CIBC World Markets’ energy team led by Jeff Rubin is at the forefront of Wall Street firms in understanding the current dynamics of oil and gas production, I believe. This report, published in January, 2008, is an important contribution to the megaprojects approach to peak oil analysis.  

The report should be read in full by any0ne interested in the oil markets. My gratitude to The Oil Drum for referencing this and a similar one by the Energy Watch Group.  While a summary does a disservice to the full report, the key points are:

   - big delays in megaprojects coming on stream will mean much less oil produced over the next five years than is generally assumed by the Street.

   -  huge domestic oil demand increases among oil exporting countries (3 mb/d by 2012) is caused by their subsidization of domestic oil prices and will result in much less oil being offered to the export market than is generally assumed by the Street.

    - peak global oil production will occur in 2010

The report concludes that much higher oil prices will be required to reduce demand in OECD countries:

“It is in the world’s still-largest oil market—the OECD—
that most price rationing will ultimately take place. Oil
consumption, having already fallen for the last two years
is likely to now fall steadily over the next half-decade in
response to soaring world oil prices.

We expect that OECD consumption will fall by 4 million
barrels per day between now and the end of 2012 in
response to a further 50% rise in world oil prices. A rise in
world oil prices to the US$150/bbl range (Table 3) over the
next half-decade should incent a major decarbonization
of those economies. Indeed by 2012, oil consumption
outside of the OECD will exceed consumption within the
OECD (excluding Mexico), a development that will pose
new challenges in the global task of managing carbon
emissions.”

It is not clear to me why CIBC seems to think that higher oil prices will not have a similarly strong impact on oil consumption in developing countries like China and India, which is the conclusion of a similar report recently released by Deutsche Bank.  Such demand destruction would have particularly dire consequences for global economic growth.

Both reports call for $150 oil, one by 2010 and the other by 2012.  Neither report discusses how it arrives at this number.  My sense is that “$150″ is a symbolic number that just represents a “much higher” price.  I suspect that the analysts, if pressed, would admit that nobody knows what prices of oil will be needed in the future to destroy enough demand to make it equal to the available supply.  I discuss this subject in more detail in my last Newsletter, #12.

Tags: energy investments

This entry was posted on Sunday, March 9th, 2008 at 10:17 am and is filed under Megaprojects, Peak Oil, oil demand, oil supply. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.