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Lloyd’s of London Warns About Peaking Oil, Energy Price Jump

| Monday July 12th, 2010 | 0 Comments

Venerable British insurer Lloyd’s, known for insuring Keith Richard’s fingers and America Ferrara’s smile, has released a white paper (PDF) warning of a looming energy crunch and the significant risks to companies unprepared for it.

Lead authors Antony Froggatt and Glada Lahn only touch on the controversial concept of “peak oil” in their report, which was written in partnership with think tank Chatham House. But they outline how soaring demand combined with environmental and technological constraints could bring the planet to peak oil-like circumstances long before the amount of recoverable oil actually peaks.

Specifically, the authors warn that a lack of investment in new oil wells exacerbated by environmental concerns raised by the Gulf oil spill, combined with accelerating demand from emerging economies China and India could shove the price of a barrel of oil over $200 by 2013. Prices on carbon emissions, if instituted world-wide, could also slow investment in oil exploration, leading to price increases.

The report warns companies to prepare now. The “just in time” business model, pioneered by Japanese companies and widely copied, could be vulnerable as higher energy prices disrupt far-flung supply chains, potentially hurting companies’ reputations as they fail to deliver on goods in a timely manner. Energy-intensive industries in general need to begin exploring alternative fuels and efficiencies, the report urges.

Lloyd’s is hardly the first organization to warn of an impending energy crunch, but it adds the weight of its reputation to the debate. No one really knows of course, an unsettling truth evidenced by a chart in the report showing predictions from governments, analysts and banks ranging from a “mere” $100 a barrel in 2020 to $200 a barrel by 2016.

The wild card in the peak oil debate, by the way, is Iraq. The country has targeted production of 12 million barrels of oil a day by 2016, which would fill most predicted growth in demand (and make it the world’s largest producer). There are significant security, legal and administrative hurdles to getting there however.


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