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Response to bananas (Original post)

Tue Nov 13, 2012, 01:27 AM

10. Looks Like the IEA is lying to themselves, again....


Here is the actual Summary report issued by the International Energy Agency (IEA), I will not cite the actual report for I am NOT buying it, the Summary on the other hand is free:


There is several potential problems with the expectations set forth in that summary:

1. OPEC is expected to increase is share of total oil production from 42% to 50%, mostly in the increase production of Iraq. This is to offset expected drops in Russian and Mexican oil production (Which is NOT reported in the Summary, but is expected from other sources).

2. Oil prices will be $125/barrel (in year-2011 dollars) in 2035 (over $215/barrel in nominal terms). That is a quote from the Summary, I have no idea what they think the price of oil will be, but I have my fears. Present price is $105.21 a barrel as set by OPEC, $85.47 a barrel as priced by WTI, $109.87 for Brent. All of these prices may be compatible, for the price of oil depends on the ease it is to refine. The more it costs to refine, the cheaper the price of that oil ("Heavy, Sour" oil is closer to the $85 price, while "Light Sweet" oil" tends to the price of Brent. OPEC is a "base" price that the various OPEC members price there oil on.

Given that almost all of the new oil putting into production is "Heavy, Sour" oil and that will become the price base as we switch from using mostly "Light, Sweet" oil to "Heavy, Sour" oil, expect a substantial increase in the price of gasoline and Diesel at the pump. In simple terms look to $5 to $10 a gallon gasoline (and I lean to $10 a gallon). That brings me to the third problem:

3. The report expect a substantial increase in fuel efficiency in the US, i.e. the US switch to Hybrids using lightweight materials to reduce the weight of the Vehicle and thus producing a 50-100 mpg car. The Summary only mention Increase fuel Efficiency, but hybrids and light weight material is the only way to achieve that and both come at a substantial increase in the price of a vehicle.

THe US is no longer the #1 buyers of New cars, China is, but the US has a lot more cars given its much longer history of buying cars. The Average American car stays on the road 10-15 years, but through 3-4 owners. The 10-15 year cars tends to be purchased by the low income group to be used to get to their jobs in the suburbs. How can you improve the fuel efficiency of the cars used by this group within the next 10 years? The cars they will buy 10 years from now, are the cars being produced today, and for every Hybrid being produced you have 5-10 non-hybrids. In simple terms I do NOT see that economic group buying a Hybrid, for they will be out bid for them by other groups, thus must use conventional cars. If the hybrids were the majority of cars being sold today, it might be possible, but while Hybrids are what is bring people into the show room, most car buyers are leaving with something else. I just do NOT see the increase in Fuel Economy reaching the lowest economic levels, and without them how do you get the Cashiers to the Stores people want to go to, and do you get the Janitorial workers to clean those same businesses?

I would like to think this is American Wishful thinking but the IEA is Paris France based, so it may be European wishful thinking, for Europeans just assume the US mass transit system is as good as it is in Europe and it is no where close.

4. The Summary does NOT mention it, but by mentioning $250 a Barrel oil prices, that means Oil-Shale production in the US. At $250 a barrel, oil shale can be profitable (mostly due to oil being used to propel vehicles, while Nuclear energy is used to mine and process the Shale to produce the Oil). Canadian Oil Shale is profitable at the present time, for it has the greatest amount of energy (even Oil engineers are reluctant to call shale oil, oil, for the simple reason it is better looked at a pre-oil, something that is mined and then processed into oil). US Shale oil has less energy in the shale, but if another source of energy can be provided, the shale-oil can be mined and made into oil (Thus the idea of building nuclear plants to provide the needed energy). US Shale oil is close to the point where the energy used to produced the oil equals the oil produced. If that energy input can be reduced OR provided by another form of energy so that the entire Energy input into Shale Oil to become oil, is otherwise cost efficiency (Oil is a better compact fuel for vehicles then batteries or other electrical shortage devices), then even if excess energy is used to produced the oil, the cost advantage of having a source of oil may justify the energy input. The problem then is we have a very expensive fuel. $10 a gallon plus.

5. IEA expects world wide Hydro electrical production to double by 2050, supplying some of the power presently supplied by oil.

6. Some how US and China Coal use will peak and decline after 2020, while India's increase till 2035, when it peaks and declines. Then it points out this is uncertain. i.e. your guess is as good as they's.

IEA: World Energy Outlook 2012 - Executive Summary - English version

Brent and WTI prices:

OPEC price:

I am sorry, the summary says enough to scare me, the future it predicts depends on to many ifs, Iraq becomes the #2 oil producer, replacing Russia and Saudi Arabia, The US become #1 oil producer, and I suspect that means Shale oil, that people will be willing and able to pay $10 a gallon for gasoline (and I do NOT mean the middle class, I mean the working poor), and somehow the working poor can buy a hybrid, that costs more then they make.

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