Friday, 11 May 2007

Oil & Energy in the world - a month or so in review

Just another month? Perhaps, perhaps not.

A lot of interesting things have happened in the previous month.

Of course, this is all old new to those who have been following any of the usual suspect sites during the past months. The picture is unfolding almost like the overall script dictates: shortages, deniel, more peaks, price rises, speculation, asset bubbles & resource grabbing.

Now the information is being legitimized and published in wider circulation. More people will read it. More people will start writing blogs, discussing and piecing information together. More news on the issue. Definitely papers and politicizing on the issue.

Out of all the noise of news, a picture is starting to emerge. Let's try an exercise, one of many optional pictures:
  1. The energy market as a whole has overheated, following the similar trends on various asset markets. Biofuel markets are slowly merging with food markets, with important consequences
  2. Oil demand growth is still too strong, supply is limited and near future is even more uncertain. Prices are likely to rise, even without supply disruptions (Nigeria, Iraq, etc.) and natural disasters (hurricanes hitting refineries)
  3. Future of worldwide supplies compared to demand is starting to come under serious doubt. Nobody has publicly shown numbers to convince the numbers people that production can scale to projected need.
  4. Future energy replacements for oil (nuclear, biofuels, coal, syn-crude, natgas) are looking less optimistic (scaling, sustainability, energy, carbon offsets). This includes the most optimistic of current biofuels: algae based bio-diesel. The rest, including corn ethanol, is mostly an expensive smokescreen.
  5. The positive feedbacks in the system are getting easier to spot: prices spiraling up -> dash for deep water oil resources -> shortage of equipment and people in oil services sector -> more investments in alternatives -> more hyping of alternatives & new (small) oil discoveries -> more clouding of the fundamentals of flow rates, reserve replenishment and demand growth
  6. Global Warming still reigns supreme as the topmost important topic of our time, but the connection between the two is still rarely made. Everybody seems to assume coal ihas to be gone, but the amount of commissioned plants being built is increasing, not decreasing.
  7. People, politicians and markets are becoming more nervous about the energy issues, especially the price, but still seem to believe that delivery is guaranteed.
If one combines the slow realisation of the above factors (true or not, with timing uncertainty) with the current economic situation, the combined picture doesn't look overly optimistic.

Are we heading for global energy demand destruction via a combination of price increases and slower economic growth?

Right now, with the data available, it sure does look like it.