Deutsche Bank Research
Report
2 December 2004
"Energy Prospects After The Petroleum Age"
('Deutshe Bank is one of the world's leading think tanks, for economic, societal, and financial-market trends")

"The signs are mounting that a physical scarcity of mineral oil must be expected much sooner than anticipated.... In all probability a battle will break out over shares in the globally diminishing [oil and gas] reserves, particularly of oil..... the really interesting date is not the time at which the use of reserves comes to an end, but the time of maximum production. When output starts to decline from this peak, with demand remaining constant or even continuing to rise, strong reactions in prices and economic upheaval are possible..... The end-of-fossil-hydrocarbons scenario is not therefore a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years and decades that must be taken seriously. Forward-looking politicians, company chiefs and economists should prepare for this in good time, to effect the necessary transitions as smoothly as possible....   The six Gulf states Iran, Iraq, Qatar, Kuwait, Saudi Arabia and the United Arab Emirates (the so-called Gulf OPEC) are where two-thirds of the world’s deposits are located.... the production increases expected from the Caspian Sea and Russia are not enough to satisfy growing world demand for oil. Because of this, and also to balance out the probable declines in output from other regions, the Gulf OPEC will have to step up their oil production on a massive scale. The result will be even greater dependence on that region.... About 70% of natural gas reserves are located in the Gulf region (36%), around the Caspian Sea (5%) and in western Siberia (31%).... Disturbances in the transport infrastructure (e.g. from attacks) could massively impair the security of energy supply, because pipeline systems are comparatively rigid structures and routing is relatively inflexible.... The emerging supply and demand trends in mineral oil and natural gas highlight the fragility of our present-day sourcing structures. Seventy percent of conventional global oil reserves lie in the region extending from the Middle East to western Siberia, which geographically forms an ellipse. And extending this ellipse slightly northwards, almost 70% of the world’s conventional natural gas reserves are also located there. On the supply side, we thus find a concentration of major energy sources in comparatively insecure regions, whose importance will grow considerably in future. To accentuate the region’s outstanding significance for the longer-range security of energy supply, the term 'strategic ellipse' has been coined for it... Going forward, the supply situation will become increasingly critical in the markets for mineral oil and, later, natural gas. At the latest when demand outstrips reserves, energy prices will climb significantly."
Energy Prospects After The Petroleum Age
Deutsche Bank Research, 2 December 2004

Selected Extracts
For Full Report Click Here

• At the latest when discoveries of new reserves fall short of demand – which may be the case in just a few years for oil, and slightly later for natural gas – energy prices will climb significantly.
  
• The supply situation is being made more acute by the growing hunger for energy in China and India.
  
• This foreseeable shortage must be addressed with intelligent, future-proof strategies. In the longer run, securing energy supplies will be possible only with a broad range of measures. The needs of the moment call for the use of
  all available levers – the diversification of energy carriers and technologies and the mobilisation of all conservation, reactivation and efficiency-boosting strategies.
  
• Massive R&D efforts are needed to smooth the way to solar hydrogen energy. Decentralised supply structures on the basis of efficient fuel cells would reduce the risks of widespread power outages. Moreover, particularly in
  private consumer sector, still too little attention is being paid to energy conservation and efficiency.
  
• In the period to 2030 alone, the investment required to modernise and expand the energy supply infrastructure in the world will cost USD 16 trillion. The bulk of this, almost USD 10 trillion, will have to be spent on the electricity industry,
  more than USD 2 trillion of the total in China.
  
• The reliability of the major oil exporter, Saudi Arabia, which has traditionally assumed the role of swing producer in supply emergencies by boosting or curbing oil output to balance out the market, has been cast into doubt. The fall of the House of Saud would have a markedly destabilising effect on the oil market.
  
• The signs are mounting that a physical scarcity of mineral oil must be expected much sooner than anticipated. Extreme forecasts predict that production of known reserves will already peak at the end of this decade.
  
• The European Commission gave a timely warning that the crisis in the supply situation was coming to a head. With crude oil prices having risen threefold since March 1999, at the end of 2000 the Commission presented its Green Paper “Towards a European strategy for the security of energy supply”, stating that without an “active energy policy” in the next 20 to 30 years 70% of the Union’s energy requirements would have to be met by imported products (as
  opposed to 50% at the time of the study).
  
• In geopolitical terms, 45% of oil imports come from the Middle East and 40% of natural gas from Russia. This increasing dependence, the Commission says, has implications for all sectors of the economy: transport, the private
  consumer sector and electricity generation are at the mercy of erratic swings in world market prices for oil and gas. But this certainly does not imply that the Commission is seeking to maximise energy self-sufficiency. Its aim is to achieve a balance between, and diversification of, the various sources of energy and geographical regions. Initiatives, strategies and measures are needed to increase the security and cost-efficiency of energy supply.
  
• On a global scale mineral oil and natural gas are the most important sources of energy in volume terms. Together, they constitute 68% of world output of non-renewable energy-producing raw materials, and they cover 65% of non-renewable primary energy use. At 27%, coal also accounts for quite a high proportion of both production and
  consumption, while uranium posts shares of 5% and 7% respectively.
  
• Non-conventional reserves of oil are equivalent to (only) 43% of conventional reserves. But non-conventional resources are three times higher than conventional. However, three-quarters of such resources consist of oil shale, whose use is
  comparatively expensive and entails environmental problems.
  
• Meanwhile, production costs for tar sands and extra heavy oil (accounting for roughly one-quarter of resources) are approximately on a par with the levels for conventional oil, as shown by projects in Canada and Venezuela. The outlook is thus far more benign than with oil shale.
  
• Even so, use is likely to remain restricted to specific regions in the coming years.
  
• Non-conventional reserves of gas are relatively low, as the technology available so far permits extraction only from porous reservoir rock and coal seams. However, the BGR reports seven times higher non-conventional than conventional resources. In contrast to its reserve estimate, the gas occurring in aquifers (gas dissolved in deepwater fields) and hydrates (ice-like crystalline solids formed from a mixture of water and natural gas) is also included here. Estimates of gas potentials still feature a high degree of uncertainty. However, consensus does exist among experts that, from a geological point of view, the supply outlook is slightly more favourable than for oil.
  
• Given the very limited availability of non-conventional stocks in the short and medium range, the hydrocarbon era is increasingly likely to be coming to an end. The BGR has calculated that, between the beginning of industrial oil production and the end of 2001, 46% of the conventional mineral oil reserves hitherto identified had already
  been extracted. Even including the resources expected, this is still 35% of the total conventional potential. On the assumption of constant annual output and with the given reserves, the federal agency expects the “depletion mid-point” – at which half the oil presumed to exist throughout the world has already been produced and used – to be reached within the next 15 to 20 years.
  
• The outlook for natural gas is similarly negative, as half of all the global conventional reserves are expected to have been depleted as early as 2019. However, given the progress in exploration and production technology, new finds boosting reserves and lifetimes are more likely than with oil. The turning point will therefore presumably be reached somewhat later.
  
• On a longer horizon the signs point to an increasing scarcity of hydrocarbons. If only for this reason, and setting aside any politically motivated supply crises, in a few years the price of oil (and later gas) can therefore be expected to trend upward. In all probability a battle will break out over shares in the globally diminishing reserves, particularly of oil. One major factor is that, as a rule, energy producing raw materials also constitute important basic raw materials for non-energy uses.
  
• So from an economic point of view, the really interesting date is not the time at which the use of reserves comes to an end, but the time of maximum production. When output starts to decline from this peak, with demand remaining constant or even continuing to rise, strong reactions in prices and economic upheaval are possible.
  
• ExxonMobil expects 80% of additional global demand for energy up to 2020 to come from the developing
  countries.  In the worst-case scenario, the already emerging widening of the supply/demand gap could trigger a shortage shock leading to a price crisis. This would also impact world economic development.
  
• Venturing to look farther forward on the supply of energy, say to the end of our century, by then the future will already be behind us, at least in terms of petroleum. The end-of-fossil-hydrocarbons scenario is not therefore a doom-and-gloom picture painted by pessimistic end-of-the-world prophets, but a view of scarcity in the coming years
  and decades that must be taken seriously. Forward-looking politicians, company chiefs and economists should prepare for this in good time, to effect the necessary transitions as smoothly as possible.
  
• The six Gulf states Iran, Iraq, Qatar, Kuwait, Saudi Arabia and the United Arab Emirates (the so-called Gulf OPEC) are where two-thirds of the world’s deposits are located. And moving forward, these reserves will assume even greater importance, because the IEA estimates that exploitation of the Gulf reserves is progressing at a considerably slower pace than in other important regions.
  
• Moreover, the production increases expected from the Caspian Sea and Russia are not enough to satisfy growing world
  demand for oil. Because of this, and also to balance out the probable declines in output from other regions, the Gulf OPEC will have to step up their oil production on a massive scale. The result will be even greater dependence on that region.
  
• About 70% of natural gas reserves are located in the Gulf region (36%), around the Caspian Sea (5%) and in western
  Siberia (31%). Adding the reserves in North Africa and Europe, the total climbs to as much as 80%. In the period to 2030 reliance on imports will build up perceptibly in the major consumer regions. As regards the longer-term security of
  supply, it is of great benefit to Europe that roughly four-fifths of global reserves lie within a radius of 5,000 km from its centre.
  
• This geographic proximity makes transport via pipeline possible. So far, the organisation of European natural gas imports through pipelines has had the advantage of creating mutual dependence between the supplier and consumer countries. And, indeed, in the past there have been no interruptions in delivery (e.g. from Russia). In future gas could be transported from deposits around the Gulf (e.g. Iran). But pipeline projects are extremely cost-intensive. Favourable financing terms are obtainable only when the overall conditions can be deemed stable. Disturbances in the transport infrastructure (e.g. from attacks) could massively impair the security of energy supply, because pipeline systems are comparatively rigid structures and routing is relatively inflexible.
  
• The emerging supply and demand trends in mineral oil and natural gas highlight the fragility of our present-day sourcing structures. Seventy percent of conventional global oil reserves lie in the region extending from the Middle East to western Siberia, which geographically forms an ellipse. And extending this ellipse slightly northwards, almost 70% of the world’s conventional natural gas reserves are also located there. On the supply side, we thus find a concentration of major energy sources in comparatively insecure regions, whose importance will grow considerably in future. To
  accentuate the region’s outstanding significance for the longer-range security of energy supply, the term “strategic ellipse” has been coined for it.
  
• It should be made quite clear in the dialogue between Europe and Russia that Russia will retain its position as Europe’s major energy and natural gas supplier, with long-term supply contracts providing security for investors. That said, management of the supply flows to Europe should under no circumstances be left to Russia alone. In recent months, Russia has already perceptibly increased its influence over the big deposits in Turkmenistan and Kazakhstan and
  the transport route across Ukraine with the recent signing of longterm contracts. There is a danger of this influence being extended to the gas-rich supplier and transit country Iran. This Russian gas policy runs counter to the European Union’s longer-range supply and competition interests. If gas transports are monopolised before they reach central Europe, a free and open market cannot arise.
  
• Without independent transports from the major supply countries, low, competitive prices and the supply of energy through diversification are hardly possible. Therefore, the EU urgently needs a modern geopolitical orientation.
  
• The IEA puts the investment needed to modernise and expand the energy supply infrastructure in the three decades up to 2030 at USD 16 trillion worldwide. The agency’s estimates are based on twothirds growth in global demand for energy. The focus of investment is in the electricity industry, with capital expenditure of almost USD 10 trillion. Of this, China accounts for more than USD 2 trillion.
  
• Going forward, the supply situation will become increasingly critical in the markets for mineral oil and, later, natural gas. At the latest when demand outstrips reserves, energy prices will climb significantly. This foreseeable shortage must be addressed with intelligent, future-proof strategies. In the longer run, only a broad range of measures will secure energy supply. Betting on only one card entails the risk of ultimately being left empty-handed. The needs of the moment call for the use of all available levers – the diversification of energy carriers and technologies and the mobilisation of all conservation, reactivation and efficiency-boosting strategies.

Back To
Peak Oil To Arrive As Early As 2014

"The energy crisis we are in today is entirely different from the temporary problems we experienced in 1973-74, 1979-86, 1990-91 and 2000..... There was always sufficient worldwide geological capacity to produce additional barrels of crude oil to meet the world's needs. No longer. In the next major energy crisis, that capacity will likely be eroded. So the crisis should have a severe impact, be global in scope, and be difficult to solve. Plainly, it will be unprecedented.... Over the next 25 years, a new world energy economy will arrive in three waves. We are near the top of the first and smallest one, a warning wave. A second more powerful wave likely will hit in the 2009-2010 period when the non-OPEC world may reach its all-time highest output of crude oil, subsequently declining to become ever more dependent on OPEC for incremental barrels of production. The final wave should break around 2020, or earlier, as even OPEC's vast reserves are tapped at a maximum rate of production. After that, oil volume should head down and keep falling, never to revive..... An international economic disturbance of this magnitude will create potential conflicts between nations and civil competition within societies. These could be a trial for us and for our children, made worse in the early years by our lack of preparation and our failure to understand what is already happening to us."
 The Gathering Storm
Energy Bulletin, 15 November 2004

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