The Peak Oil Crisis: 2011 – A Pivotal Year?
by Tom Whipple30 December, 2010
Falls Church News-Press
Wall Street is getting
nervous. As oil prices continue to creep up and as more evidence
accumulates that the age of ever-growing energy production and economic
growth is coming to an end, a specter is haunting the great investment
banks and brokerage houses of New York. For five years now Wall Street
and its chorus in the financial media have ignored or denied that global
oil production has reached a plateau after 150 years of steady growth.
Those who did admit to a problem were quick to assert that the markets
would find substitutes first in the form of endless quantities of coal
waiting to be exploited and more recently 100 years' worth of shale gas
would come seamlessly to the rescue.
The nervousness of course is that once global energy
production starts to decline, capitalism as we have known it for the
last few centuries will no longer be the same. While some new form of an
economic system will evolve, the transition is likely to be long and
painful. Many, if not most, jobs in the financial industry will simply
melt away. Hence, for many, putting off the fateful day when we have to
admit the inevitable is much preferred solution.
The events of 2008 when oil shot up briefly to $147 a
barrel and the global economy trembled for months are still fresh in
many minds. The western world's banking system and Detroit had to be
bailed out by the increasingly insolvent U.S. and European governments.
Had not oil prices quickly reversed as demand for oil products faltered
and oil plunged to $32 a barrel, we would have been living in a
different world right now.
As we enter 2011, the denials that significant
change is coming continue. Oil prices continue to rise, but until
recently they have been met with the idea oil that could go up a bit
more, but certainly not enough to damage the economic recovery. Oil may
get to over $100 a barrel shortly it certainly will not go much further.
In the last few weeks, however, a few as yet faint voices in the media
have been adding a sentence or two to the effect that all might not be
as well as hoped.
So where are we? A few weeks ago the most ominous
news of year came out of Beijing when it was announced in muted voice
that from here on out China's coal production would probably not be
growing much further. Chinese coal, of course, is among the miracles of
our time. Starting at around 100 million tons per year when Mao Zedong
took over the country, by the turn of the century annual production had
increased to 1 billion tons. Then production really took off with output
climbing to circa 3.2 billion tons a decade later. With oil production
faltering and production of much of the world's industrial output
shifting to China, it was this steady increase in coal production that
fueled China's and therefore much of the world's economic growth for the
last decade.
Now, with this final surge in the world's production
of fossil fuels coming to an end the outlook for the global economy
changes dramatically. Beijing, which is wedded to achieving an annual
GDP growth of 8-10 percent, is already stepping up its imports of coal
and is vigorously pursuing means of locking up as much foreign fossil
fuel resources as the foreigners are willing to sell. If Beijing is
unsuccessful in increasing its coal imports to the extent needed in the
next few years, then it is likely to turn to increasing imports of oil
and LNG.
The IEA says that during 2010 global demand for oil
grew by 2.5 million barrels a day (b/d) and reports that during the 3rd
quarter the annual rate of demand increased to a "giddy" 3.3 million
b/d. As rates of growth in consumption this fast obviously cannot go on
much longer in the face of very slow to flat increases in production,
the IEA is saying that the increase in demand in 2011 will slow to an
average of 1.3 million b/d.
Just to support the 3rd quarters increase in demand,
global stockpiles have been dropping by 1.3 million b/d. Thus far Saudi
Arabia, which is the only country claiming substantial surplus
production capacity, has shown little inclination to increase
production.
Trends for the next few months do not suggest that a
major drop in demand is yet in sight. The northern hemisphere from
Chicago through Europe to Japan is gripped by some unusually cold
weather which will guarantee higher oil and coal consumption. China is
still beset by widespread coal shortages and the accompanying power
outages which guarantees demand for imported coal and oil to run
auxiliary power generators will stay high.
Some are already saying that the IEA's forecast of a
1.3 million b/d increase for next year is much too low. The big unknown
for the coming years is the size and availability of OPEC's spare
capacity. If much of the 5 or 6 million b/d of productive capacity that
OPEC claims to have in reserve does not really exist or cannot be opened
in a timely manner, then much higher oil prices seem likely by spring.
This, of course, will reduce demand again and we are off on another
cycle of falling demand, more economic damage, and eventually lower
prices. No matter what happens, 2011 is shaping up to be an interesting
year - it could just be a pivotal one.
Tom Whipple is a retired government analyst and has been following the peak
oil issue for several years.
http://www.countercurrents.org/whipple301210.htm
[Non-text portions of this message have been removed]
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