EDITOR: | January 20th, 2016 | 7 Comments

Oil, Tech Metals and just about anything: the forecasts are often wrong

| January 20, 2016 | 7 Comments
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So, how are we going on that Peak Oil theory?

You know, the one formulated in 1956 by Shell Oil geologist M. King Hubbert that said oil production in the U.S. would peak in 1970? Well, it did; but Hubbert did not have inkling of what was to come after that, such as the shale revolution and the renaissance of American oil. Nor did he foresee horizontal drilling, fracking, not to mention the huge oil finds in the North Sea, the Bakkan Formation of North Dakota, or Alaska. Looking out the window now, no sign of Peak Oil. Rather the opposite, in fact.

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There have been many concerns about the world running out of oil, all of them wrong. In 1885 John D Rockefeller’s partner in Standard Oil, John Archbold, sold down some of his stock in the belief that oil would soon run out. Up there with Hubbert’s Peak Oil was the 1970 report by the Club of Rome, Limits to Growth, which forecast the world was about to run out of oil. More recently, in 2007, one Dr Jeremy Leggett, an oil industry economist turned Greenpeace advisor, was reported in The Irish Times predicting that, between 2008 and 2012, society would be shaken “to its foundations” as world oil supply would suddenly go into decline.

Fast forward to January 2016. The International Energy Agency is warning that the world is set to “drown” in oil, especially now with Iran to begin pumping and exporting more (there are reports Teheran plans to offer European markets cut-price oil), and with those other Middle East producers all determined to maintain market share no matter what the price is that they are receiving, and also putting further pressure on what they see as their greatest threat: the U.S. shale producers.

Oil prices are now down 75% in the past 18 months. The IEA sees the end of 2016 with an additional 285 million barrels in storage (although there are reports that China’s oil storage facilities are already full). Moreover, Saudi Arabia will be consuming less domestically as, due to financial problems (due in turn to the low oil price) that have led to cuts to fuel subsidies.

Previously, I have drawn attention to the folly of making predictions. One example came from 2007 when New Scientist magazine predicted the world running out of indium within five years. Yet, even by 2011, reports suggested that indium demand had fallen due to declining purchases by Japanese electronics manufacturers (the largest customer group). No indium crisis, then. New Scientist also projected silver would be exhausted in ten years‘ time (that is, 2017), antimony in fifteen years and uranium in nineteen years. You don’t hear much about those predictions nowadays.

Another example worth remembering is that by Michael T. Klare, professor of peace and world securities studies at Hampshire College,  author of a 2012 book, The Race for What is Left: The global scramble for the world’s last resources. It was all about the looming shortages of just about everything, shortages that would lay the foundation for World War III. Klare saw a new world war being fought over the dwindling supplies, not only of food, but of coal, uranium, copper, lithium — you name it.

So far, no world war over uranium, coal or copper – in fact, producers are having trouble finding enough customers.

However, allow me to confess I have my own guilt to deal with on this subject. I am the author of a 2007 article that declared “the coal story just keeps getting better and better”. What about another one I wrote that year wondering whether “perhaps iron ore, not gold, is the ultimate safe haven”. What justified this apostasy (given my long, and enduring, pro-gold stance)? In September 2007 I judged gold to be “a tad flaky”. This, when the yellow metal averaged around $630/oz that month, and still with a long way to climb through to its peak (for the moment) a few years later. But back then the steel industry forecasts were ultra-bullish, and the race was on to acquire any iron ore prospect that was on offer.

It gets worse.

In February 2008, I penned a piece with the headline “And now peak copper?”. True, I was quoting someone else, in this case someone from a Canadian financial house. And, as the Bank of Montreal had separately pointed out at the time, in 2003 the combined market value of the world’s listed mining companies was $185 billion; by early 2008 it had grown to $2 trillion.

So today we have another prediction. Australian graphite hopeful Mozambi Resources (ASX:MOZ) put out an investor presentation today. It includes one page setting out forecast prices attributed to a Sydney-based company, Breakaway Research. This sets out present prices and their 2020 forecasts (in $US/tonne):

Jumbo Flake 96-98%                        $2,300/tonne (now) and $6,175/tonne (in 2020)

Large Flake 94-97%                          $1,300 and $1,165 (in four years’ time)

Medium Flake 94-97%                      $950 and $517

Small Flake 94-97%                          $750 and $495

Amorphous 80-85%                          $550 and $359

Take that for what it’s worth; after all, the forecasts for some categories don’t appear too optimistic.

Me? I’m not making any more predictions (at least for now).


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Comments

  • Tim Ainsworth

    Pardon Robin, perhaps I can tie the following in here with “reports of my death are greatly exaggerated”.

    China just released 2015 data:

    “2015 In 1-12 months, total exports of China’s rare earth 34833tons, an increase of 25.4% ; the average export price of 10.7 US dollars / kg, down 6.4% .”

    During the same period ROW absorbed circa 80% of Lynas’s 10,850t (approximated Dec Q) production, call it 8.500t, a further increase of around 3,000t ROW.

    That would suggest total ROW demand at 43ktpa at a growth rate +27%.

    Low prices & alt supply would certainly appear to be stimulating ROW demand (with perhaps a concession to less “illegals”), prerequisite to REE finding their true economic value.

    January 20, 2016 - 9:14 AM

  • Alan Levy

    Robin:

    I cannot understand how the Club of Rome could’ve been wrong. I mean, after all, they had a computer model.

    Actually the commodity I am still worried about (running out of) is water.

    January 20, 2016 - 11:03 AM

  • Jack Lifton

    Alan,

    In 2009 I participated in a meeting at the Pentagon’s office of Net Threat Assessment. At the end we were asked to list what resources we believed could be the root cause of a war over resources. The US Army’s consensus was that it would be water and that the damming of the Euphrates would bring Turkey, Syria, and Iraq into a major conflict in which the US would have to be involved.
    At the time I thought this was a little far out.
    Yet now that ISIS is trying to return the Middle East to the more primitive era before industrialization and the impact of Christian Europe I wonder if that General wasn’t on to something. Only a simple life is possible in the desert. Potable water brings cities, industrialization, and new ideas.

    January 20, 2016 - 11:12 AM

  • Jeff Thompson

    Someday we are all going to be paying $3/gallon for water, like we do with gas now, to pay for the cost to run all of the desalination plants that are going to be necessary if we keep adding another billion people to the planet every fifteen years.

    January 20, 2016 - 2:46 PM

  • Tim Ainsworth

    Maybe that’s why Lockheed Martin have put the effort into developing Perforene:

    http://www.epmag.com/solving-water-management-issues-800976

    January 20, 2016 - 8:13 PM

  • Jeff Thompson

    Thanks for the link, Tim. Sounds like the key is that Lockheed’s graphene filter reduces the pressure needed to force the water through it compared to the conventional reverse osmosis filters, which results in such high electricity costs to run the desalination plants in existence today. Definitely something to watch for the future.

    So we can at least add “rare earths” and “potable water” to cheer up Robin on the grim commodities outlook!

    January 20, 2016 - 8:57 PM

  • Tim Ainsworth

    Will be a lot more forthcoming re graphene membranes in short order, likely to be highly disruptive across a range of fields barely considered.

    January 21, 2016 - 6:10 AM

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