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Deutsche Bank’s important new report, The Peak Oil Market: Price dynamics at the end of the oil age begins with a quote that is one of my pet peeves:

“The Stone Age did not end for lack of stone, and the Oil Age will end long before the world runs out of oil.”  Sheikh Yamani, Saudi Oil Minister, 1962-1986.

Great quote in a peak oil report except for one tiny point — we still use a lot of stones.  In fact, given that we have 6.7 billion people on the planet, I’m quite certain that we use a lot more stones than we did in the Stone Age.  I’m almost as certain that, as the DB report says, we will be using a lot less total oil in a few decades.  So the quote doesn’t work, and the report, while dead on in many parts, is still a tad off.

SUPPLY:  We expect increasingly chronic under-investment in new oil supply capacity. We believe that concentration of remaining oil reserves into OPEC government hands will lead to under-investment in new supply and higher volatility in regulatory and fiscal regimes, and more volatile pricing. Consumer governments are adding to uncertainty with total lack of clarity on environmental legislation/regulation outcomes. That deep uncertainty in supply and demand will likely disincentivise private sector oil supply investment, exacerbating overall oil under-investment, and leading to peak oil supply within the next six years. We see market maximum capacity at 90mb/d in 2016 – just 5% above 2009….

After a final price peak implied at $175/bbl in 2016….

Hmm.  The price spike sounds right.  But I don’t think the ultimate reason will be inherently chronic underinvestment — there’s simply too much money to be made at projected oil prices for producers.  And I don’t think the reason will be uncertainty surrounding regulation — again, there’s simply too much money to be made of projected oil prices and, over at least the next decade, climate regulations will focus more on coal than oil.

The reason for the price jump is that we’re running out of the easy supply.  That’s certainly the view of all the peakers I know.  And it’s the view of the International Energy Agency (IEA) and its chief economist, Dr. Fatih Birol (see World’s top energy economist warns peak oil threatens recovery, urges immediate action: “We have to leave oil before oil leaves us”):

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“Oil prices leapt above $70 a barrel Monday in Asia on investor expectations a recovering global economy will boost crude demand,” the AP reports.

You might call those investors speculators — if speculation can be based on marketplace reality.  The UK’s Independent opens its interview with Dr. Fatih Birol, the chief economist at the International Energy Agency (IEA):

Dr. Birol said that the public and many governments appeared to be oblivious to the fact that the oil on which modern civilisation depends is running out far faster than previously predicted and that global production is likely to peak in about 10 years – at least a decade earlier than most governments had estimated.

The warning is double worrisome because until the last year or two, the IEA had been a bastion of relatively staid and conservative and hence useless energy prognostication (like the U.S. Energy Information Administration still is).  Now the IEA and Birol have joined the fact-based alarmists, warning in its World Energy Outlook 2008, “Without a change in policy, the world is on a path for a rise in global temperature of up to 6°C” and proposing aggressive clean energy solutions.

The IEA’s work makes clear that for oil to stay significantly below $200 a barrel (and U.S. gasoline to be significantly below $5 a gallon) by 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“).  As the Independent reports today:

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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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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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The WSJ blog reprints an incredibly dumb “You can’t handle the truth!” memo from uber-peaker Robert Hirsch.

Yes, the author of the seminal 2005 study funded by the Bush Energy Department on “Peaking of World Oil Production” has written a memo “To The Peak Oil Community,” recommending that group “minimize its effort to awaken the world to the near-term dangers of world oil supply.”

Well, I’m not on that distribution list, so instead of endorsing Hirsch’s inanity, I’ll endorse his original conclusion:

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.

So why is a guy with such foresight now urging temporary blindness? Read his dopey memo and see if you can figure it out:

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The staid International Energy Agency is poised to bring a note of sanity back to the oil discussion next week, according to the Financial Times:

Oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030, the International Energy Agency will say in its flagship report to be published next week.

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the report states….

“Current global trends in energy supply and consumption are patently unsustainable,” the report states.

Duh!

This is a strong reaffirmation of IEA’s “dire forecast” from July (see “IEA warns of impending oil and gas supply crunch“).

The above figure is IEA’s new demand forecast. Needless to say, for global fossil fuel emissions to peak by about 2020 and drop 50% from current levels by 2050 — in order to have a chance of keeping total planetary warming at or below the (hopefully) safe level of 2°C [see "Must Read Bali Climate Declaration by Scientists"]– then a 25% increase in oil consumption is untenable.

The new report lays out a stark warning about the difficulty of increasing supply even that much in the next two decades — and a starker indirect warning about the gross misallocation of global resources needed to achieve that increase:

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A: It certainly looks that way.

When I first posed this question in August, I began my answer:

A: “Who knows?” and “It doesn’t really matter.” Much higher gasoline prices that are sustained for a long, long time are now inevitable. The fundamentals in the oil market are that we are in the beginning stages of peak oil. Supply can no longer keep up with demand, which has kept soaring even in the face of record prices.

In August, I had assumed that things had gotten as grim under President Bush as they could get. My bad. I did, however, point out:

In the short-term, I suppose it is possible that we can go back to $3 gasoline, although that would probably require a deep global recession, and prices would only stay low for the extent of the downturn.

But I didn’t think that would actually happen, as evidenced by my 401K. Nonetheless, the fundamentals of supply and demand mean prices are inevitably headed much higher in the medium term. A figure from a new CIBC report makes that clear:

[Note: This is total world production of crude oil (excluding natural gas liquids).]

Even in the face of the staggering rise in oil prices of the last few years, production has barely budged. What about demand? As I noted in August, despite a sharp drop in US oil consumption, “global consumption rose by roughly 500,000 barrels per day (bbl/d) during the first half of 2008.” And that led me to the obvious conclusion that only much, much greater demand destruction can stop the inexorable rise of oil prices. And that obviously requires much higher prices than what we’ve seen in the first half of this year.

That conclusion remains true for the medium-term, but there is another way to get serious demand destruction in the short term — a major global economic slowdown. Given that people have started to use the D-word to describe where our current mess is headed, oil prices can clearly go lower and stay there awhile. If we assume, optimistically, that we avoid a true depression and only end up with a major recession, then the WSJ Environmental Capital blog has a good summary of new price projections:

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