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This item was posted on April 1, 2010, and it was categorized as Energy, Peak Oil, President Obama.
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world-liquid-fuel-supply

Sorry folks, this graph is no April fools joke. It was one of the graphics used in a U.S. Energy Information Agency conference last year on “Meeting the World’s Demand for Liquid Fuels.” And yes, it does indeed show production of liquid fuels from existing projects peaking and then starting to decline in 2012.

Meanwhile, total consumption continues to ramp up — so much so that by 2035 there’s a gap of some 43 million barrels per day between production and total consumption. That’s an ocean of liquid fuel larger than all of OPEC’s production today.

So, you wanna’ know why Obama opened new areas for offshore drilling? Take a good hard look at this graph.

And by the way, thanks goes to Keith Kloor for the heads up on this subject today with his post over at Collide-a-Scape.

Matthieu Auzanneau, who writes the “Oil Man” blog for Le Monde, interviewed Glen Sweetnam, director of the International, Economic and Greenhouse Gas division of the Energy Information Administration, for an article on declining world oil production published on March 25. He quotes Sweetnam — the “main official expert on [the] oil market in the Obama Administration” — as saying that “if the investment is not there, a chance exists that we may experience a decline. If we do, I would expect investment in new capacity to increase if there is still demand for oil.”

Sounds reassuring. Free markets will work — demand for oil will spark new investment, and that gap between sharply declining production of known sources of fuels and rising demand will be filled, right?

Yeah, right.

Within less than five years from now, world liquid fuel production will have to increase by 10 million barrels per day  from sources not yet known. As Auzanneau points out, that’s “almost the equivalent of the oil production of Saudi Arabia, world top producer with 10.8 Mbpd.” So in less than five years the world is going to bring an amount of liquid fuels to market equal to Saudi Arabia’s current production — and all of it from sources not yet known?

Maybe this grim outlook had something to do with Obama’s decision to open new areas for drilling. But there’s just one problem: It will probably take the better part of a decade to bring any new petroleum to market from the offshore regions newly opened for drilling. And whatever does come to market won’t come even remotely close to filling the gap.

Time to bet on a steeply rising price for oil in a couple of years. And that’s no April Fool’s joke.

UPDATE: Members of an informal email group that I belong to have been scratching their heads about Obama’s decision, trying to make sense of it politically and substantively. Here’s what I wrote in response:

Obama’s decision probably doesn’t make sense unless you take the fear factor into account. Let’s face it, if you were President of the United States, and you looked at this graph, what would you do? I don’t know about you, but I would probably start by saying something like, “HOLY SHIT!”
Politically, Obama is looking at rapidly rising petroleum prices right around the time of his reelection campaign, if not sooner. Economically, he’s looking at a potential crunch just when things are supposed to be getting better. And while opening these new regions to drilling isn’t going to solve the problem (because even if large amounts of oil are lurking there the supply won’t come on line for about a decade), at least he’s now given himself political cover.
2nd UPDATE: Jesse Jenkins of the Breakthrough Institute brought my attention to his post at the Breakthrough Blog, which he wrote a year ago. It’s about a second major oil shock looming just over the horizon, and its based on this report by McKinsey & Company. Here’s the nut, from the report’s executive summary:
Global energy-demand growth is expected to stagnate or even contract in the short term in response to the economic downturn. But with economic recovery, demand could snap back more quickly than many observers project, driven by strong energy-demand growth from developing countries. Indeed, there is potential for liquids-demand growth to outpace that of supply—risking a new spike in oil as soon as 2010 to 2013, depending on the depth of the economic downturn.
As Jenkins noted in his post, the report predicts that this second oil price shock “could cost the global economy $1.5 trillion or more, hitting us hard just as we’re trying to stand back up again.”
And just as Obama is running for re-election. Thus, again, the decision to open those areas for drilling in spite of the inevitable rage from his base. Obama’s not looking at today’s politics. He’s looking at the politics a year or so from now.
Anyway, I urge you to read Jesse’s post because it contains not just the doom and gloom but also some recommendations on what can be done right now to mitigate it. (I hope Obama is reading the Breakthrough Blog!)
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This thing has 2 Comments

  1. John Zulauf
    Posted April 1, 2010 at 1:47 pm | Permalink

    Drilling for oil certainly doesn’t hurt balance of payments either, and with the lead times needed we may even be a couple of years late. Hopefully we are investing enough in “clean” ways to start attacking our huge oil sands reserves. If we don’t, the next panics may be less restrained than this one — and a whole lot dirtier.

    What this does make clear is that whether you believe in AGW or not, we need to “double down” on alternative energy investment — R&D and the like.

  2. Posted April 1, 2010 at 2:18 pm | Permalink

    John: As far as I know, we (meaning the United States) do not have tar sands reserves. All of that is up in Canada, and the Canadians are already exploiting them — with much accompanying environmental degradation. (In fact, I believe the Suncor refinery here in Denver actually processes petroleum coming from tar sands, so I may be driving on tar sands gasoline right now without even knowing it… Actually not, since I took the bus to work!)

    You must be referring to oil shale. We have gargantuan quantities of that stuff here in Colorado. The problem is that no one has figured out how to extract it at an economically competitive price. It takes a huge amount of energy to get the stuff out of the shale, and an even larger amount of water. So even if we could figure out a way to extract that stuff economically, and without screwing up the environment, I’m not sure where the water is going to come from. This isn’t something I’d bet on.

    As for doubling down on alternative energy investment, amen brother. (Actually quadrupling down is more like it.) And we also need to bend the consumption curve downward, so we need to do a lot more right now to reduce demand. Even then, however, we have India and China. Here are some numbers that Andy Revkin emailed me today:

    * U.S. consumption: 20 m bbl/day with 300 million heading toward 400 million people.
    * Chinese consumption: 7 m bbl/day with 1 billion people
    * India at 2.7 m bbl/day with 1 billion people

    Rising living standards in China and India can translate into huge increases in demand. And that doesn’t even count population growth.

This thing has 2 Trackbacks

  1. Posted April 1, 2010 at 5:03 pm | Permalink

    [...] I think Tom Yulsman is on to something here: Politically, Obama is looking at rapidly rising petroleum prices right around the time of his [...]

  2. Posted April 6, 2010 at 2:12 pm | Permalink

    [...] power plants and new oil wells may not be enough April 6, 2010 — Richard Gayle The graph that may have made Obama say ‘HOLY S . . . T!’[Via [...]

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