Not your average peak oil theory, from Macquarie

Mainstream financial analyst types tend to shy away from talking about peak oil – even when they are talking up a looming supply crunch, this is usually attributed to the short- to mid-term under-investment problem. So a presentation by Iain Reid, a senior oil analyst at Macquarie Bank, stirred much excitement when some details were published this week.

Under a slide titled ‘Not your average peak oil theory’, he writes that there is no shortage of oil reserves, but problems of access, technology and risk. Meanwhile, there are three mini-trends: resource nationalism; new oil supplies being technologically challenging; and much of the easy oil in politically difficult regions.

Here’s the most alarming graph:

 


Reid’s presentation starts out with what will be familiar to anyone watching oil: demand right now is way down and a prolonged recession could see it stay that way for some time. Non-Opec oil supply has peaked, he says, and Opec ‘cannot do much more (although Saudi Arabia faces choices)’. Meanwhile, the demand recovery depends on the bigger economic picture, which he says “is more resilient than one might think”, and poised to rebound as the recession ends.

The heading says it all really, but here are a few key points about the slide:

1. Capacity peaks this year at 89.6m barrels/day

2. Supply peaks in 2014 at 89.1m barrels/day

3. Spare capacity starts ends after 2013

There are plenty of people who will point to a supply crunch in the next few years, but while Reid’s presentation mentions this problem, he doesn’t seem to stress it as the key cause. Secondly, he makes no mention of another favoured argument against peak oil crisis: that markets will tend to respond.

Before we all panic, two more points worth noting:

- Reid’s price forecasts are fairly low, at $71 for WTI contracts in 2010 and $84 in 2012. Compare this to Goldman Sachs’ $95 for 2010, or Morgan Stanley’s $105 for 2012.

- He writes that this scarcity ‘is not necessarily going to last’, and points to the ‘wildcards’ of technology and policy – two often-forgotten points.

Related links:

Simmons vs Yergin et al on Peak Oil (FT Energy Source, 07/09/09)
Peak oil, energy security and food supply in the UK (FT Energy Source, 05/08/09)
Peak flow rates, not peak oil? (FT Energy Source, 19/06/09)

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