The year 2008 will always be remembered for quite a few things, not least of all for the turmoil in the global economy, particularly in the financial sector where giants like Lehman Brothers, Bear Stearns and others tumbled. The same year also saw the extreme gyrations in the spot oil markets which had far reaching impacts across the world. Today, we look at the top energy stories and related developments during the year that went by – events that will affect many aspects of the year ahead.
Unprecedented crude oil price volatility
During the early part of the year, crude oil rose to its highest ever price of almost $150 per barrel. Peak Oil was almost ready to provide an explanation for it when prices slipped into a four year low of around $30 driven by the economic slump. There are many reasons for this – the demand-supply gap , speculation, political risk, etc. As a consequence, there was a fair amount of economic particularly in transportation- the price of gasoline shot up effecting many consumers.
The price rise also contributed to the poor performance of the airline and automobile sectors. contributing to bankruptcy and consolidation of airlines while the automobile industry faced deep financial trouble when people stopped buying low mileage vehicles.. Later, when the oil price tumbled, some non integrated oil companies were affected adversely, particularly those that made large bets on alternative fuels. The retail side was also impacted, companies such as Flying J declared bankruptcy.
Renewable energy took off, but then didn’t
There was renewed interest and impetus in alternative and renewable sources of energy in 2008. This was one of the direct fallouts of the oil price spike in the middle of 2008. Consumers were increasingly looking for sustainable sources of energy. . The US presidential elections put additional spotlight on this issue and the newly elected president Barak Obama has put a major focus on an attempt to shift away from fossil fuel in the long term.
However the opportunistic investments in alternatives haven’t panned out in the short term. Despite production mandates and federal subsidies, ethanol producers are not minting any money. Falling crude and rising corn prices were deleterious to the effort. Renewable energy enthusiasts hit ground reality when second generation ethanol was delayed. Range Fuels, who intended to start producing by 2008 initially delayed to 2009 and now production isn’t forecast to begin until 2010.
Environment,Nature and Politics
Some major oil refineries had to be shut down because of hurricane Gustav followed by hurricane Ike in North America. Though the outages were short termed, many gas stations in the southeast ran out of gas, raising concerns about starting of something more widespread.
Somali pirates proved to be a major threat to oil vessels operating out of the oil rich African continent. Emboldened by recent ransom payments, they hijacked a Saudi supertanker carrying oil worth $100 million. Countries with interest in the continent have stepped up their maritime security in the area which has considerably brought down the number of such incidents.
Political maneuvering in certain hotspots also created short term demand instabilities. Nigeria, Iran and Venezuela continued to have internal upheavals. The end of the year saw some additional volatility in the Middle East and in gas transport issues between Russia and Ukraine.
Record profits by oil companies
Despite the steep fall in oil prices during the later part of the year, integrated oil companies made record profits with the help of high prices during the beginning of the year. Companies like Exxon Mobil posted biggest profit in history during the same year when downstream profits in refining fell along with gasoline consumption.
OPEC went ahead with its big production cut to counter flagging demands, followed by lowered production in other countries like Russia and Mexico. The results are not visible yet, but many hope this together with a recovering economy will stabilize the oil prices in the near future.
Thursday, January 8, 2009
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2 comments:
The top story of the year is that global crude oil production peaked in 2008.
The media, governments, world leaders, and public should focus on this issue.
Global crude oil production had been rising briskly until 2004, then plateaued for four years. Because oil producers were extracting at maximum effort to profit from high oil prices, this plateau is a clear indication of Peak Oil.
Then in August and Sepetember of 2008 while oil prices were still very high, global crude oil production fell nearly one million barrels per day, clear evidence of Peak Oil (See Rembrandt Koppelaar, Editor of "Oil Watch Monthly," December 2008, page 1) http://www.peakoil.nl/wp-content/uploads/2008/12/2008_december_oilwatch_monthly.pdf.
Peak Oil is now.
Credit for accurate Peak Oil predictions (within a few years) goes to the following (projected year for peak given in parentheses):
* Association for the Study of Peak Oil (2007)
* Rembrandt Koppelaar, Editor of “Oil Watch Monthly” (2008)
* Tony Eriksen, Oil stock analyst and Samuel Foucher, oil analyst (2008)
* Matthew Simmons, Energy investment banker, (2007)
* T. Boone Pickens, Oil and gas investor (2007)
* U.S. Army Corps of Engineers (2005)
* Kenneth S. Deffeyes, Princeton professor and retired shell geologist (2005)
* Sam Sam Bakhtiari, Retired Iranian National Oil Company geologist (2005)
* Chris Skrebowski, Editor of “Petroleum Review” (2010)
* Sadad Al Husseini, former head of production and exploration, Saudi Aramco (2008)
* Energy Watch Group in Germany (2006)
Oil production will now begin to decline terminally.
Within a year or two, it is likely that oil prices will skyrocket as supply falls below demand. OPEC cuts could exacerbate the gap between supply and demand and drive prices even higher.
Independent studies indicate that global crude oil production will now decline from 74 million barrels per day to 60 million barrels per day by 2015. During the same time, demand will increase. Oil supplies will be even tighter for the U.S. As oil producing nations consume more and more oil domestically they will export less and less. Because demand is high in China, India, the Middle East, and other oil producing nations, once global oil production begins to decline, demand will always be higher than supply. And since the U.S. represents one fourth of global oil demand, whatever oil we conserve will be consumed elsewhere. Thus, conservation in the U.S. will not slow oil depletion rates significantly.
Alternatives will not even begin to fill the gap. There is no plan nor capital for a so-called electric economy. And most alternatives yield electric power, but we need liquid fuels for tractors/combines, 18 wheel trucks, trains, ships, and mining equipment. The independent scientists of the Energy Watch Group conclude in a 2007 report titled: “Peak Oil Could Trigger Meltdown of Society:”
"By 2020, and even more by 2030, global oil supply will be dramatically lower. This will create a supply gap which can hardly be closed by growing contributions from other fossil, nuclear or alternative energy sources in this time frame."
With increasing costs for gasoline and diesel, along with declining taxes and declining gasoline tax revenues, states and local governments will eventually have to cut staff and curtail highway maintenance. Eventually, gasoline stations will close, and state and local highway workers won’t be able to get to work. We are facing the collapse of the highways that depend on diesel and gasoline powered trucks for bridge maintenance, culvert cleaning to avoid road washouts, snow plowing, and roadbed and surface repair. When the highways fail, so will the power grid, as highways carry the parts, large transformers, steel for pylons, and high tension cables from great distances. With the highways out, there will be no food coming from far away, and without the power grid virtually nothing modern works, including home heating, pumping of gasoline and diesel, airports, communications, and automated building systems.
It is time to focus on Peak Oil preparation and surviving Peak Oil.
http://survivingpeakoil.blogspot.com/
http://www.peakoilassociates.com/POAnalysis.html
Thanks for your comment, Clifford. You've got a lot of inputs to make the case. BTW, didn't realize there were whole institutes that were devoted to the study of peak oil.
Not sure I agree that we peaked last year though. What about the massive new finds off Brazil in 08? Some enhanced oil recovery techniques are also coming online.
One projection you make does seem likely though- we're in for another upward price swing in the next couple of years as the demand supply equation tries to find equilibrium past the current slump.
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