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Lloyd’s peak oil report, supply crunch, $200 oil in 2013?

A recent Lloyd’s of London reported that the world is heading for a global oil supply crunch (better known as peak oil) and that lack of oil by 2013 could force oil prices of crude above $200 a barrel.

The Lloyd’s of London/Chatham House report, one of the London City’s most respected institutions has warned of “catastrophic consequences” for businesses that fail to prepare for a world of increasing oil scarcity and a lower carbon economy.

Lloyd's of London 2013 Oil Report Makes Grim Reading

The Lloyd’s insurance market and the highly regarded Royal Institute of International Affairs, known as Chatham House, says Britain needs to be ready for “peak oil” and disrupted energy supplies at a time of soaring fuel demand in China and India, constraints on production caused by the BP oil spill and political moves to cut CO2 to halt global warming.

The report the world is heading for a global oil supply crunch and high prices owing to insufficient investment in oil production plus a rebound in global demand following recession. It repeats warning from Professor Paul Stevens, a former economist from Dundee University, at an earlier Chatham House conference that lack of oil by 2013 could force the price of crude above $200 (£130) a barrel.

Economic Chaos because of Lower Oil Production?

It also quotes from a US department of energy report highlighting the economic chaos that would result from declining oil production as global demand continued to rise, recommending a crash programme to overhaul the transport system. “Even before we reach peak oil,” says the Lloyd’s report, “we could witness an oil supply crunch because of increased Asian demand.

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Comments

Didn’t you know the world’s ending on 21/12/2012, so no worries, enough oil for anyone who’s around in 2013!

Any discussion about oil demand/prices over the next decade must include an attempt to quantify emerging economy demand as an important driver at the margin. Here is a simple thought experiment using Chinese demand to generate some rough “back of the envelope” forecasts:
- China moves from 3 bbls/person/year to the South Korean per capita consumption level of 17 bbls/person/year over the next 30 years
- No peak in global production

Result: In next 10 years we must find 44 million BOPD – 26 million BOPD to maintain supply and 18 million BOPD to keep up with demand increases.

If you superimpose peak production on top of this demand profile using the following parameters oil prices would increase approximately 250% in real terms over next 10 years – most likely something would give far before that price level:
- Oil demand elasticity of -0.3
- Current production 84 million BOPD, current price US$ 80
- Peak production 100 million BOPD
- Post peak decline rate of 3-4%

If you want to try the china oil demand or the peak oil models for yourself using your own assumptions they can be found at Petrocapita in the “Research” section: http://www.petrocapita.com/index.php?option=com_content&view=article&id=128&Itemid=86

Grey Brother

A German Military report, leaked to Der Spiegel last week, also warns of an oil price crisis.

http://www.spiegel.de/international/germany/0,1518,715138,00.html

Bill Simpson in Slidell, LA.

Since it is far too late to prevent it, the question is, how do we make the most money on it?

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