International Energy Agency Calls 'Peak' On OECD Oil Demand - Assignment Example

International Energy Agency calls Peak on OECD Oil Demand Posted by Phil Hart on November 30, 2009 - 10:34am in The Oil Drum: Australia/New Zealand Topic: Demand/Consumption Tags: iea weo 2009, oecd [list all tags] In World Energy Outlook 2009, the International Energy Agency seems to have dropped a bombshell that has been quietly (and politely) ignored. In their main reference scenario, the IEA forecasts that OECD demand has already peaked - it never recovers the levels seen before the oil price spikes and financial crisis unfolded. In recent editions of their World Energy Outlook, the IEA has been reducing their forecast for 2030 total oil supply. But forecasting a decline in OECD consumption is a radical shift. Here at The Oil Drum we see peak oil occurring well before 2030, with production at that point significantly lower than it is now. However, even the IEAs forecast of 105 mb/d allows for only anaemic growth for total supply of 1% per year. Since they still see strong demand growth from China and other developing nations, OECD takes the hit: Oil demand is projected to grow by 1% per year on average, from 85 million barrels per day in 2008 to 105 mb/d in 2030. All the growth comes from non-OECD countries; OECD demand falls. Unfortunately the IEA does not present this oil situation in a figure, however the one below for total primary energy demand gives us a good impression. China, India and the rest of the non-OECD world keep growing their consumption (IEA forecast, not mine!), while OECD is all but flatlining. For oil, the situation is worse. OECD share of available oil is constrained so much that it declines. The details for primary oil demand alone are in Table 1.3. The peak for OECD demand was in the period 2000-2008 and declines by 0.3% per year to 2030. Let me repeat that *THE IEA* says that OECD oil consumption is in decline, permanently. Its also significant that in their report they say Non-OPEC oil supply declines from 2010. So all those arguments about technology, increasing recovery, a new Middle East in the Arctic... all amount to nothing at least in the entire Non-OPEC part of the world where all those clever western oil companies do their business. All the peak oil analysis that youve read here still suggests that the IEAs forecast is too optimistic, for both OPEC and Non-OPEC parts of the world. And the IEA whistleblower also claims that their forecasts are inflated. But a peak is still a peak, and the IEA now says that OECD oil demand is in decline and will not recover the levels prior to the financial crisis. This seems to me like a dramatic statement for the IEA to make. This official forecast from the agency representing OECD nations, now conflicts with just about every one of its individual members own forecasts (and that of just about every private enterprise). To convince decision makers of the inevitable oil decline facing us, we no longer need to refer to the online analysis by peak oil bloggers. You can simply tell your president, chief, boss and your neighbour: The IEA says our oil consumption is going down, what are you going to do about it? As a footnote, it appears that the IEA is in good company with their updated forecast. Stuart Staniford, now writing at Early Warning, has been exploring recent trends in oil consumption. He also finds that the strong developing economies and the oil exporting nations have a firm balance of trade basis on which to continue increasing their own oil consumption, albeit it at perhaps lower than recent rates, even as high prices and/or hard times hurt elsewhere. Even without a peak in oil supply, Stuart shows that OECD nations will start taking a big hit in oil consumption over the next few years. Any real economic recovery (yet to be sighted) is going to hit a brick wall very quickly if we stick to the old ways of using and abusing oil. Analysis of the Supply and Demand Microeconomics is the section of economics analyzing the market behavior of certain customers and organizations. It attempts at understanding the procedure through which decisions are made within a home or organization. It has a relation with the interaction taking place among the particular consumers and sellers plus the elements which have an impact upon the selections that the consumers and sellers make. Particularly, the focus of microeconomics is upon the trends about supply and demand plus also how the price and yield are determined regarding particular markets. Law of demand The law of demand defines that: If supply of a certain commodity remains same, the higher the price of a commodity, the lower the quantity of the same commodity will be demanded by the people. There is a negative relation between price and demand of a commodity. for instance if a commodity price will rise gradually the people will less demand for the same commodity as shown below on the diagram. In the above diagram three point A, B and C represent the demand curve. Each point A, B and C display a negative relation between quantity (Q) of a commodity and price (P) of commodity. On the demand curve we can observe that at point A the quantity of a commodity will Q1 and price will be P, so at any point on the demand curve we see there an opposite reflection between quantity and price. Therefore, if the higher the price of a commodity at point (P1) the lower the quantity demanded at point (Q1). Law of supply The law of supply defines that, The higher the price of a commodity the higher the quantity of the same commodity will be supplied by the producer of the concerned commodity. It means if the price of a commodity will go up then the higher quantity of the particular commodity will be supplied in the market by the producer. Producers will supply more quantity of a commodity at a higher price because in this case it will generate more revenue for the producer of commodity. In the above diagram three point A, B and C represent the supply curve. Each point A, B and C display a direct relation between supplied commodity quantity (Q) and price of the same commodity (P). We can observe points A, B and C if gradually increases the price of a commodity the same increase the supply of the same commodity Relation between time and supply Time is crucial to supply a commodity because suppliers cannot always react instantly as required. Therefore, it is necessary to know for the suppliers of commodity that the price change caused by the demand is temporary or permanent. Other variables Other variables that can directly affect the supply and demand will be consumer taste, income, expectations or variations in the price of related goods. Supply may vary in response to change in technology, resource price or other variables. Our analysis will be incomplete without considering the effect of change in supply and demand on equilibrium price. Equilibrium state of economy Equilibrium is the state where the supply and demand are equal. Therefore, when the demand curve intersects the supply curve we can say that the economy is at Equilibrium because at this point the portion of goods supplying is equal to the required demands. For example, the commodity being supplied as same as the amount of commodity demanded then in this condition individuals, firm or countries are fully satisfied, so, at the given price suppliers sell their all goods which they have produced and customer (consumers) get the their desired goods that they demanding at the optimum price. The above chart shows that the Equilibrium occurs when a demand curve intersect the supply curve. In this position, the price for the commodity will be (Q) and quantity of commodity will be (P) which mean these are equilibrium price and demand but this is a theoretical state in the real business and practically it is not possible because the prices of commodity and services regularly changing due to fluctuation in demand and supply. The market for crude oil The International Energy Agency (IEA) announced a shocking forecast about a demand and real consumption about oil. The forecast shows that OECD (Organization for Economic Co-operation and Development) the crisis of demand and consumption of oil has disclosed and it is clear from the figures that the world economy has not recovered from this financial crisis yet. Since, change in primary oil demand by region and sector in the reference scenario of IEA for 2007-2030 is shown below: Moreover, on the recent editions IAE of their World Energy Outlook is forecasting a decrease of total oil supply for 2030. As it showing a decline demand in oil supply for OECD countries that will not be a good opportunity for OECD countries To fulfill the demand of oil, it is projected that an average increase by 1% per annum should be produce and that is from 85 million barrels per day in 2008 to 105 million per day in 2030. Despite of this, all the growth of oil comes from non-OECD countries that are denying the demand of OECD. Moreover the IEA could not be able to produce the estimated demand of oil; In fact, the table shown below is highlighting the overall figure of the total oil demand produced. Since the scenario for oil production is not looking beneficial. The peak demand for oil presented by OECD was in the time period 2000-2008 and it is showing decline by 0.3% per year until 2030. While IEA has also added in their report that the non-OPEC oil supply will start to decline from 2010. It means that all the statement given before about advanced technology and a new Middle East was just a rumor. Except those non-OPEC western oil giant who find a new way to run their businesses through that. The author also declares that all the statements presented by IEA, for OPEC and non-OPEC, was not true. Even some of the IEA officials also said that their forecasts are not more than the air balloon. But now some of the reporters reported that IEA changes its statement and the OECD oil demand will go in further decline and would not get well to the levels before the financial crisis. But according to the author this is just an emotional statement from the IEA to present their forecast from the bureau representing OECD nation countries. According to author the IEA is a well known organization that presented such an updated forecast report. Stuart Staniford, a famous writer of Early Warning, has been studying recent tendency in oil usage. He explores that well developed and the nations that export oil seem to be having strong balance of trade basis alternatives whereupon they can keep on raising their own oil usage rather depending on other countries. It means that some countries have the tendency to cover their oil demands and they should look forward for those ways rather than depending on other countries. References Frank, R.H., & Bernanke, B. 2001. Principles of microeconomics. McGraw-Hill/Irwin. Hart, P. 2009. International Energy Agency calls Peak on OECD Oil Demand. http://anz.theoildrum.com/node/5990#more (accessed 18 January 2010). Samuelson, P.A. 2009. Microeconomics. New York: McGraw-Hill. Tregarthen, T.D. 1996. Microeconomics. Worth Publishers. Read More