Peak oil lives, but will kill the economy

Interesting story in the Guardian this week, noting that the BBC had lined up a row of 'experts' to tell us that there's no need to worry about the future of oil supplies. The point they seem to have missed is that the cheap oil is declining fast, and the gap is being filled by expensive oil, and that this expensive oil also takes more energy to get it out of the ground and turned into usable fuel.

"Global production of crude oil and condensates... has essentially remained on a plateau of about 75 million barrels per day (mb/d) since 2005 in spite of a large increase in the price of oil. Even more important, the global net oil exports from oil-exporting countries (oil production minus internal consumption) have peaked and are in decline."
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The Eos paper goes on to point out that while "total oil production has plateaued, production of oil from older existing fields has been in decline, dropping roughly 5% annually, corresponding to a loss of 3-4 mb/d." Although production from unconventional oil and gas has balanced this decline, they are "difficult and expensive" with "very low energy return on investment (EROI)." In simpler terms, "it takes energy to get energy, and more is required to produce energy from unconventional sources."

The outcome is of course that oil will cost more, and that limits economic growth.

The result is an undulating production plateau correlating with higher but more volatile oil prices, as well as a prolonged recession punctuated by small cycles of 'recovery' and contraction.

Hmmm, 'prolonged recession punctuated by small cycles of 'recovery' and contraction.' - sound familiar to anyone?

You can read the full article here.

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Double dip for anyone?

After the main course (2005-8 oil price spike and ensuing financial collapse), and going back for seconds (2011-12 oil price spike), we now get that delicious desert - the 'double dip'.

Though if you look at the graph in this article, you can see that on average the UK has been in recession for 4 years. It's just the 'technical definition' that needs to consecutive quarters of economic contraction.

And of course energy prices are staying high at the moment, and will continue to do so unless economic activity slows down globally, so we're pretty much stuck with the situation.

Mike

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Rising oil prices during a recession?

So somebody at the Telegraph has noticed that oil prices aren't doing what they should... Of course, back in 2008 it was all playing out as normal - prices reached a peak, most economies in the world went into recession, and the price plummeted back down again.

But look what's happened since 2002:

• 2002 - Jul 2006: run up from $20 to $76 
• Jan 2007: dropped to around $52 
• Jul 2008: up to $147 
• Dec 2008: drop to around $35 
• Apr 2010: up to $85 
• May 2010: drop to $65 
• Dec 2010: Brent and WTI start to diverge (around $85 at the time) 
• Apr 2011: Brent at $125, WTI at $110 
• Oct 2011: Brent at $105, WTI at $77 
• Feb 2012: Brent at $126, WTI at $108 

So right now many countries are back in recession, or close to it, but the price keeps heading upwards.  Also, from the UK point of view, note that $125 today is about £79.60, while $147 in July2008 was about £73.50 - so in £ sterling, the oil price is at a new high now.

Check out the average prices as well:

Year	WTI ($)	Brent ($)
2007 average	72.34	72.44
2008 average	99.67	96.94
2009 average	61.95	61.74
2010 average	79.48	79.61
2011 average	94.87	111.26
2012 average	101.09	114.82

So what the guy in the Telegraph has realised is:

The unpleasant fact we must all face is that the relentless supply crunch - call it `Peak Oil’ if you want, or `Plateau Oil’ - was briefly disguised during the Great Recession and is already back with a vengeance before the West has fully recovered.
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So we have a remarkable situation. China alone will be adding 125m cars to its roads over the next five years, with auto production targets of 30m annually by 2016. India is spending $1 trillion on infrastructure projects over the next five years.
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The West has the disquieting experience of watching crude soar even as we languish in stagnation. This never used to happen. If we faltered, energy costs would fall too, acting as a stabilizer. This harsh new reality is going to become uncomfortable when the emerging world enters a new cycle of growth, leaving us behind. Rising utility costs have already raised the numbers of UK households in poverty from a fifth to a quarter.

We should not be defeatist. Engineers and scientists are forever at work. A quantum-leap is possible in solar technology. The Chinese may crack cheap and safe nuclear power from thorium, abdicated by the British. But we should not be complacent either. Windmills anybody?

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