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Evidence that governments are underplaying peak oil

This comes from the Guardian (hat tip Lee):

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation’s latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.

In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Conspiracy theorists will love this one! But, we don’t need a conspiracy theory to see that the end of cheap oil is upon us. To find high quality oil deposits (I am not talking about Oil Sands in Alberta here) is becoming more and more expensive. And one oil field after another is hitting peak. We have seen it in Mexico, Russia, the North Sea, the Alaskan North Slope and elsewhere.  The only thing keeping us from realizing the peak is Saudi Arabia, the swing producer in OPEC.

In June of last year, I said:

There has been a lot of speculation of late regarding oil field production capacities declining. In particular, there are great worries regarding Russian and Saudi production capacities. The available data on Saudi production is especially opaque. Matthew Simmons, an expert oil investment banker, has written a book questioning the data the Saudis have provided regarding the proven reserves available for production and the production capacity of the Saudis major fields including Super Giant Ghawar, the largest oil field in the world. I recommend anyone interested in this debate read his book, “Twilight in the Desert.”

This leads us to the Armageddon Scenario. Nuclear-armed nations like China, Russia, India and the United States are desperate to keep their standard of living up. As a result, with oil supplies dwindling, competition for oil supplies will increase. The risk of armed conflict to procure necessary supply increases as peak oil becomes apparent. The U.S. has invaded Iraq, has troops stationed in Saudi Arabia and is threatening Iran, all because of oil — and in Iran’s case, the possibility of another nuclear-armed nation entering the strategic quest for oil. This is a battle of extreme importance strategically for a number of countries. They may stop at nothing to achieve their ends should peak oil become a problem.

Of course, this is exactly why China is all over South America and Africa.

As for peak oil, the lower-48 United States peak of 1970 was not recognized until years later. The same will be true again for the global peak. High oil prices are not just a reflection of speculation, there are some very real supply demand imbalances building. Recession has suppressed these, but in a more normal economic environment, oil prices are going to rise.

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.

7 Comments

  1. Pangea Joel says:

    Oil prices might rise temporarily, but the price of solar power drops exponentially (>3X) every decade, as it has since the 1950′s, when the first solar panels were put on the Vanguard 1 satellite at $300/Wp. Solar is already close to parity with US retail natural gas electricity today, within 5 years it will be cheaper than wholesale coal electricity. For the global south, solar is already cheaper than the existing grid in many countries. South Africa charges 35c/kWh and plans to raise it to 99c/kWh; solar electricity costs approximately 15c/kWh (assuming a 5-year amortization @ 5% interest and sun conditions like California). The amount of solar power rolled out every year worldwide continues to increase and once price parity with the grid is reached solar (along with wind) will account for almost all new electric power generation by 2012. Advances in batteries are accelerating rapidly, eg. IBM with lithium air’s 10X energy density over Li-ion. Major automakers in Japan, China, and US are rolling out hybrid and all-electric vehicles. I agree with Deutsche Bank’s estimate the global oil Demand will peak in 2016. I expect after that, becoming coal, oil, nukes and gas will trend towards becoming niche power sources by 2030, as solar will be 1/10 the price of coal by then. We are seeing Peak Oil Demand not Peak Oil Supply.

  2. Stevie b. says:

    @ pangea joel – I know nothing about solar power but find your comments and ramifications from them very interesting indeed – thanks!