An Interesting Tidbit Regarding Oil Supply

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.

"There's suspicion the IEA has been influenced by the US" (link to audio).

In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "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 senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

The IEA acknowledges the importance of its own figures, boasting on its website:

The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans.

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said last night that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "Reliance on IEA reports has been used to justify claims that oil and gas supplies will not peak before 2030. It is clear now that this will not be the case and the IEA figures cannot be relied on," said Hemming.

"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation, " he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.

But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.

A report by the UK Energy Research Centre (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible" .

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference:

If the real [oil reserve] figures were to come out there would be panic on the stock markets … in the end that would suit no one.

I'm a member of a yahoo group that follows oil, generally, and the Canadian Oil/Gas Trusts specifically. The above was posted by a member of the group who got it from The Guardian (a UK paper).

I'd been thinking that the current strength in oil was more of a dollar weakness related phenomena, along with signs of growth in emerging markets, rather than a "shortage" on the supply side.

According to Reuters, ship brokers ICAP say there's a total of 90.3 million barrels in floating storage....which translates to just over 1 day of total global demand.

A while back, I'd read Simmon's "Twilight In The Desert", and I'd heartily recommend it to anybody who's interested in oil, and hasn't read it, yet.

Sources:

• The Guardian
• Reuters Business Today

Comments

[Davewmart:]

Birol the head of the IEA repeatedly makes contradictory statements, as he back-pedals under pressure:
seekingalpha.com/artic...
For realistic assessments of the reserves of oil exporters, see this report by an oil geologist:
www.energybulletin.net...

The bottom line is that increased use by the oil exporters will leave less available for export, whilst Bric demand increases.
Since cheap oil is less and less available (consumption has exceeded discoveries every year since the mid-sixties) this means for the West that any recovery in the economy is likely to be sharply hit on the head by increased oil prices.
On the upside plentiful gas supplies from shales etc may soften the blow, but the gravity of the situation should not be underestimated.
Food supplies are intimately connected to oil use, and some think that they may catastrophically collapse in the event of oil not being readily available at a good price.

Nov 12 06:26 AM

[perceptions...:]

Just like Goldilocks, too much Oil is a problem, not that there is too much Oil and too little Oil is also a problem!

It appears that the best current outcome for the Country Producers, the Oil Majors, the Oil Markets, Investment Bankers, Politicians, the establisment & other self interested party's, is to sow the seeds of absolute confusion.

However, if the levels of reserves REMAINS UNKNOWN, UNVERIFIED & SUBJECT TO CONSTANT CONCERN, then
the result is as usual where Demand appears to exceed Supply, there is constant pressure on the Price of Oil to rise!
This is THE PREFERRED OUTCOME for the major self interest groups!

There are no guarantees in life, but the likely outcomes suggest that in 5-10 years, the Global Economic outlook, will be significantly different to today and I am not talking of upside!

Nov 12 07:11 AM

[john s. gordon:]

if we are truly in the peak rock oil zone, we always have colorado shale and bituminous coal to syncrude if we care to go after them.
since it takes time to get an industry started, we better start now.
> jack

Nov 12 08:39 AM

[Old Trader:]

I'd suggest that both commentors above are correct. In fact, I'm thinking that exposure to oil/energy in a portfolio is as important as having exposure to gold, as a "safety net".

Nov 12 08:43 AM

[Old Trader:]

Jack,

Very true.....assuming this administration would get behind such programs...very unlikely, imho.


On Nov 12 08:39 AM john s. gordon wrote:

> if we are truly in the peak rock oil zone, we always have colorado
> shale and bituminous coal to syncrude if we care to go after them.
>
> since it takes time to get an industry started, we better start now.

Nov 12 09:05 AM

[Ferdinand E...:]

What's the problem here? I've been telling people and publishing articles and books for X years pointing out that bad oil news is on the way, but nobody wanted to believe. That's groovy with me, because the key thing is the smile on my face that results from generally being right about oil.

As for the US and ALL the oil companies insisting that there is plenty of oil, and the oil peak may never arrive, that makes good sense to my good self, because when/if the TV audience discovers that a peak may be around the corner, there might be a panic.

That's right, ALL THE OIL COMPANIES!. Most of the students in my course on oil and gas economics in Bangkok last year worked for oil companies, and their bosses made it clear that it was a very bad career to run off at the mouth about peak oil.

Nov 12 09:17 AM

[Davewmart:]

john s gordon:
One of the constraints on oil shale production is the need for natural gas to extract it - hardly a sensible use of a valuable resource.
We know perfectly well how to use nuclear power to do the job, as all that is needed is the application of heat, but prefer to faff around imagining dangers.
Anoother alternative is to use very small nuclear reactors, essentially as a nuclear battery, but the regulatory authorities seem to regard it as their job to prevent any advance in designs at all costs.
In the US at least they charge for the regulators to study any new design at a rate of hundreds of dallars an hour.
Reactors are then licenced at a flat rate, so small reactors are prohibitively expensive!

Technically, we can no doubt manage the transition to using far less oil, but the realities of the decisions needed to do so are still not even on the agenda.

You have to face reality before it can be delt with, and many of the institutions which should be guiding and alerting the population to the facts on our energy circumstances have instead made it their mission to obscure the truth and pander to special interests.
Birol in prominent in his efforts at obfustication,a nd bears a large responsibility for a possibly tragic outcome.
Industry mouthpieces such as Yergin still command the airwaves, in spite of having been consistently and demonstrably wrong for years in all their predictions of plenty.

Nov 12 09:29 AM