IEA Says BP Spill is a “Game Changer”

Published by Andy Rowell

…Yesterday the International Energy Agency, admitted in its Oil Market Report that BP’s spill is a potential “game changer” for oil supply, which could restrict future sub-sea oil development and limit supply.

“April’s sinking of the Deepwater Horizon drilling rig and the ongoing oil spill might … prove to be a supply-side game changer,” the IEA said in its monthly Oil Market Report.

“Costs are going to go up, projects are going to be delayed and some sort of regulatory overhaul is likely in the United States in the aftermath of this terrible accident,” David Fyfe, head of the IEA’s oil industry and markets division, told Reuters. He added that the spill had “the potential to change the dynamic on the supply side of the equation” in the oil market.

Changing the deep-offshore dynamic could impact BP’s long-term viability much more than the huge financial fallout from the spill.

For BP the deep off-shore is one of the key places the company has left to look for oil. And if this becomes much more expensive or is ruled politically unacceptable it will severely impact the company.

Fyfe continued: “As international companies are pushed to try to develop new resources in more remote and more technologically challenging areas, there is increasing risk and increasing cost”.

It is these risks that the investors need to understand. Some in the city have looked and they do not like what they see. Richard Ward, the chief executive of Lloyd’s wrote earlier this week that: “If the slick in the Gulf is the first indicator of the potential economic chaos we face as demand pushes us into ever riskier places, then securing our energy supply means investing in clean and renewable energy technology.”

And that would be a game changer.

Full article at http://priceofoil.org/2010/06/11/iea-says-bp-spill-is-a-“game-changer/

 Our Take:
 The International Energy Agency is an intergovernmental body advising the 28 most developed economies in the world—it came into being in 1974 as a response to the Arab Oil embargo crisis. So it’s an agency uniquely situated to give the big picture on oil.

President Obama took to the airwaves Tuesday night to begin his campaign to pass carbon legislation and end our addiction to oil. One of the likely outcomes of the BP disaster is an extended moratorium (an end?) to offshore drilling in U.S. coastal waters. Many developed nations may follow suit. Going forward this would measurably limit the supply of oil.

Still, we are afraid the president has the mallet poised over the wrong mole hole. And like a game of whack-a-mole, pounding one down might just bring another up someplace else. Carbon legislation currently in Congress would do little to shift us away from oil use in transportation fuels.

The only way to make a timely move away from the riskier and riskier sources for petroleum will be biofuels. Not only should U.S. policy strengthen farm-based energy like grain ethanol and soy biodiesel, but it’s clearly time for Obama to launch his “Apollo Mission” to establish biomass energy that can derive its feedstocks from farm, forest, and even municipal waste streams. It took eight years from the time JFK prioritized a manned moon landing until the world witnessed Neil Armstrong’s famous leap for mankind. 

We don’t have eight years.

We find Lyndon Johnson’s 1961 memo to President Kennedy regarding the U.S. Space program to perfectly describe our current situation in changing from fossil energy to renewable sources. The vice president wrote, on April 28, 1961, “we are neither making maximum effort nor achieving results necessary if this country is to reach a position of leadership.”

We need game changing technology, and we need it yesterday, if we are going to avoid the next energy crisis hitting our economy hard. We need game changing technology if we are to convince the Russians not to drill in the Arctic. (We will have a hard enough time ensuring that we don’t allow it ourselves). If we look at how intractable the Deep Horizons spill is (and how much larger than initial estimates), just imagine the impossibility of containing an Arctic Ocean spill. Yet the world’s ever-dwindling supply of readily-available oil, combined with continued oil dependence, make more and greater oil disasters only a matter of time.

One of the biggest economic impacts of the current Gulf situation is the horde of sidelined oil and gas company workers who are not out drilling new oil wells in the Gulf of Mexico. Wouldn’t it be so much better to incentivize sugar cane/bagasse-based ethanol production in the Gulf States and immediately raise the required use of ethanol across the U.S.—to not only incorporate this new source, but to continue to build the contribution of corn ethanol to our energy independence?

Also, if the IEA is right, we may not need a carbon tax to change our oil habit. If an end to ocean-based oil extraction doesn’t drive the price up enough, the IEA has pitched the idea that all 37 major oil producing/consuming countries end their oil subsidies. Though we find such an event to be even more unlikely than world agreement on limiting Greenhouse Gases, we have to say the full picture from IEA is scandalizing: the world spent $557 billion on oil subsidies in 2008. (we hope that critics of the $5.5 billion or so in U.S. ethanol subsidies take note the disparity here).

An end to oil subsidies would send just the right signal to the market to develop a whole spectrum of alternative energies.  If replacing oil is our goal, then ethanol and biodiesel need to be first in line.

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