ASPO Newsletter #49  

This month's ASPO newsletter is now out - unfortunately without any new changes to their depletion curve.

There are a couple of interesting snippets, including Deutsche's recent research paper:

The Financial Community wakes up to Depletion

The following comments from the Deutsche Bank confirm that the financial community becomes aware of depletion. In all probability, the Second half of the Age of Oil will spell the end of the current Industrial-Financial System, which not only created economic growth but depended on it. The growth was itself essentially a manifestation of confidence that the mammoth debt created by the system could be re-paid. If it can’t be re-paid for lack of energy, logic demands the destruction of “capital” during the Second Half. It was n’t really capital in the first place in the sense of representing work or genuine assets but rather an expression of confidence that the past financial regime was sustainable. It would be interesting to know if the financial community can identify any genuine investments that will remain in tact despite the decline and eventual end of cheap oil-based energy that made the world go round. All identified substitutes are less efficient and more expensive.

From Deutsche Bank Research, December 2, 2004
http://www.dbresearch.de/PROD/DBR_INTERNET_DE-PROD/PROD0000000000181487.PDF

ASPO view

The Association for the Study of Peak Oil&Gas, ASPO (see various articles from K. Aleklett and C.J. Campbell at www.peakoil.net), a group of former petroleum geologists in the service of prominent petroleum corporations (e.g. BP Amoco) argues in favor of taking a different angle. It assumes a steep ascent in the output curve up to a peak, followed by a comparatively flat descent. The result is that the peak in production comes well ahead of the depletion mid-point, meaning that the production curve peaks far earlier than hitherto anticipated. Initially this applies to oil, and then, with time lag, to natural gas. In its mid 2004 updated forecast for oil, the ASPO brought the peak for oil forward from 2010 to 2008.

Dramatic implications of ASPO scenario

Were the ASPO scenario to prove correct, the consequences could be dramatic. Within the space of just a few years oil supply would start to shrink in the face of a growth trend in global demand, driven not least by the increasing hunger for energy in the heavily populated Asian countries. ExxonMobil expects 80% additional global demand for energy up to 2020 to come from the developing countries (see ExxonMobil, A Report on Energy Trends, February 2004, p.3). In the worst-case scenario, the already emerging widening of supply/demand gap could trigger a shortage shock leading to price crisis. This would also impact world economic development.

Also conceivable, though, is a more or less steady climb in the price of oil (and later also natural gas), which would tend to rein in demand for the energy carrier and encourage gradual substitution. What is more, price increases would imply an expansion of the reserve base as non-conventional reserves and current resources become more price-competitive. The peak calculated with reference to “present reserves” could then be delayed for a few more years. The possibility of realigning the energy mix without radical economic disturbance would be all the more likely, the sooner politicians, industry and private consumers respond to the signs of the times on the markets for hydrocarbons.

Venturing to look farther forward on the supply of energy, say to the end of our century, by then the future will already be behind us, at least in terms of petroleum. The end-of-the-fossil-hydrocarbons scenario is not therefore a doom-and gloom picture painted by pessimistic end-of-the world prophets, but a view of scarcity in the coming years and decades that must be taken seriously.

Forward-looking politicians, company chiefs and economists should prepare for this in good time, to effect the necessary transition as smoothly as possible.

Conclusion: Time to act