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How reliable are U.S. Department of Energy oil production forecasts?

Recently the U.S. Department of Energy/Energy Information Administration (U.S. DOE/EIA) came out with their preliminary Annual Energy Outlook 2012 (AEO2012) reference case forecast with considerable fanfare. The fanfare was due in large part to the statement:

“U.S. production of domestic crude oil in the AEO2012 Reference case increases from 5.5 million barrels per day in 2010 to 6.7 million barrels per day in 2020″

How likely is it that the Department of Energy’s forecast will prove accurate?

To determine if their forecasts are generally accurate, it would be worthwhile to check their forecasts from the past to see how well they did. Unfortunately, I personally have never seen any media reports that attempted to assess the accuracy of U.S. DOE/EIA oil production forecasts so the prevailing assumption must be that they are accurate.

Is that assumption warranted? Let’s take a look at a few examples of U.S. DOE/EIA oil production forecasts from the past.

In 1998 I wrote a paper about the future of Norwegian and United Kingdom North Sea oil production and compared my projections to those of the U.S. DOE/EIA at the time. In early 2011, I wrote a follow up commentary comparing how I and the U.S. DOE/EIA did in our 2010 projections.

One point I will make about the U.S. DOE/EIA projections from 1998 is that they didn’t actually provide projections for 2010 but they did provide projections of peak production values, peak production years and estimated production values for 2020. By interpolation, I determined 2010 estimates for the U.S. DOE/EIA. Table I shows a comparison of our predictions.

Author and U.S. DOE/EIA Projections of Norwegian and U.K. North Sea Oil Production for 2010

Peak Year

Peak Production (mb/d)

2010 Production (mb/d)

Author’s Projections

Norway

2001

3.2

1.6

U.K.

1999

2.7

1.5

Sum

5.9

3.1

US DOE/EIA’s Projections

Norway

2005

3.9

3.7a,b

U.K.

~2006

3.3

3.0a,b

Sum

7.2

6.7

Actual Valuesc

Norway

2001

3.226

1.87d

U.K.

1999

2.684

1.21

Sum

5.91

3.08

Table I

For the sum of oil production from Norway and the United Kingdom, the U.S. DOE/EIA was higher than the actual production level in 2010 by ~3.6 mb/d.

In 2003, the U.S. DOE/EIA was projecting that total liquid hydrocarbons production (crude oil + condensate + liquefied petroleum gas + biofuels + refinery gain) for Mexico would rise above 4.2 mb/d by 2010. Specifically, here is what they stated in their International Energy Outlook 2003:

“Mexico is expected to adopt energy policies that will encourage the efficient development of its resource base. Expected production volumes in Mexico exceed 4.2 million barrels per day by the end of the decade and remain near that level through 2025.”

It was clear by 2003 that Cantarell complex oil production (crude oil + condensate) would start declining in approximately 2005. Since the Cantarell complex produced about 60% of Mexico’s oil production in 2002, it appeared obvious that as Cantarell complex oil production started declining, it would bring down Mexico’s oil production as well as its total liquid hydrocarbons production.

Mexico’s oil production peaked in 2004 at 3.48 mb/d. By 2010, it was down to 2.62 mb/d, a decline of ~860,000 b/d. In 2010, Mexico’s total liquid hydrocarbons production was down to 2.98 mb/d according to US DOE/EIA data. The U.S. DOE/EIA was high by at least 1.22 mb/d for their 2010 Mexican production forecast.

In the late 1990s, the Clinton administration opened a sizeable portion of the National Petroleum Reserve-Alaska (NPR-A) to oil exploration and development. The Bush II administration followed that up by opening much of the remainder of the NPR-A.

In 2002, the United States Geological Survey (USGS) assessed the mean amount of technically recoverable oil from the NPR-A at 10.5 Gb. It was pretty obvious by then that the NPR-A would not produce anything close to 10.5 Gb based upon exploration results up to that point. Using the USGS assessment and making the assumption that it would take some years for production to start in the newly discovered fields, the U.S. DOE/EIA made the following statements in their Annual Energy Outlook 2003:

“In the reference case, crude oil production from Alaska is expected to decline to about 640 thousand barrels per day in 2010 (Figure 93). After 2010, the projected drop in oil production is expected to be offset by new production from NPR-A.”

“After 2010, total Alaskan crude oil production is projected to grow to a peak of 1.3 million barrels per day by 2021.”

In reality, very little oil was found in the NPR-A between 2002 and 2010. That forced the USGS to revise their estimate of technically recoverable oil down to 0.896 mb/d in 2010.

In 2010, Alaskan oil production averaged 0.599 mb/d based upon U.S. DOE/EIA data, not that far below what they were predicting for 2010 but there won’t be a surge of Alaskan oil production due to opening of the NPR-A as they predicted. We’re a long way from 2021, but it’s not unrealistic to think that oil production from the lands and waters presently open to oil development in Alaska may be ~800,000-900,000 b/d less in 2021 than the U.S. DOE/EIA’s prediction based upon the production trend for Alaska in the last 10 years.

In their AEO2003, the U.S. DOE/EIA made projections for future shallow and deep water Gulf of Mexico (GoM) oil production in Table 12 of the document:

AEO2003 GoM Oil Production Projections by the U.S. DOE/EIA

Year

2010

2020

2025

Shallow water

0.8

0.3

0.2

Deep water

1.6

1.8

1.9

Total

2.4

2.1

2.1

Total GoM oil production, including both shallow and deep water production, was 1.55 mb/d in 2010 according to U.S. DOE/EIA data. The AEO2003 prediction was high by ~0.85 mb/d for 2010.

Through the first 9 months of 2011, total GoM oil production had dropped to ~1.44 mb/d according to U.S. DOE/EIA data, a drop of ~110,000 b/d from the 2010 average.

No doubt many people would claim that the decline of GoM production in 2011 was due to government limitations on exploration after the Deepwater Horizon accident. But it typically takes minimally 4-5 years between the discovery of a field and first production and generally it takes quite a bit longer. As an example, the Jack field was discovered in 2004 and will not start producing oil before 2014. The Tubular Bells field was discovered in 2003 and like the Jack field, will not be brought on-line until 2014 or later.

There are a large number of mature fields in the deepwater GoM that are declining at average rates of 10%/year or higher, so it takes many new developments just to replace the declining production from older fields. There are only a few small fields projected to come on-line prior to 2014 to negate the decline of the mature fields so it’s reasonable to expect a significant decline in GoM oil production over the next few years.

In their Annual Energy Outlook 2012 (AEO2012), the US DOE/EIA states the following:

“Offshore crude oil production in the Gulf of Mexico trends upward over time, fluctuating between 1.4 and 2.0 million barrels per day, as new large development projects are started.”

In 2014, or sometime later, 5 fields are presently projected to come on-line: Jack, St. Malo, Tubular Bells, Puma and Kaskida with a summed peak production of possibly over 0.25 mb/d. By the time these fields come on-line, GoM oil production will probably be at least 0.3 mb/d below the 1.55 mb/d production level of 2010 so these new fields are unlikely to bring production back up to the 2010 level. Also, it general takes some time between when a field comes on-line and when peak production occurs and these fields won’t peak simultaneously.

I consider petroleum geologists to be competent. In that regard, they will explore the most favorable geologic structures of a region first and over time, go to less and less favorable structures. The GoM, including the deep water region, has been quite thoroughly explored by this point in time. I do not expect future exploration results in the GoM to be as fruitful as the past and thus, I expect GoM production to decline.

What does this all mean for the AEO2012 U.S. oil production projections? From my perspective, don’t be surprised if their projections for 2020 turn out to be significantly higher than actual production figures. The U.S. DOE/EIA is very good at addition but not very good at subtraction. What I mean by that is that they don’t do a good job of subtracting from fields with declining production. As the number of subtractions increase, the difference between their projections and actual production increases.

I don’t know how accurate the weekly estimated oil production figures are from the U.S. DOE/EIA but it’s interesting to note that the average U.S. production estimate for January 2012 is ~112,000 b/d less than Oct. 2011. The time frame is only a quarter of a year but considering that the U.S. DOE/EIA and other analysts are claiming a steady, rather rapid increase in U.S. production, it’s noteworthy that production appears not to have risen in recent months.

No individual or organization is always going to be right when it comes to projections of future oil production. What we should expect is that in general, an individual or organization should more often than not be within some reasonable range of the actual future production level. Unfortunately, the U.S. DOE/EIA’s projections are too frequently off by a substantial amount.

Roger Blanchard teaches chemistry at Lake Superior State University and authored the book “The Future of Global Oil Production: Facts, Figures, Trends and Projections by Region,” McFarland & Company (2005).

a Excludes NGL’s and processor gain. From 1995 through 1998 crude + condensate made up 90% of U.K.’s total oil production and 96% of Norway’s total liquid hydrocarbons production. It’s assumed that these percentages won’t change in the future.

bInterpolated estimate

cData from the U.S. DOE/EIA

dBased upon data from the Norwegian Petroleum Directorate, Norway’s 2011 crude + condensate production rate was 1.61 mb/d so I was off by 1 year for my 2010 Norwegian production level

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