David Korowicz's response to the Irish Times editorial:
The IEA report shows that global conventional oil has peaked. Their estimate for future growth in supply is to come from natural gas liquids and unconventional resources. Such new supply is inherently lower quality- as old conventional oil production declines it is being replaced by lower quality unconventional oil.
Lower quality means a lower energy profit and requires higher oil prices for production to be viable. But economies cannot pay an arbitrarily high price for oil as higher prices start to hinder economic growth.
The US shale rush adds a further dimension to ‘low quality’. Rapid production drop-offs, of up to 90% per well in a year mean an escalating requirement for new borrowing and capital to keep the show on the road. But the industry is currently completely in the red and up to its eyes in debt. Further, there are very good grounds for arguing of the shale gas industry has massively overestimating reserved (though it is flows that are important for economic activity). Taken together- the industry is a bubble that will probably burst sooner rather than later.
A very important associated point is there remains a huge risk of a major global deflationary depression, with a possibility for profound and dangerous shocks (applies to Germany and the US as much as Ireland). This would lead to a significant drop in oil prices as economic activity drops and financial positions are unwound. This would call a halt to unconventional oil and shale gas production as prices fall below the marginal cost and credit markets dry up. The evolving financial crisis will kill shale gas bubble (though the industry bubble would kill it eventually). Further- for more involved reasons- production is unlikely to ever recover to current levels.
It (a financial crisis and global economic depression) will also cause a drop in greenhouse gas emissions. This highlights the intrinsic relationship between energy flows, economic growth and emissions- all rooted in the laws of physics.
To understand these issues we need to look beyond the silo thinking found within economics, the energy industry and the environmental movement. We live in a highly integrated globalised economy, where the integrity of one critical part is intimately related to the stability of another part.
Further, if you wish to rely on the ‘authority’ of large institutions like the IEA, remember they have been seriously wrong before. As have other high status institutions like the ESRI and the OECD who could not even spot a massive global credit bubble.
We need to be open to the possibility that, with the best will in the world, a major depression is coming and we need to work out how to manage it as best we can for all our welfare.