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Dawning Realization

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Maybe we are entering a new world. No, not because of the recent election, it is due to a few positive signs that the folks at the IEA might be catching on to the Peak Oil crisis. The International Energy Agency (www.iea.org) will release their annual "flagship" report next Wednesday, November 12th. A few media outlets got a summary of the "World Energy Outlook 2008" report and there are some interesting projections.

The IEA is forecasting a relatively quick bounce back to the $100 a barrel price for oil. They expect a $150/bbl price for a good portion of the next decade and a $200/bbl price in the year 2030. I think their time frame is too optimistic and may need to shave off a good 12 to 15 years. However, their numbers are moving the right direction. Last year they were predicting oil at $106/bbl in 2030. This forecast prompted the report to state the "era of cheap oil is over". They don't know how right they are!

Let's take a quick look at a few of their numbers. The IEA believes that world demand for oil will be 106 million barrels per day in 2030 versus our current consumption rate in the high 80s.

Global Demand chart:
Global Demand

The agency also believes that the world needs to invest $350 billion a year through 2030 just to keep up with the depletion rate. Speaking of depletion rates, this could be big news next week. The IEA now claims that current oil reserves are declining at 9% a year. A lot of analysts have been basing their forecasts on 3% to 5% a year.

Consider for a moment that the world is using approximately 86 million barrels per day. A 9% depletion rate means we need to find and produce another 7,740,000 barrels a day next year just to stay even. That's almost another Saudi Arabia, who happens to be delivering about 9.5 mbpd thanks to recent cutbacks. If you look at the big picture out to 2030 the IEA is forecasting that the world needs to find and develop another six Saudi Arabia sized oil fields to meet the growing demand. What are the odds of that happening? You already know. The odds are zero.

Six more Saudi Arabias:
6 More Saudis

Unfortunately, the IEA's answer is to just throw more money at the problem. How much money? This year the IEA raised their 2008-2030 investment projections needed to find all of this energy (a.k.a. oil) by an additional $4 trillion to $26 trillion. Yes, that's trillion with a "t". For reference the current global GDP is about $65 trillion.

Do I agree with everything the report has to say? Not yet. Hopefully when the full report is released next week it will reignite the discussion on Peak Oil, which seems to have cooled somewhat given the temporary sell-off in oil prices. Something we can all agree with wholeheartedly is this quote from the IEA World Energy Outlook 2008 that says, "Current global trends in energy supply and consumption are patently unsustainable."

Jim Brown
OptionInvestor.com

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