Note: CEJournal is back in business after a bit of an R&R break.
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?
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.
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.