Low oil prices: Good for us now, bad for us later?
Update: The Oil Drum will be providing a series of analyses and commentary on the World Energy Outlook. The Oil Drum is a superb collaborative energy analysis site so I encourage you to check it out.
The International Energy Agency released its much-anticipated, exhaustive (and leaked) 2008 World Energy Outlook today. The major concern? Constrained investment in a global recession will prevent companies from providing oil when we really need it.
Find the executive summary here and an easily digestible fact sheet here.
From the Financial Times:
"The organisation found that even with investment, the fields were declining at 6.7 per cent and that this rate was accelerating. That means that 45m barrels a day would have to be found and produced in the coming 22 years even if world demand remained completely unchanged. As it stands however, the IEA expects demand to rise from 85m bpd in 2007 to 106m b/d in 2030, making the challenge that much greater....Many of the most sharply declining fields lie in developed countries, including in areas such as the North Sea and Alaska. This means the west will become less and less of a player in terms of production, while Persian Gulf countries become more important.
The west’s declining importance applies to its role not just as a supplier of oil but a customer. "We think OECD oil demand has peaked,” Mr Birol said, adding: “The OECD countries’ role in the energy world is becoming less and less important.”
Obviously, oil supplies are not our biggest problem right now, what with demand tanking and prices at roughly $60 per barrel. But what happens when demand picks back up?
Oh, and if you still have time after reading the IEA report, check out what the U.S. Government Accountability Office has to say about when we will see widespread carbon capture: No time soon.
Comments (5)
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To paraphrase John McCain, the fundamentals supporting a return to high oil prices are strong. We're experiencing a hiatus because economies around the world are weak and hence demand has fallen off. But when demand ramps up again, so will prices. And when that happens, economies around the world will again face strong incentives to innovate and find alternative sources and technologies. So the good news is that the recession we're in will end, and the other good news is that oil prices will again rise.
Posted on November 12, 2008 3:53 PM
No doubt we will pay in the future! Now is a good time to drill, baby drill! Would produce jobs and monies we need bad!
Posted on November 12, 2008 4:12 PM
A quick word on why high oil prices are "good." If the choice were between high prices and high availability vs. low prices and high availability, then of course we'd prefer low prices. But given the state of our petroleum resources, the choice we actually face (in the long run, not right now) is high prices and high availability vs. low prices and rampant shortages. The only smooth path to a future of scarcer energy is via the technological innovation that's "fueled" by high prices.
But I'm happy to let the market raise prices on its own over the next few years. IMO, there's no need to impose new fuel taxes in the midst of a recession.
Posted on November 12, 2008 4:18 PM
As for drilling-baby-drilling, it's not happening so much while oil prices are low.
Posted on November 13, 2008 9:40 AM
Andrew,
You bring up some good points. The country's challenge is to craft modern energy policy that adjusts citizens to 21st century realities while being mindful of the potential future problems that are created when government subsidies and policies skew demand, such as with ethanol.
The fact is we are in an energy predicament that has no easy solutions. Ultimately, there may be no "solution," just actions that are less worse than others. The market would seem to work best when educated consumers and producers anticipate shifting energy sources/supplies/challenges based on credible data and make changes ahead of time, even if the financial payoff is over the long term rather than immediate.
Posted on November 13, 2008 1:21 PM