[R-G] The First Signs of "Peak Gas"?

[Anthony Fenton]

The First Signs of "Peak Gas"?  	
http://www.spinwatch.org/content/view/4963/8/

Andy Rowell, 4th June 2008

Consumers the world over are beginning to protest at the huge gasoline  
prices they are paying at the pump. But whilst the world goes crazy  
over the oil prices, there are worrying signs about what is happening  
in the gas market that could also spell disaster.

But it’s the oil price that is currently attracting all the attention.  
Last month, the Indonesian President Susilo Bambang Yudhoyono  
postponed an official visit to Europe amid nationwide protests against  
fuel prices increases.  In Europe, French fishermen continued to  
blockade several strategic ports, whilst their counterparts in Spain  
and Portugal also threatened protests.

In the UK, truckers converged on London to ask for a reduction in fuel  
duty, whilst Prime Minster Gordon Brown held urgent talks with the oil  
industry. Over in America, the oil price was said to have forced many  
trucking companies to the verge of bankruptcy.

But as oil continues to hover just under record levels, there are  
daily warnings that the days of cheap oil have gone forever and the  
price of oil may soon be $150 or even $200 a barrel by next year.

There is also a daily debate as to what is actually causing these  
unprecedented prices. An increasing number of influential voices are  
saying it has nothing to do with the actual supply of oil but it is  
down to speculators exploiting the volatile market.

OPEC, which is under fire from many commentators for not increasing   
production more, argues that the market is already adequately supplied  
and that $35 per barrel of the recent increase can be put down to  
speculation.

Other voices agree, such as Jeroen van der Ver, head of global oil  
giant, Shell, who argues that the record oil prices are due to “market  
sentiment” rather than a shortage of supply. “What we say and what we  
see is there are no physical shortages," he says. “There are no  
tankers waiting in the Middle East, there are no cars waiting at  
gasoline stations because they are out of stock. This has to do with  
psychology in the markets and you cannot forecast psychology.”

His view is shared by George Soros, the multi-billion dollar  
financier, known as the man who nearly "broke the Bank of England", in  
the early nineties. Soros argues that it is financial speculators that  
are largely responsible for driving the crude oil price.  
“Speculation... is increasingly affecting the price,” he said. “The  
price has this parabolic shape which is characteristic of bubbles,” he  
said.

Political action on speculators is increasing. Last week a senior  
German politician proposed a worldwide ban on oil trading by  
speculators. Uwe Beckmeyer, the head of transport for the Social  
Democratic party, the junior partner in Chancellor Angela Merkel’s  
ruling coalition, argued that the recent 25 per cent rise in oil price  
had nothing to do with underlying supply and demand. “It’s pure  
speculation,” he said, adding that his party would be calling for  
joint measures by the G8 to prohibit leveraged trading on energy  
contracts.

Also last week, in America, Senator Jeff Bingaman, the chairman of the  
influential  Senate Energy Committee, asked the top futures market  
regulator in the US, the Commodity Futures Trading Commission, for  
more information about how much impact speculation was having on the  
oil futures market. Bingamen then complained he had been given  
“glaringly incomplete” data by the CFTC,  which argued that  
speculative trading was not to blame for recent price rises.

If speculation is not to blame, what is? Some argue that it is the  
weak dollar. Steve Hanke, professor of applied economics at Johns  
Hopkins University in the US argues that “Twenty-five percent of the  
increase in oil prices is strictly due to the fact that the dollar has  
gone down by 25 percent, because oil all over the world is priced in  
dollars.”

However, others are now arguing that the high oil price is down to  
good old simple economics. Demand has outstripped supply over the last  
couple of years and so the price has increased, on the back of roaring  
demand, especially from China and the Middle East. “The high-priced  
energy environment is being driven by the fact that demand has  
outstripped supply," President George Bush's Energy Secretary, Samuel  
Bodman, said this month: “We have sopped up all the available spare  
oil production capacity in the system.”

Others concur. One of the authoritative arbiters of how much oil there  
is the International Energy Agency, that is currently in the middle of  
its first attempt to comprehensively assess the condition of the  
world's top 400 oil fields.  Although the findings will not be  
published until November, according to the Wall Street Journal the IEA  
is “preparing a sharp downward revision of its oil-supply forecast, a  
shift that reflects deepening pessimism over whether oil companies can  
keep abreast of booming demand.”

Fatih Birol, the International Energy Agency’s chief economist, said  
the oil industry had entered “a new energy world order” where it was  
harder to keep supply and demand in equilibrium. “What has happened in  
the last few years has not been in line with economic theory,” he says.

For years the IEA predicted that supplies of crude would gently  
increase in line with demand increasing to some 117 million barrels  
per day by 2030. But not anymore. Buried in the IEA website are  
figures that up the theory that the supply of oil is in real trouble.  
Since the beginning of 2004, oil’s price has gone from $33 per barrel  
to over $130 per barrel. In the same period, demand has increased by  
some 4.3 million barrels per day to 86.5 million barrels per day,  
whereas supply has increased by only 2.2 million barrels per day to  
85.6 million. Supply is already struggling to keep up with demand, let  
alone reach over 100 million barrels a day.

The bottom line is that demand is now outstripping supply, giving  
credence to the peak oil pundits that the days of cheap oil over, and  
the global economy could be heading for a nasty shock.