The US Dept of Energy’s Energy Information Administration (EIA) is one of the world’s most widely watched data crunchers. It’s also the object of much skepticism, particularly as its long-term projections for global oil production growth are concerned.
On May 25 the EIA published highlights from its forthcoming International Energy Outlook 2010 (IEO). (The full report will be released in July.) The data and forecasts released last month reveal a startling shift in the EIA’s position in the “Peak Oil” debate.
As recently as 2007 the EIA estimated oil supplies would increase largely in step with demand. But the new IEO predicts that through 2020, a period during which China will hit its economic growth stride, no year in which liquids production will increase by even 1 percent. Petroleum liquids supply increases by an average of 0.6 percent per year from 2011 to 2020. In other words, the EIA is expecting the oil supply to be essentially flat for the rest of the decade.
The supply will creep up from 86 million barrels per day (Mbpd) today to approximately 92 Mbpd to 2020, but that’s not much growth, and indeed, is about the same as current global liquids production capacity. Moreover, it represents a reduction of nearly 4 Mbpd from last year’s forecast for 2020. The EIA, considered a cheerleader for production growth, is now one of the most pessimistic production-growth forecasters.
Meanwhile, energy consumption in non-developed countries will be 84 percent higher by 2035. Over the same period, energy use in the developed world will grow by 14 percent. The EIA says oil will remain the world’s largest energy source, with transportation being the key driver of oil demand. China is already the world’s largest car market and is expected to continue to its automobile fleet over the next 25 years.
Energy use for transportation in the developing world is forecast to rise 2.6 percent a year through 2035, while in the developed world growth will remain essentially flat. This demand increase from the emerging economies will exert a huge impact on price. The EIA estimates oil prices will average USD79 a barrel in 2010, will jump to USD108 by 2020 and to USD133 in 2035.
The global recession “has had a profound impact on near-term prospects for world energy demand”–energy consumption declined by 1.2 percent in 2008 and an estimated 2.2 percent in 2009–but the IEO notes that “as the economic situation improves, most nations are expected to return to the economic growth rates that were projected prior to the downturn.” Though this “back to normal” forecast may be in keeping with the EIA’s reputation for rosy outlooks, the fact that developing nations are generating the strongest growth rates is not subject to debate. Average annual energy consumption is projected to increase by 1.4 percent through 2035, with non-OECD energy use rising 2.2 percent a year, and OECD consumption up just 0.5 percent, the report said.
“China and India are among the nations least impacted by the global recession, and they will continue to lead the world’s economic and energy demand growth into the future,” the report concludes. Together the two countries’ share of global energy consumption is expected to increase to 30 percent in 2035 from 20 percent in 2007 as “their combined energy use more than doubles by 2035.”
Heads and Tails
Today’s headlines suggest the Canadian dollar is rallying as a result of capital outflows from vulnerable euro-denominated assets into stronger currencies. At the same time, the loonie has drifted from above USD1 as recently as April 23 to well below parity with the buck on broader concerns about the durability of the global economic recovery. Is the Canadian dollar strong? Is it weak? Does it depend entirely on the economic health of its southern neighbor?
The loonie’s relationship with the per-barrel price of crude oil is well understood; prior to the onset of the global downturn it soared well above parity with the US dollar, reaching CAD1.07 per USD1 in November 2007. By March 2009 it had fallen to CAD0.77. Its trajectory mirrors that of oil, which traded above USD145 in the summer of 2008 before falling below USD34 before 2009 dawned.
Amid the peaks and valleys, however, can be seen a definite long-term uptrend that happens to correspond with the ascent of the per barrel price of crude oil to what is highly likely to be a permanently elevated station above USD60 that ranges in the USD80s and tops out in the triple digits. In short, the Canadian dollar is a petrocurrency; what’s bullish for oil prices is bullish for the loonie. And emerging “middle-class demand” means consumption of more and more oil.
In the short and even the medium term, heads or tails will dominate a coin-flipping series; in the short and medium terms what’s perceived to be a headwind or a tailwind will force the loonie higher or send it to loftier perches. Over the long term, however, the reality of “one in two” will govern the final count of heads versus tails; fundamental forces, primarily burgeoning middle-class demand in China, India and elsewhere in Asia, that will surge during the next 10 years support a stronger Canadian dollar.
What’s printed or posted today or tomorrow in big letters above a byline is largely the result of a hurried process that seeks to attract eyeballs. Always read the rest of the story.
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