Friday, 23 May 2008

IEA: Peak Oil Investments

Wall Street Journal leaked yesterday preliminary information on the forthcoming IEA oil suppy report. The forecast is grim: of the 37.5 Million barrels/day of additional production needed by 2015 to keep things chugging along in the business-as-usual scenario, only 25Million are accounted for. And even that estimate is starting to look optimistic to IEA.

That is, we are heading for even a bigger oil demand/supply crunch than IEA predicted only last year.

Of course, IEA is not a believer in current oil peak (of the geologically imposed variety). They are arguing that lack of investments in upstream production is hampering the supply of oil. Oil industry needs to invest more, especially in countries where they currently cannot (this is a geopolitical hint, if there ever was one).

In some ways one could argue that IEA is pointing out Peak Investments for Oil production, which is of course different from geologically imposed peak oil, when you just can't pump more oil per day regardless of how much you invest.

Whatever the underlying reasons, the end result is the same - for now: not enough oil.

In light of this the Goldman Sach forecast for oil of $200/barrel in 2009 doesn't sound far fetched at all. A bit more speculative capital into the futures market and it could even be a conservative estimate. If we are at peak and this becomes self-evident, then $200 may evenbecome the bottom baseline.

However, if things were to come to that, the world oil consumption would fall dramatically. Not even the oil producing countries & China can afford to subsidize their own internal use at those levels. Prices would have to fall.

And if they did not, we could only conclude that KSA had been full of hot air all along and that they had absolutely no spare capacity that they could have quickly put online. That in turn would be weighty evidence in favor of ASPO's argument that KSA is near peaking (geologically) and that it's not just about investments.

And if KSA is peaking, then according to Matthew Simmons, so is the world.

These feel truly the watershed years we are living right now.