Climate Progress

Oil hit $67 a barrel yesterday, driven the perception the global economy may have hit bottom, among other factors:

Much of oil’s rally this year has tracked stock market gains as investors look to equity markets for signs of economic recovery, while a weaker dollar can boost the appeal of oil and other commodities as a hedge against inflation.

“Equity markets are performing well, the dollar is falling, add to that Goldman Sachs and you see why oil has risen,” said Simon Wardell, oil analyst at Global Insight.

Goldman Sachs raised its end of 2009 oil price forecast to $85 a barrel from $65 and introduced a new end of 2010 forecast of $95.

“The recent rally in WTI (U.S. crude) prices is likely to be but the first stage in the oil price rally that we expect will accompany a recovery in economic activity,” Goldman said in a research note.

If oil hits $85 this year, then no doubt it will exceed $100 a barrel some time before my June 2009 prediction (even if it ends 2010 at $95, which I doubt).  And that means some lucky reader is going to win the CP contest “When will oil hit $100 a barrel?“  Just goes to show you, you can’t be sufficiently pessimistic these days about peak oil!

Indeed, as the Miami Herald reported Tuesday, leading forecasters are warning that “low oil prices now may mean higher oil prices later“:

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You’re all gonna own a part of GM, so please, fellow owners, let me know what you think!

Readers of Climate Progress understand two inescapable realities that the overwhelming majority of policymakers, the status quo media, and the car companies (with one exception) do not:

1. Peak oil is inevitably going to drive up gasoline prices to record levels within a few years, driving an inevitable switch to much more fuel-efficient vehicles and non-oil-based alternative fuels, of which by far the cheapest per mile is electricity.
2. Avoiding catastrophic global warming requires sharp increases in fuel economy and a switch to low carbon fuels — of which there is only one available in quantity:  electricity (as explained here).

Reality #1 is a more imminent day of reckoning for the car companies.  After all, the only way to stop oil demand from outstripping the peaking of oil production is massive demand destruction, which is itself possible in only two ways.  The first way, pursued by the Bush administration, albeit (mostly) unintentionally, is to destroy the global economy.  Let’s call that the short-term “non-optimal” approach.

But in the medium and long term, for oil to be significantly below $200 a barrel and gasoline to be significantly below $5 a gallon in 2020 would take a miracle — or rather 6 miracles see “Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!” and “IEA says oil will peak in 2020“).  See also “Merrill: Non-OPEC production has likely peaked, oil output could fall by 30 million bpd by 2015,” which noted,

Steep falls in oil production means the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years, Merrill Lynch said in a research report.

A March McKinsey report concluded, “the potential looms for liquids demand growth to outpace supply creating a new spike in oil prices as soon as 2010 to 2013, depending on the depth of the economic downturn.”

Heck we’ve hit $65 a barrel and we’re still in the middle of the worst global economic collapse since the Great Depression.

Detroit has not only willfully ignored the obvious oil and climate trends as evidenced by the cars they sell (or, rather, used to sell) — but they actually joined with conservatives in blocking every major attempt by progressives to help them develop cleaner cars and to require they build more fuel-efficient cars (see “Why bail out the car companies when they bailed out on us?“)

The Obama administration certainly understands that “the equivalent to Saudia Arabia’s production every two years” can’t be found underground.

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Part 1 noted that the U.S. Geological Survey’s stunning December report found

The coal reserves estimate for the Gillette coalfield is 10.1 billion short tons of coal (6 percent of the original resource total).

Although the report didn’t get much media attention, it was a shocker because the Gillette field, within Wyoming’s Powder River Basin “is the most prolific coalfield in the United States” and in 2006 provided “over 37 percent of the Nation’s total yearly production.”

Now Clean Energy Action has issued a new report, Coal: Cheap and Abundant … Or is it? that goes beyond the analysis in the USGS study and concludes:

It appears that rather than having a “200 year supply of coal,” the United States has a much shorter planning horizon for moving beyond coalfired power plants. Depending on the resolution of geologic, economic, legal and transportation constraints facing future coal mine expansion, the planning horizon for moving beyond coal could be as short as 20-30 years.

A top priority of Energy Secretary Steven Chu and the Obama Administration must be a detailed mine-by-mine analysis to resolve the issue of the U.S. coal resource. The imminent reality of peak oil production should be clear to all by now (see “Normally staid IEA says oil will peak in 2020“). If we are running short of coal, the urgency of jumpstarting the transition to a clean energy economy is all the greater — and the possibility that coal with carbon capture and storage will be a major contributor to greenhouse gas reductions would be greatly diminished.

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You might think that the recent collapse in oil demand would put off the peak. But the price collapse and global credit crunch mean the reverse is true:

Non-OPEC crude oil production may have already peaked and international oil companies faced the prospect of both younger and older oil fields declining steeply, the firm said in the report released on Wednesday.

Merrill said “the cumulative decline of global oil production from today could amount to 30 million barrels per day by 2015.” What does world need to do going forward?

Steep falls in oil production means the world now needed to replace an amount of oil output equivalent to Saudi Arabia’s production every two years, Merrill Lynch said in a research report.

This matches what the normally conservative and staid International Energy Agency has been saying in recent months (see “Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!” and “IEA says oil will peak in 2020“).

The global economic recession has cut funding for investment in oil production around the globe. Ironically — or tragically — the only thing that can save the world from a return to soaring oil prices by 2010 or 2011 is if economic slowdown turns into “a multi-year event where global oil demand was pushed down structurally for the next five years.”

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In one of his first acts, Obama, through his chief of staff Rahm Emanuel, “ordered a halt to all pending federal regulations until the new White House team conducts a legal and policy review of the last-minute Bush administration rules,” E&E Daily (subs. reqd) reports.

It also turns out that Congress, with simply majorities, can toss any rule within 60 legislative days — and that goes as far back as “May or June 2008.”

Regulation junkies — you know who you are — can read Emanuel’s memo here.

Rahm Emanuel’s memo could lead to the reversal of dozens of energy and environmental measures advanced in Bush’s waning days, including standards addressing mountaintop mining, air pollution permits, logging in the West, an exemption for factory farms from Superfund reporting requirements and endangered species.

The story concludes with background and more details:

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It’s amazing enough that the normally staid International Energy Agency recently said we’ve run out of time (see IEA says oil will peak in 2020). Now Business Wire reports:

According to a new survey by BDO Seidman, LLP, one of the nation’s leading accounting and consulting organizations, 48 percent of chief financial officers (CFOs) at U.S. oil and gas exploration and production companies agree that the world has reached its peak petroleum (liquid hydrocarbon) production rate or will reach it within the next few years, while another 52 percent disagree with that statement.

I think the headline is wrong, though:

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My simplest contest to date: On what day will oil prices hit $100 a barrel?

Please express your wild guess sophisticated prediction in terms of number of days from January 1, 2009.

While I know that each of you has special knowledge and expertise that allows you to make such market forecasts with startling accuracy, I’m really going for a “wisdom of crowds” thing here [yes, I know, recent events in the economy and stock market suggest the crowds don't actually have much wisdom, but stay with me on this]. So I’m planning to come up with a statistical average of all the guesses — and that can’t be done easily if you give me dates.

The winner gets a post on Climate Progress (!) — plus a figurative laurel and hardy handshake, as Mel Brooks would say.

My guess is 545 days, mid-2010 (roughly my 50th birthday — and I do mean roughly).

The price of oil has really been bouncing around in the last week. Here is some useful background from a recent Greenwire article:

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Fatih Birol, chief economist to the International Energy Agency, told the UK’s Guardian today:

In terms of non-Opec [countries outside the big oil producers' cartel],” he replied, “we are expecting that in three, four years’ time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global-oil-supply point of view.”

That is a triple shocker. First, as a famous 2005 study funded by the Bush DOE “Peaking of World Oil Production,” concluded:

The world has never faced a problem like this. Without massive mitigation more than a decade before the fact, the problem will be pervasive and will not be temporary. Previous energy transitions (wood to coal and coal to oil) were gradual and evolutionary; oil peaking will be abrupt and revolutionary.

The IEA says conventional supply will not be able to meet rising global demand in about a decade, while the DOE makes clear that you need much more than a decade of sustained, “massive” effort to transition away from oil to avoid catastrophic impacts. This looks like a job for a President who plans an activist clean energy agenda (see “A real energy plan for America: Efficiency now, 10% renewables by 2012, and one million plug-in hybrids by 2015“) and who has assembled a really smart energy team (see “A Nobelist for Energy Secretary who gets both climate and energy efficiency?“).

The second shocker is that this warning comes from the IEA, which has, for most of its existence, been a bland and staid reporter of conventional wisdom. When I was at the DOE in the 1990s, no one paid much attention to the latest IEA report that explained how the future would be just like the recent past. So if the IEA is telling the world oil might peak in a decade, the world better listen up.

Third, this is an apparent reversal from their most recent report, which had this figure (see “IEA: Oil price to rebound to $100 when economy recovers, then soar to $200 by 2030“):

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I couldn’t agree more with PEBO on Meet the Press Sunday: New gasoline taxes aren’t the way to boost the energy efficiency.

Remember, European gas taxes have long been more than $2 a gallon higher than ours, and as of 2002, the average fuel economy of European Union vehicles was 37 miles per gallon, which is just a tad more than what the 2007 Energy Bill requires of new U.S. cars in 2020 (see “Why a carbon cap won’t solve our oil addiction“).

Of course, it would be politically impossible to raise gas taxes even $1 in this deep recession, even if you promised to give all the money back to taxpayers. A smart politician will instead focus his or her efforts on jumpstarting the transition to high fuel economy and plug in hybrids, while leaving higher gasoline prices to the inevitability of peak oil (see “Science/IEA: World oil crunch looming? Not if we can find six Saudi Arabias!“).

Obama’s answer to Tom Brokaw’s question is here:

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Science magazine has a major “news focus” piece (subs. req’d) arguing the peak is nigh:

Even those who believe there’s plenty of oil left in the ground to meet rising demand are warning that the final crisis could come uncomfortably soon. Although price spikes and drops may recur for years, says [IEA] economist Fatih Birol, “we think the era of cheap oil is over.”

As noted earlier, the IEA report concludes Oil price to rebound to $100 when economy recovers, then soar to $200 by 2030.

It’s getting harder and harder to find an optimist” on the outlook for the world oil supply, says Beijing-based petroleum analyst Michael Rodgers of PFC Energy, a consulting company. Indeed, the IEA report as well as one coming from the U.S. Department of Energy’s Energy Information Administration (EIA, confusingly enough) see hints that the world’s oil production could plateau sometime about 2030 if the demand for oil continues to rise. Unless oil-consuming countries enact crash programs to slash demand, analysts say, 2030 could bring on a permanent global oil crunch that will make the recent squeeze look like a picnic.

That’s right — the IEA report thinks we won’t peak/plateua for over two decades. Needless to say, the peakists are disappointed that even the now-alarmist IEA isn’t sufficiently alarmist.

In a recent memo to fellow peakists, Robert Hirsch wrote “Many may be tempted to directly challenge the recent IEA World Energy Outlook. I am among those who were very disappointed” (see “Robert Hirsch: Peak-a-Boo, I don’t see you?“). Given the realities of rapidly depleting fields around the world and that we haven’t seen much of supply growth in the last few years, I tend to agree with Hirsch (see “Peak Oil? Bring it on!“).

Even the IEA recognizes that we need to find the equivalent of six Saudi Arabias in the next 22 years just to stave off the peak until 2030:

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