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Wednesday, October 13, 2010

NZ Parliament Report Warns of Imminent Oil Shock

New Zealand is highly vulnerable to oil price shocks that are nearly certain to occur in the next few years according to a research report published by Parliament yesterday. Its an excellent report on peak oil and will be huge wake-up call for government and opposition MP's and their advisers.  It deserves the widest circulation.

The report states that another supply crunch is likely to occur soon after 2012, and high oil prices will be sustained in the future because low-cost reserves are rapidly depleting. It warns that the world and NZ's economy could suffer recurrent recessions as the price fluctuates.

It also warns NZ is highly dependent on oil imports and that our key export generating industries are vulnerable to oil shocks. The report also points out that domestic oil production will not insulate NZ from global oil shocks because NZ pays the world price for oil.

This is not a government initiated report .  It was written by Clint Smith a Parliamentary Library economics and industry research analyst.  The report has been published on the NZ Parliament website.

Here is the summary of the Reports findings....
  • Oil is "the lifeblood of modern civilisation ". This paper provides an overview of the global oil market. In particular, It examines the outlook for oil supply and demand over the next five years, and the economic consequences.Low-cost reserves of oil are being rapidly exhausted, forcing oil companies to turn to more expensive sources of oil. This replacement of low-cost sources of oil with higher- cost sources is driving the price of oil higher
  • While the world will not run out of oil reserves for decades to come, it cannot indefinitely continue to produce oil at an increasing rate from the remaining reserves. Forecasts indicate that world oil production capacity will not grow or fall in the next five years while demand will continue to rise. If oil production capacity does not rise as fast as demand, the buffer of spare production capacity disappears. In such a ‘supply crunch ’ the price of oil ‘spikes ’ to high levels. High oil prices can induce global recessions.Organisations including the International Energy Agency and the US military have warned that another supply crunch is likely to occur soon after 2012 due to rising demand and insufficient production capacity.
  •  There is a risk that the world economy may be at the start of a cycle of supply crunches leading to price spikes and recessions, followed by recoveries leading to supply crunches.
  • New Zealand is heavily dependent on oil imports and will remain so for the foreseeable future. While there is potential to substantially increase domestic production, domestic oil production cannot insulate New Zealand from global oil price shocks because New Zealand pays the world price for goods like oil.
  •  Key export-generating industries in the New Zealand economy including tourism and timber, dairy, and meat exports are very vulnerable to oil shocks because of their reliance on affordable international transport.


Greg said...

The report needs to explain why "the market" won't fix things for us.

(You and I know why biofuels and electric cars are going to be niche products at best; Clint's audience probably does not.)

Anonymous said...

It is sad that this report has not had more coverage in mainstream media. I guess people don't want or aren't ready for the truth...?

Anonymous said...

That article was a regurgitation of information that has been available for years.

You are right Greg, you do need to explain why the market won’t fix things. The following is a non-exhaustive list of things that are a direct market response to the high price of liquid fuels:

- oil shales
- tar sands/heavy oils
- horizontal drilling
- improved well extraction technology such as enhanced HP water injection systems
- deep oil
- Marginal oilfields such as Greenland being investigated
- Arctic oil
- Increased oil efficiency, such as hybrid cars
- Migration from oil use, such as electric cars
- Increase in biofuel
- Decrease in the use of fuel, such as increase in uptake of public transport
- Imminent increase in liquification of coal/gas

It seems to me that the market is responding to peak oil, and while it may not fix things, it will buffer them.

Denis Tegg said...

Take a look at
Searching for a Miracle - Richard Heinberg
Published Nov 12, 2009 Searching for a Miracle
‘Net Energy’ Limits & the Fate of Industrial Society...

Perhaps the most significant limit to future energy supplies is the “net energy” factor—the requirement that energy systems yield more energy than is invested in their construction and operation. This not something the market can solve. It concludes that no combination of alternative energy sources will ever be able to replace oil, and we face an imminent and steep energy descent.

And the recent report was so much more than a regurgitation of information.. much of the content was new .. quoting new reports only published this year... eg US Military etc

Anonymous said...

'Anonymous' doesn't seem to realise that it's not the size of the tank that matters, but the size of the tap. Cornucopians always concentrate on the former; realists on the latter.

Anonymous said...

With an ever increasing population - both nationally and internationally - and with finite oil reserves, this crunch is obvious and unavoidable.
Yet good old NZ is giving away it's oil reserves for the price of a paltry royalty.

That report tells us "While there is potential to substantially increase domestic production, domestic oil production cannot insulate New Zealand from global oil price shocks because New Zealand pays the world price for goods like oil."
How nice. We have our own oil and can increase production but it won't do us any good because we pay top international prices.

It is time the treacherous politicians who sell us out like this were pulled out of the crowd and pinned to the wall for all to see.

Anonymous said...

Dear Anonymous Number 3...

I realise better than most that it is the size of the tap that matters. This is due to my current profession as someone helps manage 3 such 'taps' (these ones in the North Sea).

What I am saying, is that when what comes out of the tap gets more valuable, more investment into the size/capability of the tap is justified.

For such an energy desperate world, you should see how much energy we simply flare offshore, but it is not worth doing anything about it - the cost of compression, pipelines and facilities just don't justify it.

Don't confuse energy and oil, they are not always interchangeable. Coal and uranium are hardly peaking.

No project I have ever seen requires an energy calculation or EROEI when being evaulated, this is done on cost. It it will make sufficient money it does ahead. Most of the things I mentioned above are economical.

Im not saying the market will completely solve the problem, but they will buffer it.

Denis Tegg said...

"What I am saying, is that when what comes out of the tap gets more valuable, more investment into the size/capability of the tap is justified."

you might like to follow the discussion on where the engineers and economists views on oil depletion are examined

Anonymous said...

Thanks for the link Denis. I will have a look at it when I get a spare couple of moments.

What I mean by my comment is there is visibly more money for projects and development when the price of oil is higher. End of 08 there was a hell of a lot going on, last couple of years have been tough with people losing their jobs, and now it is now picking up again.

Seems to me that peak oil will raise the price of oil = more money for oil companies = more development and expolration.


Denis Tegg said...


but since 2004 during boom times till late 2008, and with record high oil prices the rate of oil production has not increased. How come ?

Anonymous said...

That oil is in decline is undoubtedly why. It is more complicated than that however.

If any projects were commissioned during this time they could take up to 10 years to realise. Consequently they would have no short term impact on production.

And you cant deny there has been an increase in alternative energy - wind, biodiesel etc, as well as fuel conservation.

Speaking of production, North Sea's figures are looking grim this year. I am unsure if this is lack of investment or decline, but it doesn't look good.


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