More Nonsense At the UN Climate Conference

The Real Estate Espresso Podcast

More Nonsense At the UN Climate Conference

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More Nonsense At the UN Climate Conference

Welcome to the Real Estate Espresso Podcast, your morning shot of what’s new in the world of real estate investing. I’m your host, Victor Menasce.

On today’s show we’re looking at what I consider to be one of the most ridiculous market forecasts from what should be a respectable institution. The International Energy Agency, which is based in Paris, issued an updated demand model in the run-up to the UN’s annual climate change talks, this year scheduled to take place in Brazil.

Oil and gas demand should continue to grow until the middle of the century according to this new scenario that shifts away from previous expectations of so-called peak oil demand because of slower adoption of green technologies. The Paris-based agency represents oil-consuming nations, and it said that under this scenario, demand for oil and natural gas would continue to grow until 2050, while coal goes into decline before the end of the decade.

The ~~IAEA~~📝IEA had previously scrapped this model and focused on one where renewables and speedy adoption of electric cars would lead the world to wean itself from oil and gas years ahead, but a change in policies in the U.S. towards heavier reliance on fossil fuels and potential for slower-than-expected uptake of electric vehicles is altering that analysis.

I believe it’s important to understand energy markets even as a real estate investor because energy is the economy. You cannot have a unit of economic output without a corresponding unit of energy being consumed somewhere in the world. These two have been inextricably intertwined throughout history.

The problem with this line of thinking is that it looks at oil and gas consumption without considering oil and gas supply. Supply and demand cannot be unbalanced for more than a few months. The oil industry only holds about 40 days of supply inventory worldwide, so if supply and demand fall out of balance, prices will swing considerably, which will ultimately affect demand.

In the short term, demand is relatively inelastic with price. You know, you’re not going to drive three-quarters of the way to work if the price of gas goes up by a third. But over time, capital decisions are made based on the economic model associated with each energy source.

The U.S. has hit peak oil supply this year. That means the cost and effort to extract a barrel of oil from the ground is going up and up from here. The ~~IAEA~~📝IEA report puts global demand consumption of oil at around 100 million barrels a day, and that’s ~~Inaccurate~~📝inaccurate.

Under the current policy scenario, which is the new model they’ve just published, it’s based on existing policy and regulations. Global demand, they think, will rise to 105 million barrels a day by 2035, and 113 million barrels a day by 2050. They’re claiming current consumption is 100 million barrels a day now, and that’s absolutely incorrect.

So there’s quite a few problems with the analysis. The first is, of course, that we’re already consuming 104.6 million barrels a day now in 2025, and the ~~IEA~~📝IEA is saying that it’s going to take us another decade to reach that demand.

The second problem is it’s not clear that the world has the ability to produce 113 million barrels a day by 2050. There’s only a few countries that have the ability to increase production ~~but being~~📝beyond current levels.

The third problem is that their model puts too much emphasis on government policy as the primary driving force affecting oil demand. There’s oil on paper and then there’s oil in the tank, and these are not the same. Just because someone in Washington or Paris or London issues a policy statement about oil consumption, you have to remember that the decisions to consume oil consist of billions of micro decisions from ordinary citizens.

The supply side is constrained by ability to pull oil out of the ground economically. The world had already ~~had already~~📝reached peak oil production until the U.S. shale oil revolution made it possible to extract tight oil from structures that lack both the porosity. ~~Fracking~~📝Fracking is what made that possible.

Most of the easily extracted oil has already been developed. The new oil wells ~~there~~📝are more complex. They are more expensive to drill and frack than ever before. There needs to be more and more capital expenditure for each new well, which extends the break-even time for each of those investments.

Now if we look today and ask the question which countries have the ability to increase production, we can point to Saudi Arabia that might be able to increase production by somewhere in the range of two to three million barrels a day. United Arab Emirates can probably flex another half million barrels.

The largest undeveloped reserves are still in Venezuela, which has about three hundred billion barrels of untapped oil. There are a few other places in the world with undeveloped capacity including offshore ~~Guiana~~📝Guyana, offshore Brazil, maybe Libya, Nigeria, and Namibia, but unless there is major change to the political and economic stability in those locations, it’s unlikely the conditions will support the necessary investment.

These policy papers ~~predicted~~📝predicting peak oil ~~is~~📝are based purely on demand without looking at the supply side. That is amateur in the extreme.

The ~~IEA~~📝IEA continues to predict falling demand for that energy source from the 1800’s called coal. They fail~~ed~~📝to recognize the reality on the ground. In fact, this year, 2025, has seen record global consumption for coal. Even though oil is a better fuel source than coal, coal demand continues to grow. Even though natural gas is a better fuel source and coal, ~~coal~~📝consumption continues to grow.

I no longer follow these amateur think tanks that make headlines. It’s not government policy that determines oil ~~consommation~~📝consumption or coal or wood for that matter. Until the economics affect the decisions made by the man on the street, whether that person lives in suburban Dallas or on the streets of Delhi or Beijing, that’s when changes in consumption and production will happen.

As you think about that, have an awesome ~~of your~~📝rest of your day. Go make some great things happen. We’ll talk to you again tomorrow.

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