DETROIT’S BIG 3 AND THE IEA ON OIL PRICES HEADING BACK UP

The big debate in Washington right now is whether or not to bail out Detroit’s Big 3 automakers. Here’s a novel idea: Let Big Oil bail out the Big 3.

They’re about the only ones making money these days.

OK, it’s partly fanciful. Even Big Oil doesn’t have the resources to deliver the U.S. automakers from the consequences of their own folly. But D.C. loves nothing more than a complicated deal, so how about one that goes something like this: The government keeps Detroit in business, which keeps U.S. drivers on the road in Detroit gas-guzzlers which keeps Houston busy selling its oil and, in exchange, Houston and Detroit concede to a long-term gas tax to fund New Energy, Energy Efficiency and battery-powered vehicles.

It’s a thought that follows the International Energy Agency (IEA) World Energy Outlook 2008, just previewed and due for official release November 12. The report predicts a return to oil prices over $100/barrel by 2015 and prices as high as $200/barrel by 2030.

The same basic circumstance that drove last summer’s run up in the price of oil to a high of over $150/barrel – macrodemand exceeding macrosupply – remains ready to resume control of the oil markets when the recession eases.

Prime example: Oil prices jumped at this weekend's announcement of China's stimulus package.

In its report, the IEA – never known for antipathy to Big Oil – acknowledges urgency in the fight against global climate change and in the fight to reverse the current, business-as-usual trend toward a doubling of world greenhouse gas emissions (GhGs). Business-as-usual, the IEA foresees, means an increase in world average temperature of ~ 11 degrees Fahrenheit and catastrophic global upheaval.

World Energy Outlook 2008: “Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, and socially…But that can — and must — be altered.”

The report is not exactly optimistic, anticipating a rise in GhGs coming from the U.S. and China over the next quarter century of 45%. An interruption of business-as-usual, the IEA believes, will be difficult and costly but it describes the effort as a veritably apocalyptic matter.

The IEA report: “The future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply…”

In the U.S., somebody has got to foot the bill. Who better than Big Oil? And what could be more efficient than having Big Oil back Detroit’s move to the fuel efficient electric-powered vehicles the nation and the world so urgently need?

Footnote: Natural field declines and projected demand growth require, according to the IEA, a 64 million barrel/day increase in oil energy-equivalent capacity by 2030 (i.e., 6 new Saudi Arabias). Meeting this need with world oil reserves is unlikely, another reason Big Oil should be making plans to be in the ENERGY business, not the OIL business, in the coming decades.

Big Oil is doing OK. (click to enlarge)

Agency Predicts a Return of Triple-Digit Oil Prices
Jad Mouawad, November 5, 2008 (NY Times)

WHO
The International Energy Agency (IEA)

WHAT
World Energy Outlook 2008, supply shortfalls that pushed oil prices into triple-digit territory this year are far from resolved, and could lead to a new period of high prices.

The Big 3 are hurting. (click to enlarge)

WHEN
- Presently: World oil consumption is 86 million barrels/day.
- EIA prediction for 2030 in 2007 Outlook: 116 million barrels/day.
- EIA prediction for 2030 in 2008 Outlook: 106 million barrels/day.
- Full report release date: November 12.

WHERE
- Worldwide: The fall in oil price to the ~$60/barrel level has caused the postponement of exploration/production and refinery projects. Example: Delayed start by Saudi Aramco/ConocoPhillips of major refinery expansion Yanbu on Saudi Arabia’s Red Sea coast due to “uncertainties in the financial and contracting markets.”
- Worldwide: An extensive analysis of the world’s 800 biggest oil fields finds an accelerating ddecline of production from existing fields and the need for a 64 million/day requirement of new production to avoid a decline in output.

WHY
- IEA is world’s top energy forecaster.
- Most analysts expect oil prices to bounce back when economic growth resumes.
- Forecast for world consumption reduced by 10 million barrels/day through 2030 due to changes in price and economic growth.
- Big new investments ($8.4 trillion through 2030, $350 billion/year) will be necessary to meet growing energy needs.
- This year’s outlook emphasize’s the IEA’s growing alarm at the need to develop oil resources.

click to enlarge

QUOTES
World Energy Outlook 2008: “Globally, oil resources are plentiful, but there can be no guarantee that they will be exploited quickly enough…”