The International Energy Agency (IEA) released its full report today with more details available than from its executive summary that I blogged about last week. Even though it is a sobering report predicting that oil consumption in the developed world will fall as prices climb toward $200 per barrel by 2030, in many ways this report could be optimistic about oil supply.
First of all, it depends on generous global cooperation between national oil companies (NOCs) and international oil companies (IOCs). Recent developments show such a scenario may be wishful thinking. For instance, many major producers such as Russia and Venezuela have intensified their nationalistic postures toward IOCs over the last few years. Higher prices have emboldened these countries to renegotiate contracts or even expropriate fields. In the case of the largest discovery this past decade, disputes between IOCs and the Kazakhstan government have contributed to an eight-year delay in production from their super-giant Kashagan field. This IOC lock-out is the main reason major IOC production is falling and they are relegated such high-cost ventures into the Canadian tar sands. So, my question is: What will change to begin the IOC-NOC cooperation that you call for? It seems it took a collapse in production for Mexico to revise their laws to allow PeMex to partner with IOCs (and Mexico, our third biggest source of imports, is still on course to have no export capacity within six short years).
The rapid growth in oil production throughout the Middle East may not be realistic. Whether Saudi Arabia will be interested in producing more than their 2010 capacity target of 12.5 million barrels per day (Mbd) is a serious question. They have indicated 12.5 Mbd as their ceiling – so the IEA prediction of Saudi Arabia’s 15.6 Mbd contribution in 2030 is precarious. I also would not bet on Iraq nearly tripling their current production to 6.4 Mbd, as IEA does. Nor would I rely on an already declining Russia to maintain production at 9.5 Mbd, only 5% below today’s rate. If Russia follows the US example and declines at ~2% per year, then production will be less than 7 Mbd by 2030. If Russia decline rates resemble those of Mexico, the UK and Norway then we may see their production fall below 4 Mbd!
Adding these factors together, I arrive at an even more startling call for change in our energy system. Luckily, much of the technology to mitigate future oil scarcity and climate change exists today. We just have to corral the collective strength of our public and private sectors to utilize them. A cap and trade system in the US, that eventually links emissions markets worldwide is an efficient way to accelerate the sustainable energy transition to a sufficient speed.
The irony is, even though this report calls for a sustainable energy revolution, the situation appears to me (and to scores of other energy analysts, from geologists to the CEOs of Shell and Total) to be more urgent than they project. The report may rather present the geologic possibility of conventional and non-conventional oil production increasing to 106 million barrels per day in 2030. But a lack of seamless cooperation may bring a peak in oil production somewhere in the 2010s that will bring us to a crossroads: Do we forget about climate stability as a global community and replace oil with non-CCS coal OR do we make deployment of energy efficiency and renewables a driver for the next global industrial revolution?
As you know, I advocate the latter.
Tags: climate change, energy, IEA report, Oil