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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