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The IEA and World Oil Supply Projections

A front page report November 9, 2009 in The Guardian tells us that "Key oil figures were distorted by US pressure, says whistleblower."

"The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies..."

A little context is in order for those who might be curious as to the relationship between the IEA and the growing body of peak oil researchers, analysts and oil industry experts.

The International Energy Agency (IEA) was founded during the oil crisis of the early 1970s and acts as energy policy advisor to the industrial world. The IEA has traditionally been quite confident about world energy supply. Many independent analysts think the IEA has done a great job tracking oil production and consumption, but completely untrustworthy in their projections of oil supply. In fact, the IEA's supply forcasts have always been based on demand projections rather than actual research. However, in the last few years they have been expressing a growing concern regarding supply.

In the foreword to a book it published in 2005, IEA executive director, Claude Mandil, dismissed those who warned of peak oil as "doomsayers". "The IEA has long maintained that none of this is a cause for concern," he wrote. "Hydrocarbon resources around the world are abundant and will easily fuel the world through its transition to a sustainable energy future." The IEA in 2005 was predicting oil supplies could rise as high as 120 million barrels a day by 2030.

In 2006 the projection was reduced to 116 mbpd by 2030. In the 2007 report, the IEA still seemed to support the conventional viewpoint: "World oil resources," it states, "are judged to be sufficient to meet the projected growth in demand to 2030." The projection of 116 mbpd by 2030 remained, and they also put the rate of decline in output from the world's existing oilfields at 3.7% a year. Still, the tone of the report was not as rosy as in years past. They expected production capacity at new fields to increase over the next five years, but expressed that it was very uncertain whether it would be sufficient to compensate for the decline in output at existing fields and meet the projected increase in demand. They admitted the possibility of a temporary supply crunch in 2015, involving an abrupt escalation in oil prices. With sufficient investment they expected shortfalls could be overcome. If sufficient investment was forthcoming, world oil output was expected to become more concentrated in a few Middle Eastern countries.

Between 2007 and 2008 the IEA radically changed its assessment. As British journalist George Monbiot pointed out, the 2008 report carried a very different message, including a projected rate of decline of 6.7% from the world's existing oil fields - a much greater gap to fill than the 3.7% decline rate claimed in 2007. The 2008 report also decreased once again its projection of how much oil the world could produce by 2030, now down to 105 mbpd. In addition, the IEA forecast for the first time the peaking or plateauing of the world's conventional oil production: "Although global oil production in total is not expected to peak before 2030, production of conventional oil ... is projected to level off towards the end of the projection period." The new projections were based on a major study it had undertaken, examining the world's 800 largest oilfields - the first time it had undertaken such a project. Monbiot asked Fatih Birol, IEA Chief Economist and the lead author of the World Energy Outlook report, what its previous figures were based on. "It was mainly an assumption, a global assumption about the world's oil fields. This year, we looked at it country by country, field by field and we looked at it also onshore and offshore. It was very, very detailed. Last year it was an assumption, and this year it's a finding of our study."

In December 2008, Monbiot also asked Fatih Birol for a precise date by which he expects conventional oil supplies to stop growing. Birol responded:

"In terms of non-Opec [countries outside the big oil producers' cartel]," he replied, "we are expecting that in three, four years' time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well, which is, of course, not good news from a global-oil-supply point of view."

Birol said further, "I think time is not on our side here." A 2005 report for the U.S. Dept. of Energy, commonly known as "The Hirsch Report," supports Birol's concern. That report demonstrated that mitigation of peak oil needs to begin 20 years ahead of peak - that developing and implementing alternatives will take decades to have a positive affect.

The Executive Summary of the 2008 report opened with a strongly worded admonition, “The world’s energy system is at a crossroads.” The report continues: “Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, socially. But that can — and must — be altered; there’s still time to change the road we’re on. It is not an exaggeration to claim that the future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply. What is needed is nothing short of an energy revolution.”

The Executive Summary ends with the following words: “It is within the power of all governments, of producing and consuming countries alike, acting alone or together, to steer the world towards a cleaner, cleverer and more competitive energy system. Time is running out and the time to act is now."

The 2009 report just released yesterday (Nov. 10, 2009), and not yet fully analyzed, emphasizes the importance of addressing climate change issues. In this context they advocate for a fossil-fuel demand peak by 2020 (rather than projecting a supply peak). IEA Press Release: "WEO-2009 demonstrates that containing climate change is possible but will require a profound transformation of the energy sector. A 450 Scenario sets out an aggressive timetable of actions needed to limit the long-term concentration of greenhouse gases in the atmosphere to 450 parts per million of carbon-dioxide equivalent and keep the global temperature rise to around 2°C above pre-industrial levels. To achieve this scenario, fossil-fuel demand would need to peak by 2020 and energy-related carbon dioxide emissions to fall to 26.4 gigatonnes in 2030 from 28.8 Gt in 2007."

The 2009 report retains the 2008 projection of 105 mbpd of oil production by 2030, but it seems some within the organization were wanting the report to go further than it did in 2008 in addressing supply concerns. So a senior official in the IEA came forward to tell Guardian reporter Terry Macalister the following:

"The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "The 120m figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this.

"Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources," he added.

A second IEA source told the newspaper:

"We have already entered the 'peak oil' zone. I think that the situation is really bad."

CNN this morning covered the story from the IEA's perspective, quoting Richard Jones, deputy executive director of the IEA: "We're the ones that are out there warning that the oil and gas is running out in the most authoritative manner. But we don't see it happening as quickly as some of the peak oil theorists. Generally, we're viewed as more pessimistic than we should be by the (oil) industry."

Jones is correct - the IEA doesn't see peak oil happening as quickly as many 'peak oil theorists,' and because of their recent reports being less confident of the world's oil supply, they're seen as pessimistic by some in the oil industry. When reading different portions of the 2008 report, one can see that the report was written by committee - some seeming to want to say more about 'peak oil' concerns, others wanting to present the traditional line that all is fine. You can bet that reports like this usually come out erring on the side of the most cautious and conservative. The truth of the situation can often be muted, or covered up, so we must learn to read between the lines.

Sources:

When Will the Oil Run Out? - George Monbiot article about his interview with Fatih Birol

http://www.guardian.co.uk/business/2008/dec/15/oil-peak-energy-iea

George Monbiot Meets Fatih Birol - 12 minute video of Monbiot/Birol interview

http://www.youtube.com/watch?v=oMIfeP4hE1A

IEA Report: Time is Running Out

http://www.energyandcapital.com/articles/iea-oil-report/782

International Energy Agency; World Energy Outlook 2008; (Executive Summary can be viewed at http://www.iea.org/Textbase/npsum/WEO2008SUM.pdf).

World Energy Outlook 2009 - Press Release and Excerpt

http://www.energybulletin.net/node/50663

Key oil figures were distorted by US pressure, says whistleblower (The Guardian)

http://www.guardian.co.uk/environment/2009/nov/09/peak-oil-internat...

Energy Body Rejects Whistleblower Allegations of Cover Up

http://www.cnn.com/2009/BUSINESS/11/10/france.iea.oil.supplies/inde...

Editorial Notes: David MacLeod is an activist involved with his local Transition Town, Transition Whatcom. A comment from Bruce Stevens: Several of the Energy Bulletin articles covering the recent IEA WEO report (such as David Macleod's 9 Nov :"The 2009 report retains the 2008 projection of 105 mbpd of oil production" and Gail's 16 Nov: "There are two major organizations that forecast future oil production---the International Energy Agency (IEA) and the US Energy Information Administration (EIA). Both put out rosy forecasts of future oil production ..") incorrectly quote the IEA. The IEA does HARDLY claim anything about production (SUPPLY) of oil (their Exec Summary mentions oil SUPPLY only once, in the context of insufficient investment due to recession). They only talk about oil DEMAND. SUPPLY is deemed to be sufficient. Both the IEA and the EIA have historically built DEMAND models. This is why their views on PO are so unrealistic. We (I am a PO person since the 1990-ties)do ourselves a disservice by mixing-up the SUPPLY and DEMAND issues. When the IEA say that DEMAND in 2030 will be 105 MMbbls/d, the answer is that this may well be true, however, there will be a shortfall in SUPPLY in that case. Thus, the price will be HIGH. If, conversely, the DEMAND is confused with SUPPLY and we argue with the IEA about the same number as a SUPPLY number, the price may well be LOW, since such a large SUPPLY in 2030 would potentially outstrip DEMAND. The IEA WEO Exec Summary curiously talks about oil SUPPLY only once, the 'positive' gas supply message is mentioned 7 times; DEMAND is mentioned some 50 times. If you look in the Financial Times Energy Source section, you see the same confusion between DEMAND and SUPPLY. This is not a trivial issue. It goes to the heart of the PO debate. Thanks for your excellent site Bruce Stevens Petroleum Reservoir Engineering Consultant, Aberdeen

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