There was a fascinating interview on Radio NZ this morning of the International Energy Agency’s Chief Economist Fatih Birol, about increasing oil scarcity. You can listen to the interview here.
Mr Birol talks a lot about things I’ve mentioned many times on this blog before: that there are two underlying key factors behind higher oil prices – continually increasing demand (particularly in developing nations) as well as the geological constraints of peaked oil supply in many countries. On top of those two underlying issues are short-term issues such as Middle East political instability, which was probably the main factor that boosted prices from around $1.90 a litre to above $2.20 over the past few months. Prices have dropped back a bit recently.
In terms of geological factors, the supply of oil does seem to have been constrained in the past few years – as shown in the graph below:
What’s particularly interesting to note right at the start of the interview is how the IEA has changed its tune over the past few years when it comes to peak oil. Not too long ago they were calling peak oil theorists “doomsayers”, and even in 2005 the IEA was arguing that peak oil either wouldn’t happen or was so far in the future that it wasn’t worth worrying about. Yet here we have their Chief Economist saying that crude oil production now peaked in 2006.
One thing that I often find myself thinking is how surprising it is that oil prices are as high as they are at the moment, given that the global economy is very fragile (remembering that reduced economic activity lowers oil demand). One wonders what will happen to oil prices once the economic truly recovers.
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Listening to the interview, I noted a couple of points. Firstly, Dr Birol is talking about a 2006 peak in conventional sources of oil, although OPEC could increase oil production to ameliorate (or reverse?) this. Conventional sources do not, I think, include oil sands, and certainly do not include natural gas liquids. Secondly, he tentatively predicts a short-term decrease in oil prices because of the impairment of the global economic recovery that might be caused by high oil prices. Finally, he explores the possibility of the market responding to price signals by, for example by way of electric cars (although he admits it is a big ask for this to make any real impact).
Some peak oil advocates do predict an apocalyptic scenario in which post-peak prices grow exponentially and modern society grinds to a halt. Dr Birol does not suggest anything of the sort, although the issues explored in the interview are very concerning nonetheless (even ignoring the environmental issues – which the interview does not deal with).
The demented punctuation in the above post was not intentional – some issue with wordpress perhaps?
Good points sj and I generally agree with Dr Birol’s opinions on the issue. As prices increase the viability of non-conventional oil sources will also improve – so there are increased options for providing total oil production. However, that is obviously reliant upon prices increasing – which really is the problem here.
I’m also interested in the relationship between oil prices and economic activity. I worry that we might get into a cycle of economic growth -> oil price shock -> recession -> economic growth -> oil price shock -> recession over and over again.
Interesting, I’m starting to think that will be the pattern, too.
Will sustained economic recovery only come from permanently reducing our oil dependency? And if so, which part of the world is most likely to get there first?
The way NZ is going, and with what we’re building, unless the Govt changes tack I don’t think it’ll be us 🙁
edit note: Weird, I’m sure I put spaces after all those commas?
even in 2004 Fatih Birol was talking off-the-record about imminent peak oil and it’s impacts. what has changed is that the IEA’s official position has edged much closer to reality. the “OPEC is able to…” line is a laugh, though.
conventional oil production is crude oil + condensate, but excludes tar sands and very heavy oil (Orinoco, etc.).
It’s clear that oil and various related hydrocarbons are not suddenly disappearing but are getting a great deal trickier to get out of the earth and there is an increasing need for them around the globe, therefore our ability to afford them is decreasing. Hydrocarbons are vital to all western economies. For any economy that is a net importer, like NZ, the best oil is the oil we don’t have to buy. Transport is the biggest user of the stuff in NZ and the most elastic. Clearly a smart government would be measuring all of its policies against how they can best reduce our dependency on imported oil. We will shuffle further down every league table out there if we don’t wake up to this very soon. Welcome to Importistan.
The flat-lining of production and spiking of price is so plain to see. Another issue Labour could be making a killing on, borrowing money to spend on state highways were traffic volumes are not growing, this is not a good investment for the economy.
Build a bunch of coal plants, stop exporting coal, combine geothermal and wind with pumped storage hydro and switch to electric cars in the long term. Cover the country with industrial hemp and make bio-diesel/ethanol to run everthing in the short term and become an oil exporter. Oil import dependency solved. You just need $50 billion and the political will to do it which will never happen…
Ari no. We have plenty of electricity and more is on the way without any need to burn coal.
Divert half the RoNS money into expansion of AK electric passenger rail [including Southeastern AK], light rail and reinvestment into the freight rail network, including expanding electrification. The rest into targeted improvements like ‘Operation Lifesaver’.
Thats a good start. Also invest in a scheme to put solar hot water into all new and renovated homes. Think local as well as national.
NZ coal exports are mainly coking coal for steelmaking so why would you stop exporting it? Agree with the electric car proposal, possibly boosted by steadily increasing taxes on fossil fuels, allowing them to be used for the general fund rather than ringfenced for roads and compensating by increased income tax thresholds. I suspect, however, that the public would punish any party that implemented such a move. Maybe we should increase the term in office in order to get some longer-term strategies.