3E Intelligence

The renowned Dutch Clingendael International Energy Programme foresees more future turbulence in the oil markets, an energy crunch by 2010 and potential oil rationing in the Western world.

Here are some of the most interesting conclusions of the highly recommended “Oil Turbulence in the next decade” essay:

  • The “oil crunch” predicted by the International Energy Agency could come five years earlier than predicted (thus by 2010 instead of 2015) “and could shake the very foundation of our energy systems”.
  • High oil prices are driven by supply and demand imbalances (with a structural ‘floor price’ of $110 a barrel) and it is “reasonable to expect much higher oil prices based on the still worsening supply and demand imbalances”.
  • Oil demand is much less responsive to higher prices than in the past.
  • The production outlook for 2030 will be at maximum 100-105 million barrels a day (Clingendael seems to have seen a preview of the upcoming World Energy Outlook 2008 by the IEA, which is expected to “correct” its predictions from 116 million in WEO 2007). This will lead to a big lack of supply growth versus demand and a “quickening of … oil field decline rates… could make this pessimistic supply outlook even worse”.
  • On the basis of this pessimistic estimate, Clingendael predicts that “demand rationing will be required in the OECD countries and particularly in the US [good luck, President Obama! – WDB], in order to accommodate growth in the newly developing countries, notably China and India”.
  • New developing countries will have “to work away their oil product subsidies without triggering a jump in consumer price inflation”.
  • The alternative is “fierce competition for scarce oil supplies at much higher price levels, with the risk of triggering a deep and prolonged recession and possible geopolitical tensions”.
  • OPEC, Russia and Mexico need to invest in additional production capacity but, at the same time the oil-consuming countries should provide “security of demand” [the report remains rather vague on this – should the West be slowing down its transition to the post-oil society? ].
  • Geopolitical tensions over oil supplies will continue to grow.

An executive summary of the 108-pages report can be found on the Clingendael site. The Oil Drum:Europe has an extensive and critical report about the Clingendael study.

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Comments

  1. I think rationing is a very bad answer to a market problem (that excessive demand drives up the price). In fact, the whole Western society and economies seem to be very responsive to oil prices – oil prices have a remarkable income and cross elasticity. The problem is that these elasticity is distorted with massive indirect subsidies (tax brakes for sea faring and civic aviation) and direct subsidies (cheap natural gas for heating in many countries).

    Rationing is usually a less sophisticated tool than the price system. I think we should get rid of the indirect and direct subsidies for oil and natural gas consumption first, than put a little tax on carbon, and see how supply meets demand. Rationing is a desperate answer to the rent seekers who still get fuel on the cheap.

  2. Hi Daniel,

    You are right rationing is a poor way to reduce demand. Only prices can do that in the long term. However in the short term, there is always a time lag between the price signal and the demand reduction. This causes supply chain disruptions. Stockouts and hoarding are the two most common.

    Rationing is one way to minimise the effect of these stock outs on what are deemed to be “essential services.” It is a simply a lever for governments to make value judgments about where the fuel needs to flow, in order to preserve a civil society. As such it is an important instrument of the future. It should not be eschewed, but instead it should be embraced and supported as one of many necessary measures to get us through these very trying times ahead.

  3. I believe no rationing or elimination of subsidies will be any solution at all. Oil extraction will keep going down. We will try to run our economy on natural gas first, then on coal, creating a climate disaster.

    At the end, only enough wind, solar and nuclear investments, and a radical change of lifestyle and the way we create goods, will save what little is left of our economy and world population after the energy crisis, in 30-40 years.

  4. Since we have finally realized that Peak Oil is real, we should next realize that the least necessary use of oil we are currently doing is transportation. Agriculture, Medecine, plastic, emergency vehicles, infrastructure maintenance and, unfortunately, military, should take precedence over private transportation.
    Gasoline should be taxed, heavily. Maximum speed should be reduced to ~ 45-50mph.
    Public transportation, particularly rail, should be made almost free, paid by gasoline tax.
    The vehicle license tabs should be proportional to the type of vehicle, with gas guzzlers having tabs in the $1000 range.
    We basically have to stop thinking individually, and start thinking collectively. Everything we do as people that hurt the Nation (unnecessarily importing oil) should be heavily taxed.

    The market is what people respond to, but we can steer that market in the right direction with taxes and subsidies. This is what the current administration is already doing, but unfortunately, they are doing it wrong with their tax cut for the wealthy, and huge subsidies to record-profit oil companies.

  5. @andre
    ref. extreme speed limit:
    max. speed limit should and could be reduced to 1/3 of nowadays max speed! i.e. 40-50 km/h (not MpH! 😉 for cars, 70 km/h trains, 250 km/h for airliners, 10 km/h for ships. sounds odd, but would be fun! vehicles would become automated, almost no traffic victims and other very positive side effects would happen!

    taxing what pollutes and damages is a simple and cost-efficient way to change collective behavioral patterns…

  6. watch “the story of stuff” (search on google for it) to understand why we consume and pollute like crazy today! did not include link here, so that my comment won’t be automatically considered spam and rejected…
    (sorry, if this message will be posted twice!)

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