May 13, 2012
IMF Team Sees Oil Price Doubling In Decade

A report from the International Monetary Fund predicts a doubling in oil prices.

The International Monetary Fund (IMF) has been warned by its internal research team that there could be a permanent doubling of oil prices in the coming decade with profound implications for global trade.

"This is uncharted territory for the world economy, which has never experienced such prices for more than a few months," the report warns.

Here is the IMF report: The Future of Oil: Geology v Technology Its writers are very up on the debate happening between economists and geologists over future oil production potential. They are familiar with the work of UCSD energy economist James Hamilton, Robert Hirsch's Dept of Energy report on Peak Oil, and geologists who have put forth models predicting future oil production including M. King Hubbert, Colin Campbell, and Ken Deffeyes.

Hamilton (2009), on the other hand, finds that temporary disruptions in physical oil supply have already had a major role in explaining historical dynamics of oil price movements. And furthermore, he argues that stagnating world oil production, meaning a very persistent reduction in oil supply growth, may have been one of the reasons for the run-up in oil prices in 2007-08. The main reasons why oil supply shocks affect output according to Hamilton is their disruptive effect on key industries such as automotive manufacturing, and their effect on consumers’ disposable incomes. In other words, the main effect is on aggregate demand. As for aggregate supply effects, his view is that there may be short-run impacts due to very low short-run elasticities of substitution between oil and other factors of production. But he assumes that such elasticities get larger over longer horizons, as agents find possibilities to substitute away from oil. This is because high prices start to stimulate technological change that can both increase the recovery of oil, and the availability of substitutes for oil. Therefore, even though Hamilton is closest among mainstream economists to seeing real problems emanating from the physical, geological availability of oil, he nevertheless subscribes to the economic or technological view whereby prices must eventually have a decisive impact on production levels.

The IMF authors point out that both the optimists (those expecting continued production increases) and pessimists (those expecting a decline off a production peak) have been wrong. But Ken Deffeyes's 2005 oil production peak prediction is not as wrong as it looks at first glance. When reading and listening to talk about oil production be very aware of difference between oil production (where we get black liquid out of the ground) and all liquids production. Usually when a story in the press refers to oil production they are really reporting on all liquids production. The quite small growth in liquids production since 2005 has come in the form of non-conventionals such as natural gas-to-liquid, corn ethanol, and tar sands oil. These non-conventionals have lower Energy Return On Energy Invested (EROEI) and they can not scale. Also, the maintenance of conventional oil production has come from a large scale up in drilling activity. The oil industry is exploiting smaller fields, smaller left-overs of big old fields. and deep sea fields. These trends are really end games.

What we need: technological advances that will let us substitute away from oil. If we are lucky the current oil production plateau will continue long enough for substitutes to mature. We especially need much lower cost battery technologies to enable our migration away from liquid hydrocarbons for most transportation needs.

Share |      Randall Parker, 2012 May 13 10:06 PM  Energy Peak Oil Adaptations


Comments
Marsili.us said at May 14, 2012 12:17 AM:

Have you not read news of this report, or do you disbelieve it or discount it in some way?

http://www.gao.gov/assets/600/590761.pdf

Josh Reuben said at May 14, 2012 1:11 AM:

EROEI - it costs allot more to extract oil from depleted wells, tar sands and shale rock (not to mention asteroid mining :) ).
welcome to the new middle ages, where the singularity is always near!
Quite depressing, really.

PacRim Jim said at May 14, 2012 2:16 AM:

Is that doubling in constant dollars?

Engineer-Poet said at May 14, 2012 2:50 PM:

The effort going into batteries is unprecedented, because the jackpot that will go to the creator of a breakthrough battery is enormous.

The potential payoff from a traction battery is a good fraction of the difference between the cost of liquid fuel and the cost of the electricity to deliver the same amount of work to the wheels.  This difference is pushing $3/gallon in the USA, suggesting that the payoff is already close to $3/gallon * 140 billion gallons/yr = $420 billion/yr.  This is about 10x the size of the US market in steam coal.

anonyq said at May 14, 2012 3:22 PM:

The price of oil is such a large piece of the cost of doing things that a doubling of price can only have a meaning in non-inflation corrected dollars.

Wolf-Dog said at May 14, 2012 9:49 PM:

During the last decade if we had not wasted the $1 trillion on ineffective wars, and if we had instead invested it in battery research, by now we would have obtained some results. (What's $100 billion per year when we waste so much?

Fat Man said at May 14, 2012 10:57 PM:

Very interesting. Does this mean that Natural Gas will go up to $5/MMBTU? Any story that predicts or explains oil prices, needs to account for Natural Gas prices. None of them do.


"The effort going into batteries is unprecedented, because the jackpot that will go to the creator of a breakthrough battery is enormous."

It will not happen. There is no breakthrough. Inorganic chemistry is mined out. There will be no breakthrough.

Wolf-Dog said at May 14, 2012 11:47 PM:

"It will not happen. There is no breakthrough. Inorganic chemistry is mined out. There will be no breakthrough."

----

Which oil company are you working for?

Josh Reuben said at May 15, 2012 12:34 AM:

rule of thumb: every $10 increase in the price of a barrel of oil reduces GDP growth by 0.5% ...
oil Price Doubling In Decade (from $100 to $200) --> 5% break on GDP growth ...
at 2% average GDP growth p.a, US GDP would actually contract by 3% per year when adjusted for predicted doubling of oil price!
Just in time for massive costs of retiring baby boomer pension liabilities and a US debt predicted at $23 Trillion by 2016

Ray Kurzweil sold me a bag of magic beans!

Engineer-Poet said at May 15, 2012 5:56 AM:

Fat Man doesn't seem to understand that zinc-air and lithium-air batteries have already been built.

They don't have the energy density of a tank of gasoline.  They don't have to; they replace the tank and the engine, and even today's laptop cells are good enough if they were only cheaper.

fred said at May 15, 2012 6:45 AM:

You believe an IMF internal study?

joel said at May 16, 2012 11:47 AM:

The price of oil is set by cartels and by governments. Not the free market.

Lester said at May 16, 2012 12:37 PM:

Batteries LOL.

What do you suppose is going to charge them?

Fat Man said at May 16, 2012 12:42 PM:

Wolf-Dog said: "Which oil company are you working for?"

None. Sadly. Although, if any of them want to hire me, I am available cheap.

EP: I own a bridge between Brooklyn and Manhattan.

Engineer-Poet said at May 16, 2012 3:41 PM:
Batteries LOL.

What do you suppose is going to charge them?

Something that's not oil, so that the oil price no longer matters.
EP: I own a bridge between Brooklyn and Manhattan
You and ten thousand other folks fresh off the boat.
Wolf-Dog said at May 16, 2012 4:48 PM:

Indeed, the total energy content of the oil that we burn in cars every year, is a small fraction of the total energy that we consume. For instance, if all cars were electric in the United States, charging these cars would require only an expansion of 10 % in the electric power grid. If we assume that trucks, trains and even airplanes are also made electric, then surely a 20 % expansion in the power grid capacity will be enough. Given that this much electrification will take at least 15-20 years, if we expand the power grid by 1 % per year for the next 20 years, this will be enough.

The only problem is to find a light enough and cheap enough energy storage medium for electric cars. Lithium ion batteries are just one area of research. There are also air-breathing batteries such as zinc-air, which are in fact fuel cells in some sense. If we had spent on battery research only half the $1 trillion we wasted last decade on ineffective wars, we would have already obtained some decent results.

Jason said at May 16, 2012 6:05 PM:

"During the last decade if we had not wasted the $1 trillion on ineffective wars, and if we had instead invested it in battery research, by now we would have obtained some results."

Kind of like how, if we started drilling in ANWAR 10 years ago, that oil would finally be entering the market.

Because making stupid political side-points only tangentially related to the topic at hand is what internet commenting is all about!

Engineer-Poet said at May 16, 2012 7:31 PM:
the total energy content of the oil that we burn in cars every year, is a small fraction of the total energy that we consume.
Actually, it's well over 20%.  I wouldn't call that "small", and the heat value of products delivered does not include things like the energy in the natural gas used to generate hydrogen for oil refineries.
For instance, if all cars were electric in the United States, charging these cars would require only an expansion of 10 % in the electric power grid. If we assume that trucks, trains and even airplanes are also made electric, then surely a 20 % expansion in the power grid capacity will be enough.
I calculated some years back that total (not peak) generation would have to go up roughly 40%.

For a trillion dollars I could have made every new vehicle in the USA since 2002 into a PHEV and electrified all Interstate highways and most major roads.

Wolf-Dog said at May 16, 2012 8:45 PM:

OK, I got the 10 % figure (needed to expand the power grid for electric cars) from the statements by Project Better Place company. Maybe they understated it. But even if the power grid needs to be expanded by 40 % to make all transportation electric, this is still very possible since it will take at least 20 years to make transportation fully electric (we will be lucky if we make only personal cars purely electric within 20 years). Expanding the grid capacity by 2 % per year for the next 20 years is an entirely feasible project. Nuclear, solar, natural gas, biomass, can be added.

Engineer-Poet said at May 17, 2012 6:41 AM:

Night-time charging doesn't increase peak loads, but it does increase the feasible fraction of base-load plants.  That's tailor-made for growth in nuclear power.

navytech said at May 17, 2012 7:07 AM:

The price of oil is going to double? Expect everybody in the world to drill baby, drill. Except us of course. As things stand now, all that expensive oil of the future will also be imported oil. And it doesn't need to be. Anybody here up for stopping Canada from developing their resources? Let alone Putin from developing and selling his Arctic oil. (Perhaps if we ask nicely.) Oh, and if you're thinking about a boycott, oil is fungible.

Unless non-fossil-fuel energy sources can not only replace all the FF we use now but also supply all the extra quads needed, we will be using that oil/coal/gas. Fortunately that oil/coal/gas is there for the taking. By everybody but us that is.

Facts are stubborn things.

BillyBob said at May 17, 2012 10:03 AM:

"every $10 increase in the price of a barrel of oil reduces GDP growth by 0.5%"

How much does jacking up the price of a kWh of electricity cost because wind or solar was forced on utility companies.

Bring back coal.

anonyq said at May 17, 2012 5:47 PM:

Wind and solar electricity actually lowers the price of a kwh

Fat Man said at May 17, 2012 10:31 PM:

"Facts are stubborn things."

Not nearly as stubborn as environmentalists.

Randall Parker said at May 18, 2012 6:52 PM:

Marsili.us,

Show me the major oil company that thinks it can extract kerogen from shale cost effectively. Shell was sounding very optimistic several years ago and I did a post or two about it then. They have since backed off. The energy cost of extraction may make it always uneconomic.

Nick G said at May 19, 2012 9:06 AM:

Marsili.us, Randall,

If you read that GAO report carefully, they make it clear that Green River shale oil is very, very difficult and the tech isn't really here now.

The US has enormous amounts of coal, perhaps 5 trillion tons in Alaska alone. We'll go to Coal-to-liquids long before we go to the much more expensive kerogen shale oil.

And, we don't seem to be going to coal either: coal consumption in the US is dropping like a rock (or lump of coal?).

anonyq said at May 19, 2012 1:34 PM:

How much is that a temporary effect of cheap natural gas and a recession?

Engineer-Poet said at May 20, 2012 4:33 AM:

And/or the glut of associated gas from the fraccing-oil boom in the Dakotas and elsewhere?

Paul D. said at May 21, 2012 1:37 PM:

Shell is giving up on ethanol from cellulose, and is doubling down on Virent's thermochemical biogasoline process. This process doesn't use finicky enzymes, but converts sugars and degraded sugar-like molecules to hydrocarbons by catalytic hydrodeoxygenation followed by reforming in the zeolite ZSM-5. It can make drop-in replacements for gasoline, diesel and jet fuel (as well as chemical feedstocks like p-xylene), and gets more fuel energy from a ton of biomass than do fermentation processes.

This process looks very promising to me.

Evan Jones said at May 24, 2012 12:51 AM:

The last contiguous 12 month period in which the world's rigs found as much oil as the world consumed, was the year 1985. By that measure, we must be reaching Peak Oil by now.

But that assumes that oil is the only answer. Whenever oil prices rise, new energies arise; e.g. we now have more gas than ever, from giant fields currently being developed in Australi, from CBM - Coal Bed Methane and from fracked shale.

The Germany's WW2 war machine proved that you don't need oil; they ran their planes, tanks, cars and trucks with liquid fuels made from coal. The oil companies are just trying to scare us; we are not about to run out of energy any time soon.

Engineer-Poet said at May 24, 2012 5:55 AM:

We've got 300 years of total US energy consumption sitting in tanks and drums in the form of depleted UF4 and UF6.

The problem is that a lot of very powerful people don't want us to be able to touch that energy.

Wolf-Dog said at May 26, 2012 4:23 PM:


But who exactly are these powerful people? The coal and oil companies certainly have lobbies, but since money is power, and since there is also some accumulation of money in Silicon Valley and technology companies in general, maybe there will be a breakthrough and at some point commercial companies will manage to revive nuclear energy. For the first time in a long time, there are some new small companies that are dedicated to building small prefabricated reactors, just like the new battery companies who are working around the clock.

Engineer-Poet said at May 26, 2012 10:28 PM:

I wouldn't call Babcock and Wilcox a "small company".  Flibe Energy, yes, and maybe Lightbridge, but B&W has been a major player for decades.

Someone like Bill Gates could singlehandedly push the Integral Fast Reactor over the threshold.  None have done so.

Wolf Dog said at May 27, 2012 11:47 AM:


Bill Gates already initiated a serious investment in the Traveling Wave Reactor instead of the Integral Fast Reactor.

Here is a video where Bill Gates explains this investment:
http://www.youtube.com/watch?v=qwRYtiSbbVg

Admittedly this is a slightly less complex design than the Integral Fast Reactor, but it is intended to burn at least 50 % of all the non-fissile uranium inside the reactor, and conceptually it is a much simpler design with less components than what an Integral Fast Reactor would need.

http://en.wikipedia.org/wiki/Traveling_wave_reactor

Engineer-Poet said at May 27, 2012 1:33 PM:

And the TWR appears to have run into several snags, whereas all the IFR needed as of 1994 was a full-scale demo of its fuel reprocessing and refabrication.

If Gates wanted to make a difference in the near term, he blew it badly.

Wolf-Dog said at May 29, 2012 2:57 AM:

Maybe a prototype for the Integral Fast Reactor would have been too expensive/complex for private companies to invest immediately without government funding. As you would recall, as soon as it became apparent that IFR was possible, the government abruptly stopped the funding.

But at least there are other private nuclear companies such as Flibe Energy (molten salt reactors):
http://en.wikipedia.org/wiki/Flibe_Energy

Also Hyperion Power also seems to be a promising company:
http://en.wikipedia.org/wiki/Hyperion_Power_Generation


In any case, in this modern age of communications, any academic breakthrough in any part of the world would quickly get noticed and it is going to be very difficult for one special interest group to stop progress in the long run.

Engineer-Poet said at May 29, 2012 4:33 AM:

GE is trying to revive the LMFBR as the S-PRISM, but without the on-site reprocessing which defines the IFR (and eliminates the fuel-service business, which I'm sure is no coincidence).

Sione said at June 4, 2012 10:26 PM:

The price of oil expected to double? Of course it depends on what you use to measure oil price. Oil has not increased in value and is unlikely to in the forseeable future if you aren't using US$ as your measure (hint: choose your means of measuring and storing wealth with care). However, if you are going to be using US$ then expect oil to more than double. This aint 'cause oil is "running out" or hit "Hubbert's peak" or any of that mythology though.

Start the analysis by working out how much new supply of US$ has been issued since the Great Finanical Collapse got started in 2007 (hint: US$ supply has more than doubled). There is a real simple piece of economics at work here. Ask yourselves this: double the money supply and eventually what will happen? Then ask this: with all this new money sloshing about the show, have people in the US more than doubled their wealth since the GFC? If not, what was the benefit of the calling into existence of all the new money? And who bears the cost of it? Then ask what happens when this new money arrives in the general economy (a process which has already started in earnest)? Always remember that as the stock of an unbacked fiat currency increases, the value of wages and salaries and savings denominated in said currency decreases. Oh dear, there goes your wealth. No wonder oil "prices" get to rise.

What you are presently experiencing is the early stages of a crack-up boom. And if you reckon Europe is going to be bad news aplenty, wait until the US gets properly started.

The Chinese had a curse which went, "May you live in interesting times." Looks like you'll sure live in 'em.

Sione

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