World Energy Outlook 2012: High Priced Oil

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High Priced Energy/Low Priced Energy

Anyone looking for respite on the oil price front will find nothing of solace in the latest edition of the IEA's World Energy Outlook. Its 2012 edition is a recap of extreme spending wishlists and want-its in global energy, at least the way the IEA sees world energy. Some estimates (including its own) for IEA must-spend action in world energy to 2035, to ensure "energy security and climate stability", are as high as $45 - $50 trillion. The likelihood of this actually happening, of this investment and development spending taking place, are at best minimal.

In a recent Financialsense.com post, "The Price for Energy Independence", (20 November) Jeff Rubin rightly said: "It doesn’t really matter whether the US drills for its own oil, gets it from Canada, or ships it in from Venezuela or the Middle East. Hostile or friendly, no foreign supplier has turned off the spigot. At least not since the last OPEC oil shock three decades ago". He then goes on to underline the real problem with world oil: "The problem for oil consumers right now isn’t the availability of the fuel, but the price needed to get it out of the ground. Unfortunately, that’s already more than we can afford".

US energy independence could for example be compared with Switzerland's or Singapore's energy "independence": these totally oil import-dependent countries are a long way on the right and correct side of the fiscal cliff and sovereign debt implosion. As a political quest, for sure, energy independence and security is a nice idea - but if it takes $110-oil to lever the E&P and the development, we can ask if there might be other better ways to spend the money?

The IEA Moves On

The IEA's flagship annual study, the World Energy Outlook, is described by the IEA's chief economist, Turkish-born Fatih Birol as "treading a fine line", between its mandate, and its recent and present policy interests, fantasies, or foibles. The Agency describes itself, in each issue of the WEO, as an "autonomous agency established in November 1974" with its primary mandate, which it says it continues to pursue, being two-fold: to promote oil supply security amongst its now-28 member countries through "collective response to physical disruptions in oil supply", and also to provide "authoritative research and analysis on ways to ensure reliable, affordable and clean energy" for its exclusively OECD member countries. The adjective "affordable" is surplus.

A quick flashback to November 1974, in the wake of the Arab oil embargo, shows that the "founding fathers" of the IEA, Richard Nixon and Henry Kissinger, set the future IEA as a second-best to what they really wanted to do at the time: invade and occupy Saudi Arabia to restore the free flow of cheap oil. Their IEA was a conflict-based entity created to confront Arab oil exporters intent on what Nixon and Kissinger said was their real agenda - ruining the economy of the richer nations by driving up the price of oil, or withholding supplies of oil, which is basically the same thing.

Times have changed and by a strange irony, or alchemy, the IEA itself and today defends high-priced oil, high-priced energy, and high-priced carbon emissions trading.. Describing today's WEO as "designed and directed" by himself, in interview with European Energy Review (15 November 2012), Fatih Birol went on to say that the IEA, these days, is pushing two new and global themes on the energy agenda: universal energy supplies for all, and massive response to global warming crisis. Birol added the claim that these two new public policy roles of the IEA "are not very fashionable". This is highly debatable - both of these subjects are high-level agenda items on a string of high-level conferences organized and paid for by the UN and its agencies, for at least the last 20 years.

We can in fact argue that this year's WEO is nothing but "fashionable". In its overview it says the global energy map is changing because of the resurgence in US oil and gas production and may be further reshaped by a retreat from nuclear power in several OECD countries, very fast growth in the use of wind and solar technologies, by the ongoing explosion of shale gas and stranded gas discoveries, development and production. - but absent from the IEA's list of mega changes, world energy and the global economy are heavily affected by continuing and unrealistically high oil prices.

Staying highly fashionable, at least to global elites, the IEA in this years WEO maintains the claim that  the world is still failing to put the global energy system "onto a more sustainable path". Without mentioning this anywhere in the WEO, we could surmise that overpriced oil is something we are supposed to take as "a proof that world energy is unsustainable".

And Moves Back to Global Warming

In particular this concept of "sustainable/unsustainable" hinges on the fashionable-for-elites obsession with climate change and holding down the growth of CO2 in the atmosphere. For the IEA this is now one of its most important work programs and themes. The IEA is adamant that there will be "catastrophic change" of pretty much everything, if CO2 exceeds a limit of 450 ppm (parts per million) in the atmosphere "by about 2035-2045". The goal posts of dates and rates of greenhouse gas build in the atmosphere, and the supposedly automatic and concominant rise of world temperatures are often shifted around, in IEA publications, as they are in IPCC publications.

We can however note that in this 2012 edition of the WEO, the IEA is heavily convinced it is either completely impossible or at best very unlikely to limit the growth of CO2 in the atmosphere to 450 ppm by about 2035-2045.

Anybody who thought that global warming fear was no longer fashionable needs to step aside. Freshly re-elected, Barack Obama lost no time in saying at one of his first press conferences that he is personally convinced global warming from human CO2 emissions is real, and a problem. More prosaically, his search for a quick rise in Federal tax revenues has refocused US elite thinking towards the attractive ease of a levying a new energy tax "to save the climate", and garner a hoped-for $100 billion in its first year of operation.

The IEA's WEO of 2012 is nothing but fashionable in this respect. Again without this ever being mentioned in the WEO or other IEA publications, we can assume that high oil prices, perhaps in unexplained or even mystical ways "help the fight against climate change". Showing massive elite schizophrenia, however, the IEA continues to say that it wants cheap (or at least affordable) energy for everybody. At one and the same time, it also says that the critical need to prevent "the 450 ppm CO2 limit" being exceeded means that the IEA must also militate for high energy taxes, carbon offsets and trading, feed-in tariffs and any other possible way to effectively raise final energy prices. $100 oil, with this agenda, is completely logical!

The IEA's approach to global warming and "the 450 ppm limit", which it equates with a 2 degrees C rise in world average temperatures above the 1800-1960 average, by about 2040 (although it feels free to change the goalpost reference dates for world temperatures, when it wants) is to describe this quest as "vital and obligatory". There is absolutely no room for discussion on whether global warming is real! This is the most unfashionable-possible question for all global elites, at least in OECD countries: is global warming real or only a few-decade trend, now reversing?

The IEA's Ambassador Richard H Jones, speaking at the April 2012 London "Clean Energy Progress" conference felt free to say that world average temperatures will "probably almost certainly" rise by about 6 degrees C by "about 2050", when opening the conference. This is a lot more than world temperatures rose following the last Ice Age - and taking several thousand years to do it. With a crisis like that facing us, we can guess, $100-oil is the least of our problems!

The IEA's fashionable pessimism on global warming is very clear. This year's WEO presents its "450 Scenario" where it finds that "almost four-fifths of the CO2 emissions allowable by 2035 are already locked-in by existing power plants, factories, buildings, etc". This motivates its claim that much more intense, possibly harsh, and "unfashionable" actions to reduce CO2 emissions must be taken before the 2017-2022 period, the dates at which the IEA forecasts that "all allowable CO2 emissions" would be locked-in by existing energy infrastructures and systems. High energy taxes (called "carbon taxes") are an obvious part of the wishlist.

No Cheap Oil

The IEA's wishlist of New Energy spending is available on its Web sites. It is a stunning list of schizophrenically-different would-be's and want-its, in world energy. These range from every conceeivable type of fossil energy, to renewables, to energy saving. One example is Global CCS or "clean coal", with the IEA rooting for continent-wide CO2 pipeline networks, and of course CO2 repository trading on a 24/7 basis, for every single thermal power plant (except nuclear, if they still exist in 2035), iron and steel works, and major cement plants. This is estimated to possibly cost about $5 trillion to achieve, only in the OECD countries, if it was feasible. According to the IEA, Global CCS is "obligatory" in the OECD by at latest 2030-2035.

Regarding oil prices, this year's WEO is we can surmise elite-fashionable in forecasting a year average oil price of $215 per barrel in 2035, and prices as high as a year average $175 per barrel by 2017. OPEC and Russia will (according to the same IEA which tells us the USA may exceed Saudi oil output by 2020) be "back in control" of world oil export supplies. Continuing its oil outlook, the IEA says that only Iraq, despite being a nominal member of OPEC, can "save the day" due to its oil export supply capacity growing every year from 2012, and particularly fast through 2012-2022.

This IEA long-range oil price forecast, we can note, is despite the nearly incredible spending the IEA says is necessary and assumes will happen, in a huge range of non-oil fossil and renewable energy technologies, and in energy efficiency and conservation. Despite this spending, we are invited to believe, global oil demand can only increase, but global oil export supplies will not. Almost incredibly, this year's WEO waxes fearful about the threat to nuclear power, saying: "The anticipated role of nuclear power has been scaled back as countries have reviewed its role" - the Fukushima Factor - ignoring the plain fact that nuclear power is expensive and is being replaced by cheaper alternatives.

The IEA also claims that the accelerated deployment of energy-efficient technologies – described as the "Efficient World Scenario" – would postpone this complete lock-in to high priced energy, to 2022, buying 5 years more time for global political leaders to achieve a worldwide pact to cut greenhouse-gas emissions and establish emissions trading on a permanent basis. This would of course raise final end-user energy prices, especially for electricity. In no way does the IEA say that its "Efficient World", or its "450 ppm" world are anything to do with lower priced oil. The higher goal, for the IEA, is very simply Saving the Planet.

Fashionable for Some

The IEA's voluntarily and very alarmist line on CO2 emissions is certainly fashionable to the IPCC and FCCC, the present "UN-related" but not UN-status climate change entities, whose current low-profile is very likely going to change, as global warming fear is relaunched in the world's media. Both of these "UN-related" climate change entities are currently locked into dispute with the UN concerning their diplomatic and legal status - if they do not obtain full, ironclad UN status, both can be legally pursued for lying, which helps explain their recent low profile.

The IEA's WEO of 2012 can be seen as a clear signal that global warming fear is "coming back out of the shadows", again. This is also shown by rising World Bank and IMF "alarm" on the subject. The most simple basic cause is that the USA had a very hot summer in 2012, and hurricane Sandy left a trail of heavy damage, also in the US. Almost nothing else lends credibility to now increasingly-dated global warming fear.

The keyword "allowable" CO2 emissions is freely used by the IEA. This concept of "allowable" emissions on a global basis is directly obtained from IPCC reports, studies and advocacy over the years since its founding in 1988, and particular since 2007. These greenhouse gas emissions limits we can note, do not include global emissions of CO2 and CH4 (methane) from gas flaring, venting and leakage from oil and gas production, and gas pipeline and LNG transport; they do not include global coalmine CH4 emissions (roughly estimated at several billion tons CO2 equivalent, per year); they also ignore methane hydrate evaporation and leakage, the amounts of which are unknown but may be large. The IPCC in particular makes a point of massively underestimating natural emissions of CO2, and to a lesser extent natural emissions of CH4, and a long list of the other GHG, especially sulphur oxides.

The IPCC brushes aside any and all talk of anthropogenic climate change - versus global warming - due to deforestation, agriculture, urbanization and other land use mega changes, let alone climate change due to Earth orbital variations, solar output variation, cosmic radiation and other "unfashionable" causes of climate change. The common denominator of these "no-no candidates" is they do not have easily identified, easily measured - and easily taxed - upstream energy sector linkage. The IEA's interest in 450 ppm CO2 is therefore totally logical: it is the OECD's energy agency, and energy taxation, investment and spending are central issues for the IEA.

The favoured and precise-seeming estimate of "human CO2 emissions from the energy sector", used by the IPCC, is that these totalled 31.6 billion metric tons CO2 equivalent on a 2011 basis. Commenting these figures released in May 2012, Fatih Birol in interview with Reuters said: "When I look at this data, the trend is perfectly in line with a temperature increase of 6 degrees Celsius by 2050, which would have devastating consequences for the planet".

Oil, we can note has a lot less to do with this, compared with coal. Real figures for all human-source and human-related "CO2 equivalent" greenhouse gas emissions however and in fact may surpass 75 bn tons/year and could or might top 100 bn tons/year. More important, a huge proportion - probably more than 85% - is impossible to reduce, firstly because these emissions are from unknown or only partly identified sources, or from widely spread sources (such as agriculture and from road, rail, air and marine transport). Natural emissions of all GHG are certainly at least 10 times larger than all human emissions, and by definition are incompressible - if we forget pathetic attempts at changing the gut and stomach flora and digestion processes of cows or kangaroos, by Australia's CSIRO, through genetic manipulation "to cut their GHG emissions".

Not Unfashionable for the IEA: Overpriced Oil

No trace of unfashionable reality impinges on the IEA. The hushed and well-guarded corridors of its Chateau de la Muette HQ in the eastern suburbs of Paris hum with its new, supposedly "unfashionable" quest to Save the Planet. To do this the IEA is now an unavowed, but real shill for high oil prices.

This year's WEO is "affected by reality" to the extent it has to admit, in its own way, that the founding mandate of the IEA - keeping oil prices down for OECD importer countries - has been totally abandoned. Only in late 2012 has the IEA given up (probably on a temporary basis) issuing alarming news briefs on the threat of permanently high oil prices "just around the corner". In present day IEA logic these warnings are completely coherent with its Save the Planet quest: when oil prices reach "an average of about $175 per barrel", which is a recurring prediction of the IEA, it is evident that alternate, renewable, low carbon or at least non-oil energy will be fashionable although levying higher and further taxes, on oil, may become "unfashionable".

Oil prices far above $150, and other fossil energy priced up (by carbon taxes) to similar final user price levels are, for the IEA, welcome because they make "all things possible". One of these, as we noted, is the elite theme of Global Carbon Capture and Sequestration (CCS), to be applied worldwide "before the end of the century", and in the OECD countries by "at latest 2030-2035".

The IEA's new "green agenda", and its schizophrenia is shown by this year's WEO giving space to the "water crisis" of world energy and the energy sector's impact on food production due to the water needs of energy production and power generation. To be sure this provides an "opportunity window" to consider taxation or limitation of "racking" which is an enourmous consumer of water. Also among the key causes of rising energy-sector water needs, and a rising impact on food prices, the IEA is forced to underline that "current generation" biofuels are water-intense, but the IEA officially supports and promotes the further increase of biofuels production, while it has an increasingly "studiously neutral" line or pitch regarding hydraulic fracturing.

For the short-term, it is certain the IEA will go on pushing its "450 ppm scenario", in an almost certainly coordinated effort with the World Bank and IMF, and ruling political parties in several leading OECD countries. The target is worldwide carbon taxation and emissions trading, possibly linked with the supposed goal of the IEA "to enable universal access to clean energy". Affordable, in this real world outlook, drops right off the agenda, and especially when it concerns oil prices.

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