by Gerard Reid
Two IEA reports, scheduled for release this week are set to expand the arguments for cleantech beyond climate concerns, to energy security and financial prosperity.
The reports are an IEA’s flagship study "World Energy Outlook 2008" and "CO2 Emissions from Fuel Combustion."
Some quotes:
"Current global trends in energy supply and consumption are patently unsustainable. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply."
These quotes refer to the effects of the sharp reduction of oil prices. The IEA says that growing oil demand will require annual investments of $350 billion through 2030.
The oil shortage has moved well beyond any effects that increasing gas mileage could remedy. In our view, that money would be better invested in electric vehicles, plug in hybrids and a greatly expanded clean power generation capacity to fuel them. That initial investment would yield returns in perpetuity, as revenues for transportation fuel would remain in the local economy.
Oil crisis moves closer
In our view, the world is on course to see a severe and prolonged oil supply shortfall with possible effects on the magnitude of the 2008 credit crunch. We view the recent oil price peak at $147 per barrel as predictive of the approaching shortfall. The parts of the scenario are all falling into place and the outcome appears unavoidable.
- It is clear that oil producers will not find significant quantities of new cheap oil.
- Any new or unconventional oil is going to be expensive.
- In the past year, world oil supply was just matching demand.
- Without investments, oil well productivity will continue to fall by 9% annually.
- If oil prices remain at current levels, needed investments will not happen.
- Some oil producing nations could exacerbate the crisis for political purposes.
In our opinion, the world economy will begin to recover in 2 to 3 years and the growing oil productivity loss will intersect with rising demand to propel oil prices to new highs. This will slow economic recovery at best. If preparations are not made to mitigate the shortfall, the world economy could face an additional downturn.
There are other factors that we expect will deepen and prolong an oil crisis this time. In the past, oil production was controlled by international oil companies who anticipated and prepared for future demand.
Currently 80% of the world’s oil and gas reserves are controlled by oil producing nations. They view their dwindling reserves as a national resource which they should conserve. They are convinced that oil will bring higher prices in the future. So they are in no hurry to speed up production.
Also, current oil reserves are substantially inflated. In the 1970’s, US oil producers over estimated their "proven reserves" and were unable to meet production expectations contributing to the 1973 and 1979 oil crisis. National oil reserve claims are unaudited, with no oversight of their validity. In effect, oil reserves are as reliable in an oil crisis; as toxic debt was in the credit crisis.
If OPEC can stabilize the price of oil above the $66 per barrel over the next years, it could stimulate the investments needed to avoid a severe shortfall. If oil prices remain at current levels or are volatile during that period there will be few investments in oil productivity which would accelerate the shortfall.
We expect an oil crisis will occur soon after a concerted oil demand upswing, perhaps as early as 2011. It will certainly stimulate cleantech growth and galvanize global commitment to implement and strengthen the pending Copenhagen Accords.
However, a severe oil crisis with energy price controls and rationing is in no ones best interest. One bright spot – we know this is coming and preparations can be made. Any sensible public or private investment that significantly reduces dependence on oil is likely to realise a short pay back.
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