IEA 2018 World Energy Outlook: Peak oil is here, oil crunch by 2023

11 04 2019

Posted on March 10, 2019 by energyskeptic

Preface. I’ve been working on a post about the latest IEA 2018 World Energy Outlook report, but the excerpts from the cleantechnica article below states most clearly why there is likely to be a supply crunch as soon as the early 2020s and the investment implications.

Meanwhile, here’s what I’ve gleaned from other summaries of the report.

Although many hope that oil companies will drill for oil when prices go up and close the supply gap looming within the next few years, very little oil has been found to drill for for several years now. The IEA 2018 report also says that shale oil will not rescue us, and likely to peak in the mid-2020s.

Oil companies do have money, but they haven’t been drilling because there’s no cheap oil to be found, so instead they’ve been spending their money buying their shares back.

From  crashoil.blogspot.com: World Energy Outlook 2018: Someone shouted “peak oil”

This excerpt is in Spanish translated to English by google.  It shows a civilization crashing 8% decline rate that the IEA hopes will be brought to an also civilization crashing 4% rate with new oil drilling projects.

“How is this alarming graph interpreted? According to the text, the red is what they call “natural decline” and corresponds to how oil production would decrease if the companies did not even invest in maintaining the current wells; As explained in the report, it is 8% per year. The pink area corresponds to the “observed decline” and is what the IEA inferred how production will actually decline if companies invest what is needed for the correct maintenance of the current deposits. This decline corresponds to 4% per year. If new deposits are not produced, in just 7 years from now we will find that the production is 34 Million barrels per day (Mb / d) below where it is expected that the demand will be, or about 25 Mb / d below the demand much more moderate scenario of Sustainable Development. It is a huge hole of more than 35% of all the oil that is produced today.

In the text, the IEA warns us that there is nothing particular to worry about in this terrifying graphic because there will be exploitation of new deposits that will cover that hole to a large extent. However, they warn us, to avoid that hole we would need to find deposits with resources around 16 billion barrels each year…In short: the IEA is assuming…that production in 2025 will be lower than today’s (a deficit of 13 mbd in 2025). In essence, peak oil.”

It isn’t likely oil companies will make up the difference In 2016, only 2.4 billion barrels were discovered (versus 9 billion on average the past 15 years). In 2017, about 7 billion new barrels were discovered. As you can see below, there’s been an alarming lack of new crude oil found.

And it’s not just cleantechnica saying there will be oil shortages, here are some other articles about the coming oil crunch:  BloombergNASDAQoilprice.comaxios calls the shortage as by 2023financial times also by 2023

Enjoy your life for the next few years, beyond that there’s no guarantees. Some regions will fare better than others though.

On page 159 of the IEA 2018 World Energy Outlook the following graph can be found:It is clear that Peak Oil will be hit well before 2020, while demand keeps on rising, unless the world’s Oil Majors and State Owned Oil Companies massively invest in new exploration.

However, the Oil Majors already have heavily spent money on new oil exploration in the years after 2000, where a fossil fuel hype with an accompanying coal boom lead up to an oil price of over $150 in 2008. While this oil price proved unsustainable for a crashing world economy, this oil exploration boom lead to very little new findings in the big scheme of things:

So what does that mean?

It means that a collapse of oil supply to half of its current size within only six years simply cannot be compensated by new oil findings and certainly not by unconventional oil sources like oil sands and fracking. That the Oil Majors did not pick up with new oil exploration after the oil price rose again to $100 per barrel in the years after 2008 is another sign that the world is already “overexplored,” as geologists put it. Instead the Oil Majors concentrated on a stock buyback, knowing full well that further exploration would be a waste of money while they are sitting on oil that will become very valuable even though the amount of oil they will extract will decline significantly.

In summary, the Oil Majors and State Owned Oil Companies (in this field notably the Initial Public Offering (IPO) of Saudi-Aramco, the world’s biggest oil company, has been scrubbed) are waiting for an oil price bonanza to happen, while the IEA is very concerned about future oil supply.

Notably the Peak Oil graph from the IEA (first graph in this article) has been unearthed by the Association of Study of Peak Oil and Gas (ASPO), which as an organization has itself published multiple studies on Peak Oil. While ASPO has put Peak Oil sooner than the IEA, in its latest study already at 2011 for conventional crude, it is remarkable that the IEA refuted this claim back then with the statement that Peak Oil would not be reached before 2020. Well, it surely looks like they corrected that statement for themselves now.

So what does that mean for investors in oil and the world economy?

Surely there could a handsome profit be made by riding the coming oil shortages, but one has to keep in mind that while the oil price may go through the roof, the barrels that can be sold also shrink fast and drastically. So there remains the question of how high the profits of the Oil Majors will rise and how much will this be appreciated by the stock price for these clearly dying companies. Furthermore, with these rapid stock swings, you compete with banking supercomputers that act in a millisecond timeframe, so you would have to be alert night and day for the point when the crash will come because of the world economy not being able to take the oil price anymore. As a conservative long term investor, this can only mean to get out of these stocks as soon as possible, while risk-loving investors can try to make a quick buck on the coming stock volatility, with the world economy crashing a couple of times due to ongoing undersupply in oil.


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7 responses

11 04 2019
chrish618

My guess this is the deriver behind the sudden upsurge in interest in hydrogen as an ‘alternative’ fuel.

11 04 2019
MichaelV

Pretty much. When the alcoholic runs out of booze, they try to brew some of their own using potato peels and icing sugar.

When a civilization starts to run out of energy, we will try anything to keep the party going, including the absolute stupidity that is hydrogen storage.

11 04 2019
gbell12

It will be hilarious/horrifying to watch this become a huge news item… for 24 hours. When we all know that it should have been our focus for the last 10 years, and will be for the next 100.

Meanwhile, I’m racked trying to figure out if I should use my savings to buy a unit… but wait, Peak Oil.

Or, should we be sending our kids to university… but wait, Peak Oil.

11 04 2019
mikestasse

Buy a farm.

13 04 2019
gbell12

Another one?

11 04 2019
DON OWERS

Countries with small populations and lots of oil will do ok

11 04 2019
kika

until they’re overrun by starving immigrants, bikie gangs and other desperados.

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