405. SUPPLY CRUNCH RECEDES
For the last few months the peak oilers have been terrorizing the newbies with the "looming supply crunch" due to lack of investment. Much of this was based on comments earlier this year by the IEA:
"Currently the demand is very low due to the very bad economic situation," [Nobuo Tanaka, the IEA's executive director] said. "But when the economy starts growing and recovery comes again in 2010 and onward, we may have another serious supply crunch if capital investment is not coming."However, this one has now bitten the bag like so many other peak oil scares over the years:
IEA sees global oil supply crunch risk recedeYet another case where the peak oilers relentlessly hype an anticipated threat, and provide no reporting at all when the threat evaporates.
Jun 29 2009
The world may escape an oil supply crisis for the next five years because a slow recovery from the economic downturn would hold down growth of demand, the International Energy Agency (IEA) said on Monday.
And in related news, the IEA just cut 3 million barrels per day for demand for the next four years: So Much for Chinese Demand (hat tip to Eric J. Fox)
by JD
posted by JD @ 5:14 PM
30 comments
30 Comments:
"Yet another case where the peak oilers relentlessly hype an anticipated threat, and provide no reporting at all when the threat evaporates."
yep. here is the list of the doomer impending disasters.
south africa will have unrest because of the power shortages
bees dying
water in atlanta
gas shortages in the south
gas shortages everywhere
soil erosion(if we are losing soil where is it GOING?)
natural gas cliff
peak oil
end of the suburbs
it's endless. doomerism is just a disorder. there is a need for constant dire emergencies among that group.
Plus, isn't the whole threat of peak oil its unavoidable and permanent nature? The idea that gas will go from $2-5 a gallon to $100 a gallon to impossible to get at any price in a matter of a year or two?
The idea that there may be a temporary crunch due to lack of capital investing implicitly indicates that the oil is THERE and GETTABLE, but we might have a few months or a year or two of slightly higher prices while a few new rigs are built.
What some people don't seem to realize is that even with economic recovery, there is absolutely NO guarantee that demand will jump back up. It didn't in the '80's. There's no specific reason why it would this time.
Also, and I think this is even more important, although oil did bottom out in the $30 range earlier this year, it has steadily been climbing back up since then. If you look at oil prices historically, $70, even when inflation adjusted, is a very high mark. Financially, there is absolutely no excuse for lack of capital expenditures to expand supply right now based on these prices. The reason the companies aren't trying to expand supply is because they know there is no reason to and won't be for quite a while. Demand won't recover, no matter what the economy does.
DoctorJJ
I've seen the same IEA article used to prove peakoil elsewhere (do a peakoil search on twitter). Lately I've seen large leaps by many analysts to associate all possible data with peakoil regardless of whether that data is fundamentally bearish or bullish.
It should also be important to mention another doomsday issue that failed to materialize - the BDI collapse from the beginning of the year. Don't you remember? Doomers were salivating over the collapse of this index (which measures shipping rates for bulk cargo), and store shelves were suppose to be empty within 3 months. Yet here we are, over 6 months later, store shelves stocked full. And of course, not a peep from the doomer crowd about this.
"Demand won't recover, no matter what the economy does."
Amazing. Cause and effect nullified by debunker fiat. By this 'logic,' we are now past peak oil and descending the slope.
HDT
OECD demand (that includes China, folks) is down some 5 mbpd since 2005, US demand is expected to decline 6.5% this year.
Along with mega discoveries of Brazil and bastardly Iran, the Gulf of Mexico ramping up (discoveries doubled in '07; production expected to hit 1.9 mbpd in a few years), some mamoth offshore fields of Saudi Arabia, plus untapped potential of Iraq (if it holds its shit together) and Angola... it seems as if there's a fair amount of oil left to be tapped.
I forgot to add
silicon shortage
anyone have any others?
"Doomers were salivating over the collapse of this index"
YES! I also remember how the early 2008 spike of the baltic dry index was supposed to be permenant and globalization was dead! HA!
end of globalization.
Goofy,
How 'bout peak squirrel?
"anyone have any others?"
Yes. There are endless supplies of bullshit peakist arguments. Peak Water, Peak Lithium, Peak Phosphorus etc etc.
Unfortunately, however, the doomers themselves do not follow a hubbert curve and hence there is no depletion rate to their inane wide-eyed batshit crazy prognostications.
Sadly.
DB
Sometime in 2013, after the Mayan 2012 end of the world predictions fall flat, we will hit peak bullshit. This is according to the Benway Institute for the Study of Mammalian Fecal Matter www.benwayinstitute.org. Bullshit production will then begin declining slowly. It will never cease entirely. The Doomers, led by Dismal Jimmy Clusterfuck Kunstler are trying to refine low grade horseshit piles to replace it.
Basset Hound
"Amazing. Cause and effect nullified by debunker fiat. By this 'logic,' we are now past peak oil and descending the slope."
Look back at demand in the early '80's. After the embargo, it literally took 20 years for demand to recover. That was despite the economy recovering quite nicely in the meantime. Besides, I think the term you are looking for is called "peak demand" and we may have reached/passed it.
DoctorJJ
Economic recovery in 2010? For the world perhaps, but almost certainly not for the US.
I think the best realistic scenario for the US is replicating Japan's lost decade and the worst is a depression and currency crisis. The US needed a recession in 2000 to get rid of the IT bubble and service economy malinvestments. Instead they just blew up a housing bubble with loose money policy, had enormous fiscal stimulus from deficit spending(two wars, tax cuts and expansion of government). They kicked the can down the road 8 years and now they're going to have an even deeper recession for it.
They're trying to continue proping up the malinvestments and bail out the crooks.
This is how you turn a severe recession into a depression and why you've never heard of the depression of 1920(it was a very severe, very deep recession, but after the malinvestments were liquidated government did nothing and the factors of production were freed up and reorganized in profitable ways).
"Besides, I think the term you are looking for is called "peak demand" and we may have reached/passed it."
And does "peak demand" have any relationship at all with "peak production" Doctor?
HDT
"And does "peak demand" have any relationship at all with "peak production" Doctor?"
Since we have NOT hit peak production yet, but we have already seen peak demand in several developed countries, then I would say NO, it does not have any relationship to peak production! Look at Japan for an example. They hit peak demand in 2005. Well before any evidence of peak production, and that was even while prices were low, so it's not just an economic phenomenon, either.
DoctorJJ
This is just my armchair ramblings talking, but I think it will take a while for oil demand to recover once the economy recovers. I think the longer the recession continues and the more job insecurity there is, the more people will really embrace some sense of thrift. In the next few years if people need to replace cars, I think most of them will opt for the cheapest car they can get rather than the biggest and flashiest. I could buy three Toyota Yarises for the price of one Ford Explorer.
Even if folks aren't thinking about long-term fuel usage, just the up-front cost of the vehicle will likely drive many towards smaller cars. Which then means for a decade or more we will have a more efficient national fleet than we've had for the past decade.
Demand will eventually come back, I'm sure. Especially if the economy stays good for a prolonged period and the price of oil drops like it did in the 90s. But I do agree that we won't see demand bounce back to its 2007 levels as soon as Bernanke declares the recession over.
"Since we have NOT hit peak production yet, but we have already seen peak demand in several developed countries, then I would say NO, it does not have any relationship to peak production!"
How interesting that you can state with certainty that we have not reached peak production, and with the same certainty you can state that several developed countries have reached peak demand.
How can you know with such certainty that these developed countries have reached peak demand? And as young Ari is want to say, isn't the real question about aggregate GLOBAL supply and demand and not about supply/demand for individual countries? You do know that our oil is underneath their land, don't you?
HDT
"Economic recovery in 2010? For the world perhaps, but almost certainly not for the US."
technicals for the US stock market are starting to look pretty good.
HDT,
You don't actually know how young I am, so I wouldn't start playing that ad hominem if I were you. And if my various discussions online are any indication, age differences are no substitution for knowledge or wisdom, so it's a silly card to play. I would take a younger Paul Krugman over an older me any day of the week.
Anyway, we cannot know for certain that the countries have reached peak demand now and forever, but one thing is extremely clear from the data: OECD demand has dropped year-on-year for many years. Furthermore, many of the fundamental requirements for oil demand increases (mostly young working age populations) are missing in nearly all OECD nations. It's highly unlikely, barring an extremely unprecedented baby boom, that we'll see population growth in most OECD nations in a few decades. Combine that with the various other factors (increases in efficiency, carbon taxation looming, changes in behavior) and we see very few of the necessary ingredients for demand growth in the OECD.
"You do know that our oil is underneath their land, don't you?"
Silly statement because it's unqualified and essentially meaningless. "Our" means whom and "their" means whom? The largest bulk of American oil imports now comes from Canada, and if I'm not mistaken Japan imports most of its oil from Iran.
Who is they? Who is us?
"Anyway, we cannot know for certain that the countries have reached peak demand now and forever"
Sure we can, DoctorJJ said so, right here in this thread. Aren't all debunkers smarter than those 'fucking schleps' and 'idiot' doomers?
"Who is they? Who is us?"
Us is the USA, they are the exporters who supply the USA with 2/3 of its oil. You debunkers seem to think that all the oil in Venezuela, Saudi Arabia, Iran, Iraq, Nigeria, et al is really just one nice, neat US oil reserve that just happens to be underneath these countries where most of the people dislike our selfish consumptive habits and distrust our business practices.
It would be nice if the world were as safe and simple as you 'debunkers' seem to think it is. Keep this up though, and you'll give Pollyannas a bad name.
HDT
HDT,
It's funny to me how you are so fixated on the US and its importing 2/3 of its oil when practically every other OECD nation imports oil to varying degrees. From France, who imports around 90% of its oil to Canada who imports less than a quarter (IIRC). Other than trying to demonstrate that the US is clearly soooooooo fucked and sooooo bad because it imports a good (that must make France 30% worse than the US!), what is your goddamn point? Why is it that you never mention Japan, which imports 90% or so of its oil?
And really, we know that Venezuela isn't a "nice" country. Same thing with Saudi. But, again, so what? Let's say that Saudi and Venezuela stop exporting oil. Or somehow, magically, they only stop exporting it to the US (through peak magic!) Who benefits? Neither party. If Saudi and Venezuela and all those nasty icky countries that you don't like stop exporting, they're just as screwed because, get this, their economies depend on exports.
Your fixation on American oil imports is based on little more than the idea that the US is somehow more vulnerable than other countries, which is clearly not the case. One of the things about an interconnected economy, as the financial crisis has shown, is that the contagion spreads throughout the whole system. It is not in the interest of exporters to stop exporting, as they're just shooting themselves in the foot. It is not in the interest of anybody to give up their source of revenue for no apparent reason.
And again, why focus on oil? The US also happens to import many strategically important metals. The modern economy cannot carry on without metals either, as I'm sure you're aware. So why aren't we talking about "peak manganese?" Because oil is SEXY. It's highly noticeable. Never mind that if manganese, unlike oil, and I quote the USGS on this, "has no satisfactory substitute in its major applications."
PEAK MANGANESE? I don't expect to see that URL taken any time soon.
"Your fixation on American oil imports is based on little more than the idea that the US is somehow more vulnerable than other countries, which is clearly not the case."
You're being willfully obtuse yet again. The US is extremely vulnerable to oil shocks, that's obvious to any honest observer who's paying attention. You seem to think that because everyone is vulnerable to oil shocks, then no one is vulnerable, and that is what is clearly NOT the case.
If the world were still awash in cheap oil, it wouldn't be so easy for speculators to blow the oil bubbles that cause the shocks.
I am a citizen of the US, not Japan or France and that's why I don't mention them explicitly in every comment. I don't envy them their 90% dependence on imported oil. But those countries do not field the world's largest military, they're not embroiled in patrolling the Persian Gulf and fighting wars in three (today) theaters to maintain the flow of oil to a fragile, debt-ridden, obscenely overleveraged economy.
"One of the things about an interconnected economy, as the financial crisis has shown, is that the contagion spreads throughout the whole system."
I think that's one of the few statements you've made here that I wouldn't quibble with. And that contagion spreads far more rapidly and broadly when economies are vulnerable.
That's my "goddamn" point.
HDT
HDT,
"You're being willfully obtuse yet again. The US is extremely vulnerable to oil shocks, that's obvious to any honest observer who's paying attention. You seem to think that because everyone is vulnerable to oil shocks, then no one is vulnerable, and that is what is clearly NOT the case."
EVERY COUNTRY IS VULNERABLE TO OIL SHOCKS. This is what I keep trying to make clear. Every country is also vulnerable to wheat shocks, coal shocks, financial shocks, EMPs, etc. The very notion of a shock suggests that it is something unexpected, and that makes it very difficult to plan for.
Even net exporters of oil, like Canada, were hit hard by the oil shock. Why? BECAUSE OIL IS AN INTERNATIONALLY TRADED COMMODITY. You seem to believe, strangely, that if the US produced 100% of the oil that it consumed, that it would be magically insulated from price shocks. This is clearly not the case. Unless, of course, you are suggesting that the US would simply stop the import/export of oil, which is highly unlikely.
You believe, and I don't understand why, that the only way that a country will be "secure" is if it produces and consumes 100% of everything on its own soil. We see this to be untrue over and over and over and over again.
"If the world were still awash in cheap oil, it wouldn't be so easy for speculators to blow the oil bubbles that cause the shocks."
1) Define "cheap oil." What is "cheap oil?" You throw that term around yet never actually give it any meaning. $10/barrel? $25/barrel? 3% of GDP? 5% of GDP? <6% of GDP?
2) Was the world awash in "cheap oil" in the 1970s? Was the world awash in "cheap oil" in the late-90s when OPEC instituted cuts?
3) When was "cheap oil?"
"I am a citizen of the US, not Japan or France and that's why I don't mention them explicitly in every comment. I don't envy them their 90% dependence on imported oil. But those countries do not field the world's largest military, they're not embroiled in patrolling the Persian Gulf and fighting wars in three (today) theaters to maintain the flow of oil to a fragile, debt-ridden, obscenely overleveraged economy."
The US is overleveraged, yes, but I don't think you really understand how much an economy can be leveraged before it's "obscene." Italy, throughout the post-war period, regularly was leveraged in the 100% or so range. Japan has been leveraged over 100% of GDP for around a decade now. What is "obscene" leverage? You seem wont (not want, BTW) to measure it as a gross amount, but leverage is only interesting as a % of income.
Furthermore, you are right that they do not foot the US's military ambitions, but are you really implying that Japan has not paid out the nose for much of the military actions in the Middle East? If you recall your Persian Gulf history, one of the big issues between the US and Japan around that time was "checkbook diplomacy."
http://en.wikipedia.org/wiki/Checkbook_diplomacy
Also, three theaters? What's this fictitious third theater you speak of?
And while you are saying you are an American citizen, you forget that all economics is relative. You huff up and down this blog about how badly off the US is because it imports 2/3 of its oil, but you seem oblivious to the fact that that's a relatively enviable position amongst industrialized nations. Never mind that even if it didn't import, it would still be hurt by price spikes...
The real problem with "peakers" is that they are, by and large, focused on the US. They don't see the system as it really is, and that cripples their ability to understand its real nature. If this crisis has demonstrated anything, it's how much the US economy is key to everyone's well-being (included those icky bad guy nations who puff up and say the US is bad bad bad), but also how much the US's hegemony is no longer the sole driving force of the world.
The world's a damned complicated thing, ain't it?
"You believe, and I don't understand why, that the only way that a country will be "secure" is if it produces and consumes 100% of everything on its own soil. We see this to be untrue over and over and over and over again."
Producing 100% of one's needs is an admirable goal, one I believe in. But I have no delusions that even if the US did produce 100% on its own soil that it would be "secure."
Perhaps you could cite a few examples of these countries that produce 100% of their needs and yet are not secure.
HDT
HDT,
WHY is it "admirable" for a country to produce 100% of its goods? That's one of the strangest statements I've ever heard. Comparative advantage alone tells us that your argument makes little sense.
In any case, it's probably the case that outside of small isolated island nations, no country has ever gone to the trouble of being "100% independent." Why? Because it makes no economic sense. None.
"WHY is it "admirable" for a country to produce 100% of its goods? That's one of the strangest statements I've ever heard."
I don't believe you, but here are a few thoughts from a blog that might help you understand that strange statement:
"Men naturally seek direct access to the means of subsistence, usually in the form of their own land or tools.
This access makes a man less dependent on his neighbors and therefore less dependent on the markets."
http://www.frontporchrepublic.com/?p=4134
HDT
Typical, just so typical. I have scrutinized one of their lists for what it really is - or isn't:
Click here
In your June 25 2010 article you said "Oil is at $75 and it's not going anywhere." Today is July 14 2011 and oil is $98. And you spent so much time writing your article. Oh well.
Have a nice day.
people do cry wolf but if no one watches the sheep eventually something bad will happen. maybe there is a quadrupaltrillion barrels of oil still in the ground but eventually we WILL run out and if we wait till then to do something were screwed. debunk peak oil all you want but the fact is we need clean energy NOW not later
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