Oil will peak in 2020 and we should plan for it now

 Oil exploration is being affected by the drop in oil prices. Although the oil companies cannot turn exploration and an off like a tap, because of the time that new exploration takes, they can and are cutting down on significant new oil exploration, because they fear that it may not be economically worthwhile to invest in new oil development while prices are so low.

Fatih Birol, who is Chief Economist to the International Energy agency, has come out with a statement that conventional crude oil output will peak in 2020. I think by that he means all oil except from tar sands (mainly in Northern Canada) will reach its maximum production in eleven years from now and after that year by year production will fall off.

While that may be good news for climate change it will only be good news for the planet if the economies of the world have adapted to business with lesser amounts of oil being produced year by year from 2020 to power a growing population on the planet. Without that adaption there will be political and economic turmoil.

If you think the credit crunch is bad right now, it will be nothing compared to a world fighting for ever smaller supplies of oil.

Fatih Birol’s comments ought to be heeded by Gordon brown. You will recall that Mr Brown called for increased oil production and more expenditure on oil development just six months ago when oil prices were reaching their peak. He could not have got it more wrong it oil available to the world peaks in 2020; all Mr Brown’s call, if heeded, would have done is to cause the oil to peak even earlier.

Mr Birol’s employer, the International Energy Agency (IEA) has previously avoided a clear position of peak oil. Only three years ago they seem to deny that any peaking of oil production was foreseeable. Gordon Brown should heed Mr Birol’s warning and plan for a time when oil prices recommence their upwards spiral and when many countries in the world will find it hard to get enough oil they need for their demands.

The IEA’s most recent report shows that oil demand is now shrinking by 200,000 barrels a day, the first time that demand has shrunk since 1983. They also think that demand will recover in 2009, on the assumption that the International Monetary Fund’s forecast that the global economy will start to recover in the second half of 2009.

The IEA also show that the growth in oil supplies has, not unexpectedly, slowed and it seems that most oil stocks have rise this year. Prices of course have tumbled, showing once again the very clear relationship between supply and demand, but refineries are now operating at very small margins and when they get a chance I expect them to put their prices up, as demand for oil grows, which will lead to another hike in oil prices.

How does this affect the ordinary person? Well, there is not much you can do to insulate yourself from global oil prices which will feed in to higher energy prices and higher prices for fuel. It always seems that consumer paid prices rise much higher than international market prices and when prices fall, consumer paid prices always seem to fall the least.

What you can do to help yourself (and the future generations) is to invest in renewable energy; people and governments should now be doing this as their prime priority, which the importance of which trumps even dealing with the failure of the banking system.

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