The Oil Drum: Australia/New Zealand

We're in the middle of an interesting few weeks in the Australian oil market, so it's worth capturing these charts of international and regional oil prices from the Australian Institute of Petroleum for posterity.

An important Dutch energy institute, the Clingendael International Energy Program (CIEP), recently published a report that confirms most of the conclusions about the oil market reached over the years at the oildrum. That the floor price of oil is now 110 dollars per barrel, that supply will not rise beyond 100-105 million b/d in the coming decades, that there will be an oil supply constraint for most of the next decade, that there are insufficient quantities of alternative fuels available and that thus demand destruction is inevitable. CIEP is especially important because it is endorsed by amongst others BP, Shell Netherlands, Total E&P Netherlands, three Dutch Ministries, Wintershall, Vopak Oil Europe Middle East and several Dutch energy companies. The report in english can be downloaded here (PDF 2.8 megabytes, 108 pages).

'This outlook of new scarcity is now exacerbated by the fact that not only available supply will determine what amount of demand can be satisfied; it will also bring about a new allocation of the available oil due to a lack of adequate supply growth compared with demand. In practice this means that demand rationing will be required in the OECD countries and particularly in the US, in order to accommodate growth in the newly developing countries, notably China and India. Different fuel prices for end-consumers in the different countries will be the dominant factor behind this ‘oil redistribution’. (emphasis mine)

Now that oil is over $100 - and in my opinion will be much higher in 5 or 10 years (T. Boone Pickens predicts $300/bbl in 10 years) - we will have tightened our belts a good deal by the time any of this oil could actually reach the market. Therefore, I think now is the time for Congressional hearings on opening up these areas. Let's have an open debate on the issue. However, if these areas are opened for drilling, I have a compromise that should be very attractive to those in opposition.

This is a guest post by A Siegel, who blogs on a range of energy issues at Get Energy Smart! NOW!!! and works with TOD European Editor Jerome a Paris on Energize America, a blog-driven effort to develop innovative and holistic energy policy options in the face of peak oil and global warming.

Earlier today, someone asserted that well over half (or more than $2) of America's $4.10 gallon of gas is due to the war. Another person asked "Is that right?" And, after pulling out some hair from my head, my response was both short and then long.

The short:

Two dollars a gallon is, perhaps, as good a swag as anyone's.

...

I think.

And, the long? well, it's under the fold. :)

"Oil is an incredible, irreplaceable gift of nature which packs energy in a dense, easily transportable form." - Jérôme Guillet – Energy Industry Investment Banker 

The hard facts

• The world price of oil in US dollars has doubled in the last year (June 2007 to June 2008) from US$67/barrel to over US$135/barrel
• The world price has gone up by 6 times in 6 years, from US$20/barrel in 2002 to over US$135/barrel by mid 2008
• With hindsight we can see that the great cheap oil era lasted 16 years from 1986 to 2002 when the price was mostly in the range $15 – 25/barrel, coming off a $39 peak during the "oil shock" of 1980 (equivalent to about US$95/barrel in 2008 money). The short sharp spike seen at the end of 1990 was due to the first Gulf War.

Within Australia we have been somewhat insulated from the latest sequence of price rises by the falling value of the US$, so our petrol and diesel prices have risen by comparatively less as the A$ has climbed to around US95 cents, as shown in the chart below.

In Australian dollar terms we have seen the price of oil rise by "only" 3½ times in 6 years.

1. What has caused the startling rise over the last 12 months?
2. Why has the price risen steadily for the past 6 years?
3. Why shouldn't we get back to the $20/barrel we enjoyed in the 1990's?
4. What caused the noticeable dip in price from mid 2006 to early 2007?
5. Why does the oil price seem to be going up at an accelerating rate since the dip in 2007?
6. Has the price stopped going up yet?
7. What prices might we expect over the next 1, 3 or even 5 years to come?

Paul Kedrosky has been Visualizing Global Oil Markets: 1965-2007 today. This looks to be a cool little tool (HINT: after putting the bottom pull down on "barrels", press play and watch the little blue ball get big...and yes, you can learn how to do this, click the bottom right corner for instructions).

I've been messing with the latest data from BP's 2008 Statistical Review of Energy Markets. Here is an animated look (via Google chart widgets) at oil consumption and growth therein across U.S., Asia and Europe from 1965 until today. For some reason it's not remembering to resize the bubbles based on market size (put size on "barrels" in the pull down), but works properly in the spreadsheet. For now you can pick the dimension via which you'd like to size the respective markets from the drop-down on the chart.

(New readers, click "there's more" below for the whole article...)

Global Total Liquids production and oil price, January 2002 to present. Production data from the IEA, data files supplied by Rembrandt Koppelaar. Monthly average WTI oil prices from Economagic.

With oil reaching $135 / barrel, Oil Drum readership exceeding 30,000 unique visitors per day and many wild stories circulating in the MSM as to why oil prices are so high this post strives to explain why oil prices are rising exponentially:

• Supply and demand
• Decline of older fields
• Declining net energy and energy density
• New mega-projects
• OPEC spare capacity
• Peak exports

Australian Greens Senator Christine Milne issued this press release earlier in the week:

Oil price forecasts way off again: ABARE has egg on its face

27th May 2008

The former head of ABARE, Dr Brian Fisher, famously said that, if prices are high enough, roosters will lay eggs.

Australian Greens climate change spokesperson, Senator Christine Milne, today said that ABARE now has egg all over its face after another woefully inaccurate oil price forecast, leaving the Australian community scrambling to deal with a fuel price crisis.

Senator Milne said, “At some point, ABARE must be held to account for its failure to model any scenario under which peak oil is a reality. Where other economic forecasters model a range of scenarios based on a range of assumptions, ABARE has consistently modelled with the same flawed assumptions, even though the evidence has shown them to be wrong time and again.

“ABARE’s current chief, Philip Glyde, as good as told today’s Estimates hearings that the results of his organisation’s modelling didn’t matter as long as the assumptions were in the public domain.