Four Takes on Global Oil Demand, Supply and Disruption
12 June 2007
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| Global oil consumption per capita in 2006. Global oil demand grew by 0.6 Mbpd in 2006 to 83.7 Mbpd, according to BP. The IEA now puts 2006 growth at 1.0 Mbpd to 84.5 Mbpd. The EIA concurs with the IEA in consumption: 84.5 Mbpd in 2006. Chart source: BP. Click to enlarge. |
Four major oil- and energy- related reports emerged this week: the International Energy Agency’s (IEA) Oil Market Report (OMR); BP’s Statistical Review of World Energy 2007; the Short-term Energy Outlook (STEO) from the US Energy Information Administration (EIA); and the EIA’s 2007 Outlook for Hurricane Impacts on Gulf of Mexico Crude Oil & Natural Gas Production.
BP’s annual report is backward-looking; it provides data and analysis of the consumption and production of the prior year. In comments on this year’s Review, BP notes that:
The year 2006 was another year of high and volatile energy prices. But despite high prices, world energy consumption growth remained above average, continuing the trend of recent years. Energy use is also increasingly shifting away from OECD countries and becoming more carbon-intensive.
The reports from the IEA and the EIA are forward-looking, albeit with some historic adjustments (such as IEA’s raising of 2006 demand) as required.
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| The EIA’s forecast for global demand. Click to enlarge. Source: EIA. |
Demand. In the current OMR, IEA raised its forecast for an increase in global oil consumption to 2% for 2007, to 86.1 million barrels per day (Mbpd). This compares to the 1.2% growth in demand in 2006.
The EIA sees 2007 demand of 85.9 Mbpd, with further growth in demand in 2008 of 1.6 Mbpd to 87.5 Mbpd. In the STEO, EIA reduced European consumption in the first quarter due to warmer weather, but has raised oil consumption growth in China based upon continued strong economic growth projections. The United States, China, and the Middle East are major contributors to the increase in oil consumption, accounting for more than 2/3 over this two-year period.
Supply. The IEA trimmed its forecast for supply down to 84.9 Mbpd for 2007. Seasonal OECD stoppages compounded weaker OPEC crude supply, notably in Nigeria, where outages are currently near 800 thousand barrels per day (kbpd). IEA trimmed non-OPEC 2007 output by 110 kbpd to 50.2 Mbpd, with growth of 0.9 Mbpd this year.
The violence-induced Nigerian outages cut total OPEC crude supply by 425 kbpd to 30.1 mbpd. Stronger demand raises 2007’s ‘call on OPEC crude and stock change’ by 0.5 Mbpd, with the seasonal rise in the call outstripping OPEC capacity additions by 4Q07.
The EIA forecasts global supply of 85.1 Mbpd in 2007 and 87.6 Mbpd in 2008. It expects non-OPEC production is projected to grow by about 600 kbpd in 2007 and by 900 kbpd in 2008&mash;roughly half the expected growth in consumption (International Oil Supply Charts).
The EIA lowered its 2007 projections from last month’s STEO for non-OPEC supply by 150 kbpd, reflecting expectations that some US Gulf of Mexico production will be affected by hurricanes, and lower-than-expected first quarter 2007 actual production data and continued project delays in Africa and Central and South America.
The EIA expects that rising oil demand over the next few months will outpace growth in non-OPEC supply, and is assuming that the OPEC 11 should increase production by more than 1 million bpd to maintain normal inventory levels. “If OPEC production does not increase more inventory levels decline, upward price pressures could result.”
BP noted in the Review that oil production outside OPEC rose by just under 300 kbpd in 2006—a stronger result than 2005, but less than half the 10-year average. OECD output fell by 430 kbpd, the fourth consecutive annual decline. Meanwhile, Russian production reached another post-Soviet peak,rising by 220 kbpd. Azerbaijan, Angola (which joined OPEC on 1 January 2007) and Canada each increased production by at least 100 kbpd.
The level of global reserves dropped by 0.1%—1 billion barrels—in 2006, according to BP’s figures, and the reserves-to-production ratio dropped slightly to 40.5 years, compared with 41 years in 1996 and 39.8 years in 1986.
Disruption. In addition to the potential for disruptive events such as the violence in Nigeria or terrorism in the Middle East, there is a likelihood, according to the EIA, that above-normal hurricane activity in the Atlantic is likely to correspond to increased impacts on offshore crude oil and natural gas producers in the Gulf of Mexico.
The National Oceanic and Atmospheric Administration (NOAA) predicts above-normal hurricane activity in its 22 May 2007 version of the Atlantic Hurricane Season Outlook. NOAA projects 13 to 17 named storms will form within the Atlantic Basin, including 7 to 10 hurricanes of which 3 to 5 will be intense.
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| Cumulative probability distribution curve for shut-in production resulting from hurricanes in the 2007 season. Click to enlarge. Source: EIA. |
Based on a Monte Carlo hurricane outage simulation (which is conditional on how NOAA’s most recent predictions for the level of Atlantic basin hurricane activity compare to historical activity), EIA expects a total of about 13.2 million barrels of crude oil and 86.5 billion cubic feet (bcf) of natural gas to be shut in during the 2007 hurricane season.
The simulation results indicate a 1.3% probability of more than 100 million barrels of crude oil and/or 600 bcf of natural gas being shut-in during the 2007 hurricane season, similar to the cumulative impact of Hurricanes Katrina and Rita in 2005. Conversely, there is only a 2.2% chance that offshore Gulf of Mexico production will be unaffected this year as it was during last year’s hurricane season. During a season that experiences the average number of Gulf hurricanes, the probability of no shut-in production is approximately 8%.
Resources:
According to BP statistics on world energy consumption.
Oil consumption increased by 0.7% while production grew by 0.4%, on the other hand, Coal consumption grew by 4.5%, nat-gas by 2.5% ,Nuclear by 1.4% and Hydro by 3.2%.
This clearly shows that Oil consumption is on decline. Also the share of Oil among Top-5 fuels has gone down from 36.3 % to 35.8% while that of Coal has increased by 0.6%.
Saudi oil production declined by 2.3 %. This goes to prove that they could not increase production as much as they claimed.
Posted by: Max Reid | 12 June 2007 at 06:30 PM
It looks like these reports can be summarized even more: "its getting tight." Demand for this year at 86.1-85.9 Mbpd and supply at 84.9-85.1 Mbpd, with disruption likely to make the gap wider!
Posted by: Ben | 12 June 2007 at 08:35 PM
Peak oil is only interesting to the degree that it affects the price of oil. We have already entered a >>price peak oil<< scenario and have been so since 2002 when the price started to increase from about $25 to the current level of $65 in 2007. This period 2002 to 2007 also saw production increases and this is expected because the price is going up and it becomes more profitable to increase production. They are trying feverishly all over the planet to raise oil production but they have only made modest gains and not enough to prevent further price increases because world demand is growing faster. This development is unprecedented in oil history. At no other time has it been a problem to expand production easily to satisfy increases in demand.
>>price peak oil<< is happening now and the evidence is mounting: 1) In 2006 the oil exploration activity reached new record high levels with rental prices for oil rigs increasing 200% and prices for new pipe lines went up 40%. 2) Despite of extra exploration the global oil reserves actually dropped a little during 2006. I am almost sure this is the first time in oil history that the reserves actually dropped in a period of feverish oil exploration. 3) The average global crude oil quality gets heavier each year making it more expensive to upgrade using hydrogen produced from natural gas. 4) No big discoveries have been made for decades with the exception of the Gulf of Mexico discovery in 2006 of 3 -15 billion barrels. However, that is 4 miles below the bottom of the ocean, in 1+ miles of deep water. Not exactly an easy pick and it will take many years to develop. 5) Mounting anecdotal evidence that Saudi Arabia’s oil production is in serious decline is emerging. For instance, a few days ago they told Japan, China and South Korea that they will get 10% less oil the next 9 months.
Oil production will still rise for a few years to come. However, it very much seems that it will not increase quickly enough to prevent further price increases. Therefore, >>price peak oil<< is a reality. This is good news because it is necessary to make biofuels and battery power a more attractive alternative. The bad news is that it also makes dirty alternatives more attractive.
Posted by: Henrik | 13 June 2007 at 04:55 AM
The following is a note on the prospects for durable global electricity production:
In 2006 electricity from PV cells produced 9,86GkWh or only 0,05% of world production of 18.316,39 GkWh. And PV cost is about 30 c /kWh. In other words, PV production need to expand by 100/0,05= 2000 times to satisfy global demand today. Wind power is currently about 180 GkWh which is 1% of global electricity production. A 100 times increase in production of electricity of wind power is easily done at the continued growth of 30% for wind power (the average growth rate the past 20 years was 28%). At that growth rate it only takes 20 years to replace all electricity production with wind power even when factoring in continued annual growth of 3,3% in global electricity consumption. But that scenario is most likely to be sabotaged by politics and lobbying from old energy forms. It will take more time but the outcome is certain. Wind power cost is about 7 c /kWh today and it uses no scare materials. This price is rather similar to coal, NG and nuclear all costs considered and wind power is on track to drop to 1,5 c kWh in 2027 unlike the other energy sources that will increase in price.
To conclude, wake up Bush and other world leaders and order more wind power now on long term contracts (5 years or more) so that it will be possible to plan and execute a dramatic increase in production without running into bottleneck problems. Do it to create a cleaner world without emissions, a world without global warming, and a world with cheap abundant electricity.
Posted by: Henrik | 13 June 2007 at 05:01 AM
Some More Highlights
Share of Oil among Top-5 Fuels declined from 36.3 % to 35.8 % (0.5 % loss) while Coal increased from 27.8 % to 28.4 % (0.6 % gain) Nat-gas gained 0.1 %.
Oil Consumption increased 0.7 % while production increased 0.4 % Saudi Oil Production was down 2.3 %
Russia Oil Production was up 2.2 %
Nat-gas Consumption increased 2.5 % while Coal increased 4.5 %, Nuclear increased 1.4 %, Hydro increased 3.2 %
US Energy consumption was down 1.0 % while China was up 8.4 % US is ahead of China by only 4.8 % in Energy consumption.
Some experts said that Saudi Oil production was down 8 % in 2006-2nd half, but for the year its down just 2.3 %, could it be that it increased in the 1st half and went down in the 2nd.
All these points to higher Oil prices this year and lesser consumption.
One good thing is that all other sources especially Solar, Wind & Nuclear are charging ahead.
Posted by: Max Reid | 13 June 2007 at 06:41 AM
Henrik : You made very valid points.
Your Point "3 ) The average global crude oil quality gets heavier each year making it more expensive to upgrade using hydrogen from natural gas"
so is that the reason the gasolene (Petrol) in US got expensive this year. It set a record price of $3.23 / gallon which is 85 cents / liter and an all time high.
Also in Canada, they are planning to use Nat-gas or Nuclear heat to extract that heavy crude, actually its more efficient to use that directly or for power generation.
Infact, nat-gas powered vehicles are increasing worldwide and now stands at 6.1 million.
http://www.iangv.org/content/view/17/35/
Meanwhile, Dubai has started a new Oil exchange for heavy crudes, does it mean the future belongs to heavy crudes.
Only a certain amount of Crude can be converted to Gasolene (Petrol) or Diesel, so how come Europeans are able to get more Diesel, are they using some expensive process.
Posted by: Max Reid | 13 June 2007 at 06:52 AM
Declining Oil Consumption
Oil Consumption increased
3.5 % in 2004
1.5 % in 2005
0.7 % in 2006
When the price increases, demand decreases is the good old Economic Theory.
But the Saudis (Oil Superpower) could boost the production (just like a racer presses his foot on the accelerator )
is what we believed. But what happened was Saudi Production actually declined.
There could be 2 reasons for this,
1. They want other countries to increase production and stop stockpiling Oil.
2. Saudis could not produce more because of depleting oil fields like Ghawar.
Another puzzling fact is that last year, IEA predicted that Oil consumption will increase more than 1.5 %, but it increased only 0.7 %, so the conclusion is any prediction related to Oil is just weird.
Posted by: Max Reid | 13 June 2007 at 07:08 AM
Max there are at least three issues that contributed to the present surge in US gasoline prices: 1) Crude oil increased from $50 early in 2007 to about $65 now. 2) Temporary tight refinery capacity problems increased the price of finished gasoline. 3) And yes this crude oil continues to need more upgrading which is increasingly expensive also because the price of hydrogen equipment and natural gas increases. We have picked the good looking tomatoes (sweet crude) and now there is increasingly poor looking tomatoes left (heavy crude). That is just an accelerating problem that has gone on for at least 15 years by now.
Posted by: Henrik | 13 June 2007 at 08:03 AM
The quoted quotient of reserves to consumption at the 3 points the author chose seems to indicate identification of reserves has proceeded in proportion to rises in consumption. However neither the reserve to consumption ratio nor the (sometimes gleeful) handwringing about oil supplies and high prices take into account unconventional reserves. (e.g. Athabasca oil sands, Orinoco heavy oil)
Pet projects like wind and solar power have not yet become economically viable independent of government mandates, subsidies and reverse subsidies (i.e. discriminatory taxes), but already these unconventional reserves are starting to be exploited. As unconventional reserve extraction technology continues to improve and price per barrel of crude increases, production will continue to expand.
The one caveat is not financial, technological, or environmental but political. Venezuela's frenzy of nationalization is a return to the ineffective anti-capitalist approaches that produced so little for them from 1975-95. Chavez is trying to keep the goose that lays golden eggs alive on a starvation diet, but a slight miscalibration the goose may fly away. Probably to Canada.
www.worldenergy.org/wec-geis/publications/default/tech_papers/17th_congress/3_1_04.asp
Posted by: Harvey | 13 June 2007 at 08:49 AM
It doesn't account for shale oil (though technologically and economically difficult to extract).
Posted by: Patrick | 13 June 2007 at 09:03 AM
Harvey
The Canadian Oilsands Goose is not something that just drinks water and breathes air, but it requires lot of heat and electricity to extract and refine and the heat & electric is going to come from Nat-gas or Nuclear.
With North America hitting peak-natural gas , Nuclear seems to be the only source.
Also the Oilsands is 3 times more expensive than conventional oil. Its good, but not going to be an easy cake like Middle-east oil.
If the gasolene that comes out of $10 / barrel crude oil costs $3/gallon, then the gasolene that comes out of $30 / barrel sands oil will cost a lot.
Only Time will tell.
Posted by: Max Reid | 13 June 2007 at 09:07 AM
>> But what happened was Saudi Production actually declined.
There could be 2 reasons for this,
1. They want other countries to increase production and stop stockpiling Oil.
2. Saudis could not produce more because of depleting oil fields like Ghawar. <<
This is extraordinary, that Saudi oil production went down. Considering that their per capita income has gone down by 75% or so (that's right) over the last 20 years - I think they would be producing for all their worth, just to keep their government from coming under more pressure from the general out of work young poor population.
Max, I think this points to one thing...they couldn't produce any more, its hard to say this, but I wonder if they peaked in 2005? This would be an economically disruptive bit of news if its true - if Saudi Arabia has peaked.
Man...
Posted by: Scott | 13 June 2007 at 09:36 AM
"Wind and solar have not yet become viable"
That's BS and only assumes profitability today. They are viable and it is inevitable that the viability only goes up as fossil reserves go down.
It's like 2 years ago when everyone was saying that the Prius will never save enough gas to pay back the higher cost. Looking back that was wrong, and now people are saying, well, it does, but it takes many years to see it. Wait a couple more years and see then, when gas is 5$. This same concept applies here. You have to look at the payback of renewables on a scale of 10, 20, or 30 years, which requires planning ahead for the higher cost of foosil fuels. In fact, it will cost less to build the renewables now, while we have relatively cheap energy than it will to build them 5-10 years from now, when we won't be able to delay building them anymore.
This is one of the reasons oil producers inflate their reserves, so that people looking forward can't factor in rising energy cost when calculating returns on investment. In effect, tricking the investments from never happening.
Posted by: darwin | 13 June 2007 at 09:41 AM
well said Darwin
I recall people saying that Hybrids are not mainstream. Now Prius is #6 in May-2007 sales among cars and in Top-10 this year. Also Hybrids have captured 3 % share.
Wind energy has grown atleast 4 fold in the last 7 years. Another 4 fold increase will take its share (currently 0.4 %) in World energy consumption to beyond 1 % range.
http://home.planet.nl/~windsh/stats.html
Between 2002 - 2005, Saudi Oil Production increased from 425 million tons to 526 million tons and then in 2006, it dipped to 514 million tons. If they see another dip in 2007, the Peak Oil or atleast expensive Oil will become correct.
The market is on the edge.
Posted by: Max Reid | 13 June 2007 at 10:17 AM
An interesting article in Yahoo on BIG SUV sales
http://biz.yahoo.com/brn/070609/21000.html?.v=1&.pf=loans
Nearly $ 10,000 rebates are given on Big SUV's and so their sales are increasing. Customers think that $ 10,000 will pay for gas price increase.
No wonder, American automakers are suffering losses. At some point, the automakers will not have money to pay for discount and that will be the time when their sales will go down sharply along with the Oil consumption.
Actually US Oil consumption went down from 951 to 938 million tons. So Oil prices have made some impact.
Posted by: Max Reid | 13 June 2007 at 10:35 AM
I think it's a good thing that demand will outstrip production before the production itself goes into decline. As that leaves a smaller gap between the two it will be easier and a lot less painful to switch to alternative energy supplies. Now we just have to make sure that what we switch to is reasonably clean.
Max: I don't think it matters a whole lot to the price of gas if the oil comes out of the sand at 10/bbl or 30/bbl, it's still worth $60 or more at the refinery gate.
Posted by: Neil | 13 June 2007 at 10:53 AM
Is SO REFRESHING to let the Peakists emerge from their dark hidden dens, cluck and strut their stuff. Is it Puxatauny Phil the Peakist critter, who periodically sticks his head up out of his burrow to look around before returning to the depths...
In all the dribble about wind and PV you should understand that the US government expects to be processing 29 applications for new nuclear facilities in the US in the next 24 months.
Nuclear in the in US is about 50 times the amount that wind and PV supply combined around the world, and the 100 or so current Nuclear plants supply it. Many of which are about half the size of a now standardized designs. Here we are getting applications to build one third more facilities in a mere two years, any ONE of which outranks ALL the wind and PV ever built in the USA, put together...
Meanwhile China is building coal plants like mad, and now is emphasizing building nuclear facilities instead, as a future coarse of action.
All this is very predictable. The World economy is now growing briskly, and we are obviously at a near peak of economic growth, so the Peakists emerge to warn us of the coming end of the world due to rising oil demand, just before it starts trending downward again as the economic cycle, does what it always does. Cycle.
Seems to me I've seen this film where the day replays itself over, and over, and over, and over, and over...
Posted by: Stan Peterson | 13 June 2007 at 11:32 AM
Max I am rather sure that Wind is currently doing 1% of global electricity production not 0,4%. Ultimo 2006 cumulative installed wind power is 74.223 MW same as your source. At 30% capacity factor that means 195 GkWh produced in a year. Acording to cia factbook world electricity is 17.4 trillion kWh (2004 est.) and adjusted for 3,3% p.a. growth that means 18.316,39 GkWh in 2006. So you see wind should be a little more than 1% right now. But I am only talking about electricity production maybe you compare to total energy used globally.
Anyway wind is not a pet project anymore. They sold $23 billion worth of new wind turbines last year and it grows by 30% a year. That is it more than doubles every 3 years. The PV industry sold for $10,6 billion in 2006 and they also grow by about 30% a year. I would call those very viable industries. Indeed, these industries cold do just fine without subsidies if it were not for all the subsidies and blank checks to pollute that their competitors receive notably nuclear and coal. And soon (take 7 more years) wind will do well even without subsidies and still be able to out compete the heavily subsidised coal and nuclear.
Posted by: Henrik | 13 June 2007 at 11:45 AM
Stan P wrote “Nuclear in the in US is about 50 times the amount that wind and PV supply combined around the world, and the 100 or so current Nuclear plants supply it.”
Since wind is 1% of global electricity that means according to Stan’s genius statistic that the 100 US nuclear power plants produce at least 50% of global electricity supply. Amazing I must say.
Posted by: Henrik | 13 June 2007 at 11:59 AM
natS Peterson, king of assbackwards reasoning...
Peakers are not saying the world is going to end.
Peakers are correctly trying to get people to more accurately look forward so we can be better prepared for tomorrow's problems and hopefully avert a major energy crises.
If the US is a leader in renewables, it will be a leader in the post oil world wide economy. If we do not lead on this, we will be at a huge economic advantage to those that do. Do you want Europe, with it's tighter urban setup and elaborate rail and mass transit options to be the economic leader in 20 years or do you want the US to be? Do you want to fuel our country with the products of Islamic countries who hate us or find ways to fuel it ourselves?
Posted by: darwin | 13 June 2007 at 12:33 PM
I won’t mind more nuclear power but Stan’s comments are just meant to flame. First of all none of use "peakniks" called this the "end of the world".
Posted by: Ben | 13 June 2007 at 12:49 PM
Henrik
I mentioned that Wind energy's share is 0.4 % in World ENERGY consumption and you are talking about World ELECTRICITY consumption and thats the difference.
May be both of us are correct or Wind's share in World Electricity consumption may be much more than 1 % or even close to 2 %.
Stan
I agree with you that latest nuclear reactors are far more powerful and lot of them are going to be built.
But what we are saying is that the Oil consumption is not increasing and its becoming expensive. Thats very true, that is why other sources (nuclear, nat-gas, hydro & coal) grew between 1.4 % and 4.5 % while Oil
grew only 0.7 %. Infact if some Japanese reactors (which were closed) come on-line, nuclear could grow even faster.
And Wind energy grew 25 % last year, while Solar grew more than 35 %. Dont discount them as trivial, this is what the Hummer lovers said about Prius when Hummer-H2 outsold Prius 2:1,
now Prius outsells Hummer-H2 15:1.
And finally Peak Oil has nothing to do with end of World, but will certainly impact our lifestyle and our vehicles.
Posted by: Max Reid | 13 June 2007 at 12:57 PM
Today's price for solar is probably misleading. It makes projections of growth very iffy. And almost certainly too low.
Solar has been limited by cell production capacity and by the availability of the refined silicon. And the industry has been sufficiently technical that is was hard for competitors to start. This is all changing.
With high demand and limited production the cost of almost anything will be high. Current prices reflect that.
I would watch investment in cell production plants and silicon production capacity. When an industry is small - and solar still is - installation rate can mislead.
Posted by: K | 13 June 2007 at 09:12 PM
If I were a captain in Oil industry, I would be very angry about having sold oil for only 25$ just a couple of years ago while the market is ready to buy the stuff for 65$.
Or take it the other way around. The oil captians in the US, UK, Arabia and Russia are very happy nowadays because the found out, that the market pays 65$ a barrel. What happens with all the money consumer throw at them?
Posted by: Michel | 14 June 2007 at 02:33 AM
You are correct Michel
Thats what the Arabs must be thinking and thats why the Saudis dont want to pump as much Oil as the World demands.
Opec set a price / barrel of
25 in 2001
45 in 2005
50 in 2006
now they are saying 60 is affordable.
Probably they are waiting for it to go further to something like 80's & 90's.
The fools here are Indonesia and Britain, they exported at 20/barrel and now they are importing at 60/barrel as their production has dwindled and consumption surged.
I guess Mexico takes these 2 countries seriously and starts cutting down the exports for their future use.
Posted by: Max Reid | 14 June 2007 at 06:40 AM