From Peak Oil to An Excess of Energy: The State of Global Energy
Everyone knows that oil production is declining. That it’s only a matter of time before Peak Oil forces us to find new forms of energy or battle over soil like Kevin Costner in “Waterworld.”
As usual, everyone is wrong.
Data recently released by the Energy Intelligence Group shows that production of global crude has now outpaced the demand. Take a look…
While it’s never wise to get too excited about a single data point, this chart isn’t just a blip on the radar. It reflects serious shifts in the supply and demand fundamentals that have changed energy markets over the last few years.
Energy markets may have more moving parts than any other market out there. It’s a wide-ranging mosaic, but when you put all the pieces together, the picture is clear: nearly every measure points to supply outpacing demand for years to come.
Understanding Peak Oil, Supply and Demand
This article is the first in a series of articles devoted to examining recent developments that have rocked the ever-changing energy markets and brought the Peak Oil concept into question.
The Peak Oil bogeyman was first raised by M. King Hubbert in 1956. Hubbert developed a logistic model (which resembles a bell curve) that successfully predicted that U.S. oil production would peak in 1970.
Hubbert’s model gained traction and has accurately predicted the peak levels of production in other countries since then.
But, as in any model, when time scales get long enough the prediction power breaks down as new information becomes a part of the equation.
Hubbert’s curve is based on properties of the natural world, which are based on geology. In that sense, it works. But let’s look at a past example to see where it may break down…
Hubbert’s model would have accurately predicted Peak Whale Oil. But the model wouldn’t have been able to account for technology shocks. Once the unforeseeable means for using petroleum entered the energy economy, the path for whale oil was forever altered.
Just as they did then, new developments have rendered Hubbert’s curve ineffective, or at least delayed it by decades.
Many energy optimists think that technology will bring new sources of energy through solar, wind, or biofuels. Some day they may. For now, the real advances remain in the petroleum industry. Huge discoveries and advanced extraction techniques have changed the economics of drilling for oil and other petroleum products.
You can see the effects of this expanded supply in today’s oil prices.
Of course, the global economy has slowed, providing a short-term decline in demand, as well. I’ll dig into that much deeper next week.
On a weekly basis, I’ll consider all the factors of energy markets in deep detail to determine where energy prices are heading.
I won’t only be reporting the latest news, arcane drilling reports, or updates on different oil projects. I’m going to provide a context to understand what to do with the latest headlines, and how to strategize no matter where energy prices go.
Stay tuned for next week!
Ahead of the tape,
Matthew Weinschenk
Related Topics: Commodities, Economy and Politics, Oil and Energy
I’m not too sure you’re interpreting this chart correctly
That decrease in demand? That is called demand destruction and isn’t good for the economy.
So yes demand has fallen below supply which will cause supply to fall again.
Sounds a lot like the bumpy plateau those peak oils freaks are talking about.
Perhaps there is something to what they’re saying after all
[Reply]
Tranzition Zoner Reply:
June 9th, 2012 at 9:50 am
This actually looks exactly like what the peakers predict given the state of the global economy -as you state- “bumpy plateau”.
[Reply]
This is a momentary, short-term development caused by a sinking world economy. It hasn’t because any significant new quantities of oil have been discovered. For a *numerate* discussion of energy resource depletion, I suggest you start with the book referenced here: http://en.wikipedia.org/wiki/Cubic_mile_of_oil.
And as usual, it has nothing to do with the straw man “We’re running out of oil argument.”
We’re in trouble, but that’s because of the Energy return/price ratio, not any shortage of actual quantity. Energy return has decreased to less than a 1/5 of what it was in the 60s. Prices have increased. When the energy return is low enough, and prices high enough, oil is no longer useful as an energy resource.
And this happens long before we come close to “running out.”
[Reply]
The blue area on that chart doesn’t look like the global crude oil production graphs from EIA or JODI. Another article using the same graph states that it shows “liquid fuels”, which includes biofuels and NGL.
And please, for the umpteenth time, don’t conflate the terms OIL and ENERGY. It’s entirely possible to have Peak Oil and an Excess of Energy, simultaneously.
[Reply]
We have already reached 400 ppm of Co2 in the atmosphere and once again there are dire warning by scientists that we must act to reduce emissions immediately. Once gain the captains of industry are ignorning them and with them the politicians. Once again the smear machine lead by “vested interests”, will claim it is just a hoax promoted by greedy, commie scientists that need research grants, As the clock ticks we debate “peak oil”? Huh?
[Reply]
Has anyone done the math on it? Its not hard, just some addition and a little multiplication. You can very easily add up all the oil in the world, conventional and unconventional. Between, the EIA, IEA, and the CIA, there are more than enough sources. There are no incredible new discoveries. If someone comes on here and touts that they just found a 300 million barrel oil deposit, for one you have to estimate whats extractible, a rough high estimate is 50 % even though all wells are different. Then what is economically viable to extract. So you might end up with 30 % of the original 300 million. So we have a gigantic 90 million barrel well right. We consume on average in the world around 78 – 82 million barrels a day. Not so grand now is it. Say we found 100 billion barrels of ECONOMICALLY VIABLE oil, it would only last us another four years at current rates of consumption. Because if consumption rises, like during expanding economical times at a rate of 3 – 7 % per year, then it last substantially less than 4. Simple math.. I implore you to do some research and make your own mind up!!
[Reply]
This graph clearly shows that two good years of global recovery will once again push demand above supply.
Go map the oil price per barrel against any global average index (example, BBC Global 30) you will see the trend. demand recovers, oil prices rise, energy input costs increase, business falters, demand is destroyed, and bump… the global economy shudders.
The simple fact is, regardless of what supplies come on line over the next decade, it will NOT stay ahead of the required growth our economies need.
We live in a world of fake money throughout vast capitalist economies backed by energy that ALL require infinite growth to be sustainable. That isn’t economics, its a pyramid scheme combined with a time bomb.
[Reply]
Green technology tends to save more money in the long run, deptise being more expensive to begin with for example, motion-sensing light fixtures that only turn on when someone walks into a room are more expensive than regular lights, but after a few years the reduced power usage saves money. What examples of green energy are you looking at that are so cost-inefficient? Around here (Midwest) people have been installing windmills, which are quite green that have consistently proven profitable.
[Reply]