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VK2AAB > FUEL 07.03.10 08:16l 107 Lines 5645 Bytes #999 (0) @ WW
BID : 6241_VK2AAB
Read: GUEST
Subj: Peak Oil Update. Growth ?
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Sent: 100307/0541Z @:VK2AAB.#SYD.NSW.AUS.OC #:6241 [SYDNEY] FBB7.00i $:6241_VK2
From: VK2AAB@VK2AAB.#SYD.NSW.AUS.OC
To : FUEL@WW
Hello,
Everyone is talking recovery and the return of growth.
Financial people and politicians speak as though it is a given.
They are in for a shock. How are they going to pay the interest bill
on their stimulus borrowings ?
73 Barry VK2AAB
-------------------------------------------Barry VK2AAB 6/3/2010
In July 2008 oil reached a price of $147 per barrel, the economy crashed
in September 2008 and the price fell to $35 per barrel in December 2008 and
remained low for some months. It has since climbed until it reached
equilibrium in the range $70 to $80 per barrel. It is now realised that 4% of
GDP, $90 to $100 is the US crash point.
Production of conventional crude oil reached a maximum of 74 Mbd
(million barrels per day) in May 2005 from which point it has continued on a
wobbly plateau.
Crude oil plus all liquids, (crude + biofuels + gas condensates), reached a
maximum in May and June 2008 of 85 Mbd just before the price reached $147.
When the financial crash occurred, oil demand fell by 5 Mbd. This was
made up of about 3Mbd fall in the US and the remainder largely in Europe, but
spread world wide.
This fall in demand which has continued is now known as peak demand.
Some expert opinion considers this to be a permanent point of maximum usage to
replace the previous peak oil situation.
Only about 15% of the fall was due to a fall in petrol consumption.
The rest was due to the recession and reduction in plastics, aviation fuels,
road building and numerous other manufacturing activities affected by the
recession.
This fall in industrial productivity was prompted by the high oil price.
This fall in productivity did not happen overnight but had been under a
squeeze for several years as oil prices rose by a factor of four times over
four years, culminating in the large increases in late 2007 and early 2008 and
reaching an impossible level in July 2008.
Recovery from our present position will be difficult. While Australia is
in quite a happy position at present it cannot be expected to last. The USA is
in a difficult financial position with virtually unrepayable debts. Europe is
in nearly as bad a situation and all governments, including Australia, are
relying on a return to business as usual to enable growth to provide the
income to repay the stimulus debt. We are now entering a period of zero growth
to be followed by a permanent period of contraction.
Unfortunately the new business as usual will be that recovery will bump
up against the ceiling of peak energy supply. Energy is the new currency.
At present we do not have shortage of oil but the buffer is very thin and
Asian countries are increasing their demands on the supply. Another phenomena
is starting to show up in the markets. Peak Export Oil, you can expect to hear
more on this factor. Most large exporters of oil such as Saudi Arabia, Russia
and Iran charge very low prices for petrol and diesel. Together with their
increasing standard of living their consumption of oil is increasing and this
reduces the amount for export. However these countries are also in depletion
and this has the effect of increasing the export depletion rate quite
significantly.
The OECDs IEA (International Energy Authority) has predicted that
there could be a tightening of supply later in 2010 and some difficulty in
supply in 2011 to 2014.
Other authorities are of the opinion that production depletion will set in
permanently in the years 2012 to 2014 and will never recover.
Often when these matters are discussed the recent finds off the coast
of Brazil and in the Gulf of Mexico are paraded as our salvation, however what
is not promoted is that the time from find to oil coming ashore is of the
order of eight to ten years provided the credit is available. The oil industry
is having credit difficulties as is the rest of industry.
These wells are in very deep water and drill kilometres below the seabed and
to establish these wells costs several billions of dollars. This automatically
means that the oil coming from them will be very expensive and is of the order
of $100+ a barrel.
Their cost of operation is so high that they will shut down earlier when
depletion sets in.
Elsewhere new wells are always more expensive as the cheap oil has all been
found and produced many years ago.
Their production will do no more than flatten out the depletion curve a
little.
China and India have been buying up oil fields and establishing long
term contracts all over the world and have established a corner on the market.
Bidding pressure from the USA and Europe will inevitably force up prices so
that our economies will be held in a reduced activity mode caused by the high
overhead cost of oil.
Coal and natural gas prices can also be expected to respond to these
pressures.
Alternative energies are promoted as the way to go and indeed there is
no alternative but to do so, but our economies will need them this year or in
the next two or three years. We should have started on them 20 years ago as
that is time that the Hirsch Report warned was the time required for such a
transition.
Whatever the exact timing of these events are our economies will be
operating at a much lower level and government finance will not be helped by
printing money.
The sovereign debt crisis now raising it head in Europe is just one symptom of
the problem as it exists now, but the problem is not recognised by the
politicians and so there will be no attempt to mitigate the inevitable
permanent crash.
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