happy days are really here, you will soon be looking at oil costing l20 dollars a barrel, at which time nobody in their right mind will be interested in or talking about an output peak. They will be talking about the next recession.
  • John B. on December 16 2011 said:
    @Fred BanksSure peak oil has already passed (2005), and global warming is already here (all .7 degrees of it). So why hasn't the world ended as predicted?And if you want to stop oil price increases, stop devaluing the dollar.How about starting your presentation with a chart showing unconventional resources, and explain why we will never use more than a small percentage. Throw in another chart showing the PV price/watt over time.
  • Fred Banks on December 17 2011 said:
    John, I don't remember saying anything about global warming, and in the millions of lectures that I have give - going back to those I gave in the US Army - I have never said anything about it. I don't deal in this matter, and as for the peaking of global crude oil, we might - might - be seeing that now. Of course, OPEC controls the oil price - in theory and perhaps in fact - so this is also another non topic for the leading academic energy economist in the world. ME!I did, however, in some articles ridicule non-believers in climate warming, but that is past history. The climate may or may not be warming - I don't know - but somebody else will have to deal with that issue. I dont talk about it, write about it, or read about it.
  • John B. on December 17 2011 said:
    @Fred BanksPerhaps if you were and engineer (like me), instead of an "energy economist". You would understand that there are many alternatives to oil. E.g. CNG, electricity, biofuel, etc. Unless oil producers want to lose their market, they're going to have to keep prices at workable levels. A big part of the "peak oil collapse" myth, is that there are no alternatives, when of course there are. Whether oil has peaked, or when oil will peak, is simply a non-issue.
  • Fred Banks on December 19 2011 said:
    John speaks about alarmist nonsense. Ask the millions of persons in the world who have lost their jobs, and whose children are living in automobiles or motels, to tell you about alarmist nonsense. If he knew a little economics, he would be able to trace the beginning of the present macroeconomic troubles to the oil price increase in 2008. And JOhn, the two Nobel Prize winners economics gave terrible Nobel lectures, but they agreed on one thing: the bad news is still here.
  • Fred Banks on December 20 2011 said:
    Something seems to have gotten lost here, so I'll repeat. I could have been working for the US Navy at Great Lakes, and most likely in Long Beach, until the cows came home, And judging from my exam grade on the advanced course in servomechanisms, I probably could have avoided being fired from Hughes Aircraft.So you see John, I aint exactly not an engineering fella.
  • John B. on December 20 2011 said:
    @Fred BanksChina still has growth, despite the oil price. The German economy is much better than the Greek economy, and they both use oil. The mortgage collapse in the US was not caused by "peak oil", but rather policies that turned the real estate market into a giant Ponzi scheme. These type of schemes will eventually collapse - which is what caused the last recession. If you want continued high unemployment - pay people to be unemployed. If you want continued high commodity prices - keep printing money out of thin air. These truths are nothing new, and nothing to do with "peak oil", which is a 200 year old myth.And BTW, it's a Nobel Prize winner that's running the US economy into the ground. So much for the Nobel Prize.
  • Fred Banks on December 22 2011 said:
    Oil was one of the deciding factors in the macroeconomic melt-daown that swept across the world. And it will be a deciding factor in the next meltdown if its price starts escalating again. And if you want a long discussion of that turn to Professor Hamilton, who recently published an important paper on this site. Of course, if you want to discuss oil, peak oil, the Greek economy - or Grecian economy as George W. Bush called it - or Germany or ANYTHING having to do with energy, and you are in Sweden, I will try to arrange a seminar for you at my university, or even at the engineering university in Stockholm, where I studied mathematics and later gave some lectures. One thing I can guarantee you: you won't be interested in paying us another visit after you see me in action.

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