Bill Totten's Weblog

Wednesday, February 09, 2011

Warning for Rapidly Rising Oil Prices

by ´╗┐Kjell Aleklett, ASPO President (February 05 2011)

About ten days ago Lasse Sward from Dagens Nyheter [Sweden's widest circulation broadsheet newspaper] rang me to discuss oil. We had a very interesting conversation for around two hours. Today, Saturday, I can read how well he understood our conversation. The electronic version of the article has the headline "Strongly rising oil prices" and what we see is that Brent crude has passed $100 per barrel. The unrest in Egypt is certainly contributing to the price rise but there are other factors that are also driving the price. I am pleased with how Lasse Sward has reported our discussion.

Sward has also interviewed the managing director of the Swedish Petroleum Institute Ulf Svahn. Svahn cannot understand why the price is rising and cites that a large reserve production capacity of six million barrels per day currently exists compared to reserve capacity of two million barrels per day three years ago. I strongly doubt those reserve production capacity figures. According to our and the IEA's calculations, production in those oilfields that were in production three years ago has declined by twelve million barrels per day. To see growth in reserve production capacity from two up to six million barrels per day would require the oil industry to have brought on line new production capacity of (12 + 4) = sixteen million barrels per day during the past three years which is not the case. Rather, the decline in price after 2007 meant that many projects were postponed.

What happened since 2008 is that ethanol production has increased markedly and ethanol can replace gasoline but not diesel production. That means that there is greater pressure on diesel production and we can expect that the price of diesel will rise, which it is currently doing (see graph in DN) . The oil price has now risen so high that the US economy is beginning to experience problems and if the price approaches $150 per barrel it is very likely that the world economy will slow again. What is certain is that without the ethanol as a part of our fuel supply for transport we would already be there. Currently it is alcohol that is lifting the spirits of the world economy!


´╗┐Kjell Aleklett is Professor in Physics at the Department of Physics and Astronomy, Global Energy Systems Group (former Uppsala Hydrocarbon Depletion Study Group) at Uppsala University.

This entry was posted on Saturday, February 5th 2011 at 3:29 pm and is filed under Dagsaktuellt. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

Bill Totten


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