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IEA: Oil price to rebound to $100 when economy recovers, then soar to $200 by 2030

By Joe Romm on November 6, 2008 at 11:03 am

"IEA: Oil price to rebound to $100 when economy recovers, then soar to $200 by 2030"

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The staid International Energy Agency is poised to bring a note of sanity back to the oil discussion next week, according to the Financial Times:

Oil prices will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030, the International Energy Agency will say in its flagship report to be published next week.

“While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over,” the report states….

Current global trends in energy supply and consumption are patently unsustainable,” the report states.

Duh!

This is a strong reaffirmation of IEA’s “dire forecast” from July (see “IEA warns of impending oil and gas supply crunch“).

iea-demand.jpg

The above figure is IEA’s new demand forecast. Needless to say, for global fossil fuel emissions to peak by about 2020 and drop 50% from current levels by 2050 — in order to have a chance of keeping total planetary warming at or below the (hopefully) safe level of 2°C [see "Must Read Bali Climate Declaration by Scientists"]– then a 25% increase in oil consumption is untenable.

The new report lays out a stark warning about the difficulty of increasing supply even that much in the next two decades — and a starker indirect warning about the gross misallocation of global resources needed to achieve that increase:

The IEA estimates that by 2010 oil companies will have to commit to projects producing almost as much oil as Saudi Arabia — or about 7m barrels a day — if the world is to avoid a supply crunch by the middle of the next decade….The stark assessment comes as companies cancel projects from Kazakhstan to Canada because the collapse in oil prices makes them uneconomical.

The industry will have to invest $350bn each year until 2030 to counter the steep rates of decline of existing fields and find enough extra oil to satisfy the growing demand of countries such as China, the report states.

Output from the world’s oil fields is declining at a natural rate of 9 per cent, the IEA found, following the most comprehensive review of its kind. This decline rate is curtailed to 6.7 per cent when current investments to boost production are made. However, even with such investments, the decline rate worsens significantly to 8.6 per cent by 2030.

The declining rates are steeper than the industry had previously assumed. They are also slightly steeper than an earlier draft of the report because the IEA has expanded the study to 800 oil fields, adding 250 smaller fields.

The oil industry will “have to invest $350 billion each year until 2030″ — a total of more than $7 trillion devoted to the Sisyphean effort of hanging on to a dwindling resource that is destroying the very climate that our health and well-being depends upon. Imagine what could be done if just half that money were allocated toward a sustainable energy future.

Ironically, an article last week in the Wall Street Journal noted, “Oil’s Slide Threatens Future Supply“:

Nobuo Tanaka, head of the International Energy Agency, the Paris-based watchdog, was one of several experts at the annual Oil and Money conference here predicting that the industry could be setting the stage for yet another supply-and-demand whiplash down the road. “We’re concerned that supply won’t catch up with demand after this crisis,” Mr. Tanaka said. “The supply crunch may come again, but in a more acute way….”

In two years’ time, “we could see much higher prices than we saw three months ago, if the investments are not going through,” said Fatih Birol, the IEA’s chief economist….

Mr. Birol said falling oil prices will also deter investment in alternative energy. Low-carbon technologies such as wind and solar were economically competitive only so long as oil prices were high. Countries set to meet in Copenhagen next year to agree a new deal on curbing emissions may decide it is a “luxury” in view of the financial crisis. Lower oil prices are “not good news for climate change,” he said.

While libertarians and conservatives continue to advocate a do-nothing or make-things-worse energy policy (see “The intellectual bankruptcy of the Cato Institute” and “Drill baby, drill”: The moment the Republic died), thankfully Americans were smart enough to elect a president who is committed to pursuing an aggressive strategy of energy efficiency and clean, alternative energy even at a time when prices are (temporarily) low.

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15 Responses to IEA: Oil price to rebound to $100 when economy recovers, then soar to $200 by 2030

  1. Ed says:

    Man, some people just don’t get it. Our current use of oil is a “luxury” in view of the financial and societal crisis we’re headed for if we don’t reduce emissions.

    I’m glad that we have a president elect who doesn’t suffer from such short sightedness.

  2. hapa says:

    i wonder what they mean by recovery — the end of the credit crunch or the end of the recession? not that we know how long either will last.

  3. Ronald says:

    I read an article that said SUV’s are a good buy now that gasoline prices are back down again. Not surprising and maybe our motor vehicle companies need to get rid of some inventory to stay in business, but hopefully eventually they can get their business down to fuel efficient and battery models.

  4. Dano says:

    Dangit! Because gas was cheeeep again (praise the Lawd!) I went out an’ bought a big ol’ F-150. Shoot.

    Best,

    D

  5. Sasparilla says:

    We’ll be lucky beyond imagination if all we have to deal with is $100 a barrel oil through 2015 and only $200 by 2030 – its not a credible estimate. Overall oil production hasn’t increased markedly since 2005 even though the price of oil more doubled…Opec and company are greedy, out for themselves dudes, when prices have gone up in the past (outside of embargos and political things) they increase production to make more money…at least they always have the past…but they haven’t been able to this time.

    Its going to get a lot worse than $100 by 2015 and alot sooner…we’ll be lucky if its only $200 a barrel by 2015.

    The IEA didn’t forecast the huge spike in prices we experienced over these last years…i.e. they’re not good for forecasting.

  6. “Soar to $200 in 2030″ is just an unthinking re-quote of a press release. As the previous commenter mentions, $200 a barrel in 2030 will be a miniscule price for oil. IEA’s forecasting is either very bad or PR for the oil industry packaged as a “warning”.

  7. David B. Benson says:

    By 2030 CE crude3 oil will be about $600 per barrel. Or maybe that is the 2040 CE price.

    But the energy situation is probably even worse than that. David Rutledge (CalTech EE professor) has carefully studied the actual reserves of minable coal; peak coal will be occuring right around 2030 CE.

    So, peak fossil fuel around 2030 CE.

    That gives but 21 years to replace to whole kit, kat and kaboodle with sustainable alternates. :-(

  8. JCH says:

    Surely they mean in 2030 the price will be the equivalent of 200 of today’s dollars,

    For two years I have been telling my investment buddies the only way to get barrel prices down was a recession. Now oil is cheap and their portfolios have been gutted. They’re not liking cheap oil half as much as they thought they would.

    When/if global growth renews itself, oil will go to $200 in the 3rd to 5th QTR of that growth cycle.

  9. David B. Benson says:

    JCH — Well, let us hope that we don’t have to wait until 2030 CE for the 3rd to 5th QTR of the next growth cycle.

    I guess I’ll try to stand with my $600 (2008 CE dollars) a barrel by 2030 CE.

  10. paulm says:

    I have a feeling Saudi Arabia has less oil than we think.

  11. alex says:

    This chart shows that the current drop in oil prices is just a blip and doesn’t take us off the long term trend, which is onwards and upwards.

    http://www.freecharts.com/Commodities.aspx?page=chart&sym=CLY0&data=G&date=072808&den=MED&evnt=ADV&grid=Y&jav=ADV&size=B&sky=N&sly=L&vol=Y&late=Y&ch1=011&arga=&argb=&argc=&ov1=&argd=&arge=&argf=&ch2=&argg=&argh=&argi=&ov2=&argj=&argk=&argl=&code=IC&org=stk

    If oil can sink from $147 to $60 then this clearly indicates that no-one can predict where it is going next, so the iEA’s predictions mean nothing.

  12. hapa says:

    good news!

    but only if you’re a “war footing” fan.

  13. llewelly says:

    Does IEA test their forecasts using methods like backcast testing? If so, what is the skill of their methods? If not, why believe their forecast is better than asking the neighbor’s dog?

  14. Adam says:

    This past year the exorbitant cost of gas has seriously damaged our economy and society.Families struggled just to fill their vehicles up at the pump to tend to the bare necessities of life. Manafacturers passed on higher operating and shipping costs to consumers resulting in higher prices on every product imaginable. Most all electric companies asked for and were granted a record rate increase that further taxed the american family.Grocries went through the roof and many products not only cost more now they come in smaller packages. By the time we got done filling up the car and buying groceries most families had little left over to spend on so called extra’s , save or invest. In fact most had to dip into their savings just to get by as of late.So, we in turn cut back, cut out the extra’s maybe the cable, eating out, movies, going longer between hair cuts, some have even stopped taking necessary medicine because they can no longer afford it. We drive less, OPEC cuts production, we drive even less, they vow to cut more to jack the prices back up.(and they will) Our counrty spent 168 BILLION dollars on a economic stimulus package that did NOTHING for our economy. That would have gone a LONG way towards getting our nation started on the road to energy independence. We have so much available to us in the way of FREE ENERGY such as wind and solar. Electric plug in cars would cost the equivalent of 60 cents a gallon to drive. 168 BILLION would have gone a long way toward making that technology more affordable to the average Joe. Jeff Wilson has the best book ever called The Manhattan Project of 2009 Energy Independence NOW. If you are worried about our economy and want to see our nation become energy independent I highly recommend this book.
    http://www.themanhattanprojectof2009.com

  15. Adam says:

    This original story is on financialtimes.com and has a video that helps explain it better. The link is

    http://www.ft.com/cms/s/0/ca2b5254-ab6a-11dd-b9e1-000077b07658.html?nclick_check=1