There's a terrific piece in the Guardian today entitled "Key oil figures were distorted by US pressure, says whistleblower." The gist of the story is that the IEA has been intentionally overstating future oil supply estimates in order to prevent a panic. Some key passages:
"The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this."Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.
A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.
The days of inexpensive and easily accessible oil are over. There is still plenty of oil buried very deep offshore West Africa, Brazil, and in the Gulf of Mexico. Other deep plays are sure to be discovered as well, and the Arctic region holds great promise. The tar sands also hold a great quantity of oil. None of these plays, however, are inexpensive. High oil prices will be required to justify the investment needed to explore and develop these reserves.
These high oil prices will also be the incentive the market needs to develop alternative energy sources. The higher the price of oil goes, the more competitive the alternatives become. Still, this shift will take decades. In the meantime, higher oil prices will be a boon to much of the traditional energy sector.
We are long a number of E&P and energy service stocks. There will be bumps along the way, but energy should be a winner in the coming decade.
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