IEA Wide of the Mark on Long Range Oil Price Projections?
Resource Investor - Energy - IEA Wide of the Mark on Long Range Oil Price Projections?
By Stephen Clayson
05 Nov 2005 at 04:17 PM EST
LONDON (ResourceInvestor.com) -- This week saw comments come to light by Fatih Birol, the chief economist of the IEA (International Energy Agency), predicting a crude oil price rise of 50% by 2030. Birol?s justification for this vaticination was that political pressures in Saudi Arabia and other key Middle Eastern oil producers might preclude sufficient investment being made in new productive capacity deemed necessary by the IEA in order to sate global demand.
However, Birol may be ignoring crucial effects of fairly sustained high oil prices, as presumably implied by his projection of a 50% price rise by 2030, on both the demand and supply side of the oil market that could render unnecessary the extra production from the Middle East that he feels is so desperately needed.
On the demand side, high oil prices are already prompting moves towards both increased oil conservation measures, and more importantly, as there is only so far that oil conservation can practically be taken, switching towards alternatives. The latter can conceivably occur both through the use of alternative fuels that replace those derived from oil, and through the elimination of oil product burning power units altogether.
Of the trend towards developing and utilising alternatives to oil based fuels, the shift towards hydrogen fuel cells for a host of applications, including significantly the automotive, is probably the most exciting, and could plausibly succeed in time in providing a more than viable alternative to the internal combustion engine.
But of interest too are attempts to derive from agriculturally grown plant material a useable fuel for existing internal combustion engines, at a cost either level with or below that of fuels currently refined from crude oil. Multifarious ideas to this end are being propounded, such as that by London listed D1 Oils [AIM:DOO] to produce a fuel from the obscure jatropha plant. Although whether developments in this area could gather sufficient momentum to materially retard the growth of or diminish oil prices is questionable, they are undoubtedly worth watching.
On the supply side, not only is the high oil price impelling exploration for and development of new conventional oil resources in many regions of the world, but it may make non-conventional oil resources viable as well. A sustained longer term oil price of today?s level, or even somewhat below, could make resources such as Canadian and Venezuelan oil sands as well as some coal to oil projects comfortably economic.
The cumulative effect of these postulated demand and supply side shifts would be the counteraction of Birol?s forecasts; quite possibly a lower long term oil price level and in the same term a negation of the need for significant extra production to be sourced from the Middle East.
Some observers are likely to raise objections to parts of this thesis on technological and organisational grounds; for example, the currently high cost of fuel cell powered vehicles and that of the infrastructure that these would, in their presently envisaged forms, require in order to function. However, two main overarching factors could stymie these objections.
Firstly, there is no greater motivator for innovation that the potential for profit, and this is now significantly enhanced in the case of developing alternatives to oil by its high cost. Secondly, the pace of technological progress in general is constantly accelerating as the benefits of previous discoveries help increase the pace of new ones. Ergo, in the twenty five years that must elapse until the year 2030, extremely substantial progress could well be made in the development of alternatives to burning oil products for energy, with transformational implications for the oil market.
Ultimately, such long range forecasts as that attempted by Birol are impossible to make very precisely. However, it would incontrovertibly be better for the industrialised economies if the scenario set forth in this article came to pass rather than the dim one anticipated by Birol, and thus the onus should be on the companies and governments of those economies to make sure that it does.
By Stephen Clayson
05 Nov 2005 at 04:17 PM EST
LONDON (ResourceInvestor.com) -- This week saw comments come to light by Fatih Birol, the chief economist of the IEA (International Energy Agency), predicting a crude oil price rise of 50% by 2030. Birol?s justification for this vaticination was that political pressures in Saudi Arabia and other key Middle Eastern oil producers might preclude sufficient investment being made in new productive capacity deemed necessary by the IEA in order to sate global demand.
However, Birol may be ignoring crucial effects of fairly sustained high oil prices, as presumably implied by his projection of a 50% price rise by 2030, on both the demand and supply side of the oil market that could render unnecessary the extra production from the Middle East that he feels is so desperately needed.
On the demand side, high oil prices are already prompting moves towards both increased oil conservation measures, and more importantly, as there is only so far that oil conservation can practically be taken, switching towards alternatives. The latter can conceivably occur both through the use of alternative fuels that replace those derived from oil, and through the elimination of oil product burning power units altogether.
Of the trend towards developing and utilising alternatives to oil based fuels, the shift towards hydrogen fuel cells for a host of applications, including significantly the automotive, is probably the most exciting, and could plausibly succeed in time in providing a more than viable alternative to the internal combustion engine.
But of interest too are attempts to derive from agriculturally grown plant material a useable fuel for existing internal combustion engines, at a cost either level with or below that of fuels currently refined from crude oil. Multifarious ideas to this end are being propounded, such as that by London listed D1 Oils [AIM:DOO] to produce a fuel from the obscure jatropha plant. Although whether developments in this area could gather sufficient momentum to materially retard the growth of or diminish oil prices is questionable, they are undoubtedly worth watching.
On the supply side, not only is the high oil price impelling exploration for and development of new conventional oil resources in many regions of the world, but it may make non-conventional oil resources viable as well. A sustained longer term oil price of today?s level, or even somewhat below, could make resources such as Canadian and Venezuelan oil sands as well as some coal to oil projects comfortably economic.
The cumulative effect of these postulated demand and supply side shifts would be the counteraction of Birol?s forecasts; quite possibly a lower long term oil price level and in the same term a negation of the need for significant extra production to be sourced from the Middle East.
Some observers are likely to raise objections to parts of this thesis on technological and organisational grounds; for example, the currently high cost of fuel cell powered vehicles and that of the infrastructure that these would, in their presently envisaged forms, require in order to function. However, two main overarching factors could stymie these objections.
Firstly, there is no greater motivator for innovation that the potential for profit, and this is now significantly enhanced in the case of developing alternatives to oil by its high cost. Secondly, the pace of technological progress in general is constantly accelerating as the benefits of previous discoveries help increase the pace of new ones. Ergo, in the twenty five years that must elapse until the year 2030, extremely substantial progress could well be made in the development of alternatives to burning oil products for energy, with transformational implications for the oil market.
Ultimately, such long range forecasts as that attempted by Birol are impossible to make very precisely. However, it would incontrovertibly be better for the industrialised economies if the scenario set forth in this article came to pass rather than the dim one anticipated by Birol, and thus the onus should be on the companies and governments of those economies to make sure that it does.
posted by Marcel at 10:20 AM
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