Seeking Alpha
Profile| Send Message|
( followers)  

Part I – An inconvenient reality

12 years ago, the International Energy Agency (IEA) discovered that Peak Oil would threaten the prosperity and stability of our societies. Yes, they knew it. While some IEA officials tried to inform the world about this game-changing event, it appears that others had different priorities.

In 1998, the IEA team working on the influential World Energy Outlook (WEO) made a detailed and authoritative assessment about the future of oil production. The team was composed of the world’s finest energy experts, amongst whom Jean-Marie Bourdaire, coordinator of the study, Ken Wigley, Keith Miller and the man who would later become Chief-Economist of the IEA, Dr. Fatih Birol.

By using confidential databases and sophisticated expertise, they reached a dramatic conclusion: Peak Oil, the moment when global oil production starts its irreversible decline, would happen well before 2020, around 2014.

Although the IEA publicly claims to be free of any external meddling, the team was under intense pressure and scrutiny. As recalled by the veteran geologist Dr. Colin Campbell, who advised the IEA on the 1998 WEO, at one point, Bourdaire had to stop calling him from his IEA office as the issue apparently became “so sensitive” that he couldn’t be seen in contact with him.

Formed in the aftermaths of the 1973 oil shock by wealthy countries of the Organisation for Economic Co-operation and Development (OECD), the IEA, a self-proclaimed “global oil watchdog”[1], and its flagship report, the WEO, are considered to be the most authoritative source of information in the energy sector. To put it in the words of the Agency:

Governments and industry around the world have come to rely on the WEO to provide a consistent basis on which they can formulate policies and design business plans.[2]

Nevertheless, in 1998, the most influential member of the Agency, the USA, didn’t like at all what was coming from their study. A structural problem with oil as identified by the IEA team would undeniably question the sustainability of the current economic model. During the study, the IEA team realised the extent to which economic growth was correlated to the availability of abundant and cheap energy. Hence, once oil production would stop to grow and tensions appear, economic growth would become far more difficult to sustain, if not impossible. The IEA team was effectively walking on eggshells.

In order to soften the striking message, the IEA added that a “balancing item” called “Unidentified Unconventional Oil” would suddenly appear and rise from nothing in 2010 to 19.1 mb/d in 2020 (conveniently about enough to cancel the shortages). The only problem was that unconventional oil resources were well known. This “balancing item” was in reality a code for: shortages. The “balancing item” never existed and never will. A former member of the IEA team in charge of this WEO confirmed that to me. Interestingly too, the Energy Information Administration (EIA), the statistical branch of the US Department of Energy (DOE), will use a similar subterfuge in 2009, when it will talk of “unidentified projects” filling the gap of declining production[3].

Fortunately, the story did not end there. Campbell had been in contact with a British environmental expert, Dr. David Fleming, who was by chance a regular contributor to the magazine Prospect. As such, when the 1998 WEO[4] was published, Campbell who was fully aware of the message it contained, explained this to Fleming. On the 20th of April 1999, Fleming wrote a prophetic article entitled, “The next oil shock?” [5]. The article effectively said what the IEA team could not write in its report:

The latest issue of the International Energy Agency’s annual publication, World Energy Outlook, is a case in point. It has a story to tell which will profoundly affect the future of every man and woman on earth...The prospect of a one-way oil price shock early in the next decade changes the present economic and political agenda profoundly. Assumptions of sustained economic growth and low unemployment will be blown out of the water… So why is the IEA not shouting about this? As the most influential policy body in the oil business, it is in a delicate position. It cannot just blurt it out. It cannot say: ‘We are looking at a big, permanent oil deficit, for which we can offer no solutions’… The IEA has revealed the situation in coded form.

From its Paris HQ, the IEA had raised a powerful, and yet unwelcomed alarm. A backlash was about to fall on the authors of the 1998 WEO.

Part II – The shadow of the US

As revealed by Dr. Colin Campbell, when the article was published, “the IEA evidently got into serious trouble”[6]. So what happened behind the walls of the Agency?

First of all, high-ranking elements of the US Administration got mad when they heard what a couple of European civil servants had done with the 1998 WEO. Coded message or not, what was coming out of the Paris-based agency was unacceptable for them. The kind of structural crisis pointed out in the 1998 WEO was to be buried and quickly.

Besides, it is important to know that the 1998 WEO went out only a couple of months after the 1998 International Energy Outlook (IEO) published this time by the US Energy Information Administration (EIA). Unlike the IEA, the EIA never bothered making oil production scenarios; its studies have always consisted in modelling the demand, and then supposing that production would follow. Rather simple, but utterly unreliable. Putting that aside, in the 1998 IEO, the EIA reached cheerful conclusions and even declared that:

Oil prices are expected to remain relatively low, and resources are not expected to constrain substantial increases in oil demand through 2020... In 2020, world oil consumption is projected to exceed 115 million barrels per day. [7]

That of course, turned out to be pure fantasy, but the EIA added:

There is now widespread agreement that resources are not a key constraint in satisfying increases in world oil demand to 2020.

Well, to the great displeasure of the EIA, a few months later the IEA would say and demonstrate the complete opposite. One can imagine how pleased the EIA and its host department, the DOE must have been. A 2006 article on oil production forecasts and methodologies from Dr. Roger Bentley (University of Reading) and Professor Godfrey Boyle (Open University) similarly talked of “political pressure of the USA and Canada[8] after the publication of the 1998 WEO.

Motivated by what can only be described as incompetence and arrogance, elements of the US Administration then put extensive pressure on the IEA leadership. What did they want? The coordinator of the 1998 WEO, Bourdaire, would have to leave the Agency. Meanwhile, Wigley retired and Miller also left the IEA. The IEA team who wrote the 1998 WEO was knocked down and its only “survivor”, Dr. Fatih Birol, who was now in control of the WEO, would learn a lot from these events.

Indeed, the 2000 WEO which he designed and managed suppressed any warning about a structural problem with oil:

The (2000) Outlook views the world oil-resource base as adequate to meet demand over the projection period... One need expect no global ‘supply crunch’.

The supply crunch did happen. Despite rising demand, higher prices and massive investments, between 2005 and 2008, and for the first time in history, conventional oil production ceased to grow[9]. As expected by the 1998 IEA team, these tensions led to a severe oil price shock which weakened the foundations of an already fragile globalized economy[10].

But how did the Agency manage to explain its spectacular turnaround in the 2000 WEO?

By a lucky coincidence, in 2000, the United States Geological Survey (USGS), published an extremely optimistic “World Petroleum Assessment” which would be used by the IEA from 2000 to 2006. According to the former IEA official I met, “the USGS announced gigantic reserves which were based on a completely rubbish methodology”. In fact, soon after its publication, Jean Laherrère, the former Deputy-Exploration Manager of Total and a renowned petroleum consultant, made a detailed analysis of the USGS assessment and concluded that:

The foregoing discussion demonstrates that the new USGS study has failed to respect the evidence of past discovery both in terms of amounts and rates… In short, the new USGS report is misleading. It is also unrepresentative of the normal standards of this highly respected organization.[11]

Laherrère added, “One is left to wonder if there is not a hidden agenda”[12] behind the USGS numbers. Ten years later, we now know that the real figures were 60% lower than what the USGS then forecasted[13].

Importantly, the anticorruption NGO, Global Witness (GW), identified another disturbing fact with the IEA’s use of the 2000 USGS assessment. In 2005, senior geologists of the USGS published an update of the 2000 assessment in which they warned that real discoveries were far lower than what their original study expected. But as discovered by GW, the Agency ignored this update even though it was published before the 2005 WEO. GW will also reveal that, “correspondence with the IEA confirmed the Agency was aware of a low actual discovery rate” but did nothing. GW added:

Given that one of the key function of the IEA is to provide governments with accurate information from which they can make economic plans, their misrepresentation of data in this way was intellectually dishonest... The Agency’s over-confidence, despite credible data, external analysis and underlying fundamentals all strongly suggesting a more precautionary approach, has had a disastrous global impact.[14]

Bentley and Boyle were also able to identify “serious technical errors” in the 2000 WEO[15].

Although the IEA told its member states in 2004 that oil prices were “assumed to remain flat until 2010, and then to begin to climb steadily to $29 in 2030”[16], in the real world, prices started to rise dramatically. As oil prices reached record levels year after year, the scenarios made by the Agency became increasingly absurd and difficult to defend. As critics[17] started to question the reliability of IEA’s outlooks, the position of the Chief-Economist became critical.

As such, it was finally decided that the IEA would publish in its 2008 WEO a detailed field-by-field analysis of global oil production prospects. In December 2008, Birol admitted that previous WEOs were based on nothing more than a “global assumption”[18], which, unsurprisingly, turned out to be far too optimistic and thus misleading. In fact, a decade after the 1998 IEA team, the 2008 IEA global assessment reached a similarly bleak conclusion[19]. And once again, it appears that elements of the US Administration[20] intervened in order to massage the pessimistic assessment made by the IEA.

The following quotes provide interesting insights into the US Administration’s awkward relationship towards Peak Oil:

There is, I think, ample evidence, and some people in DOE have gone so far as to say it specifically, that people in the hierarchy of DOE, under both administrations, understood that there was a problem and suppressed work in the area… The peak oil story is definitely a bad news story. There’s just no way to sugar-coat it...[21]

Dr. Robert Hirsch, lead author of a Peak Oil report[22] for the National Energy Technology Laboratory (DOE)

(Steven Chu, US Secretary of Energy) was my boss… He knows all about peak oil, but he can't talk about it. If the government announced that peak oil was threatening our economy, Wall Street would crash. He just can't say anything about it.[23]

David Fridley, Energy Scientist, Lawrence Berkeley National Laboratory (DOE)

Part III – What they don’t want you to know

In previous parts, we looked at how the IEA was silenced when it raised a subtle alarm about the future of global oil production. A crucial question remains, why does it matter? How could this event be so important?

Well, as the most authoritative source of information, the IEA misled European governments and businesses by declaring until 2008 that oil prices would remain low. They didn’t. By doing so, the Agency managed to make renewable energies look uncompetitive compared to oil. As mentioned by the Swiss MP and member of the Swiss Parliamentary Energy Commission, Dr. Rudolf Rechsteiner, the IEA has effectively been “delaying the change to a renewable world”[24]. Remarkably, the so-called “global oil watchdog” acted more and more like a zealous oil industry lobby[25].

Nevertheless, the IEA would pay a heavy price for this when the concurrent International Renewable Energy Agency (IRENA) was launched in January 2009. The reason why?

Hans Jorgen Koch, the Danish deputy secretary in the ministry of energy and climate change, said that IRENA had only been formed because the IEA was not doing enough to address climate change and support renewables. “For ten years the IEA has underestimated the competitiveness of renewable energy sources” he said.[26]

Now the key question: was the IEA simply incompetent or was it deliberately misleading its European member states? A 2004 article from the BBC provides an element of answer:

In public, Mr. Birol denied that supply would not be able to meet rising demand, especially from the buoyant economies in the USA, China and India. But after his speech he seemed to change his tune... When BBC News Online followed up by asking if this giant increase in production was actually possible rather than simply a desire he refused to answer. ‘You are from the press? This is not for you. This is not for the press.’[27]

Why would the Chief-Economist of the IEA hide crucial information from the press and the public?

More worryingly, when the Guardian broke the story about the IEA whistleblower[28] in November 2009, Campbell wrote an open-letter to Terry Macalister, Energy Editor of the newspaper. He explained the events around the 1998 WEO and declared:

I explained this (the “coded message” of the 1998 WEO) to a journalist (David Fleming) who contacted the element within the IEA which was pleased that this important hidden message should get out.[29]

Having read that with great interest, I immediately wanted to know who the “element within the IEA” could be. To my surprise, Campbell told me that the “element” was Birol, who wasn’t yet the powerful Chief-Economist of the Agency. In order to verify the information, I met Fleming on the 4th of December 2009 in London. Fleming, a highly respected environmentalist, confirmed the information.

He explained that when he published his article in 1999, he sent an email to Birol asking if he would accept to comment on the article. Birol called him and asked if he would accept to meet in a discreet manner. At the request of Birol, they secretly met at the Oxford and Cambridge Club in London and had tea. Fleming perfectly remembered that they entered a quiet room and when Birol sat, he apparently even looked over his shoulders to check that nobody could hear what he was about to say.

According to Fleming, Birol then told him, “There are six people in the world who understand it” and it seems that he was referring to people like Campbell. Fleming added that Birol made this confidence about his article, “you are right”. He reportedly said that the “unidentified unconventional oil” was effectively a code and that OPEC was unlikely to ever fill the gap. During the discussion, Birol explained that the IEA was constrained and even complained about the interference of the USA, or so remembered Fleming.

Fleming still had a pretty good opinion of Birol when we talked. During their meeting, Birol was “very perceptive” and apparently even offered his help. When I asked Fleming in which mood Birol was, and whether or not he seemed anxious or nervous, Fleming told me “not at all”. He seemed to be “witty” and “on good form”. He even remembered a joke Birol made, “this is a lovely club, but not a lively one”, good joke recalled Fleming.

My question: why has the Chief-Economist of the IEA been publicly saying since 2000 that global oil production can increase until 2030, as long as we invest, while in 1999 he reportedly, secretly, confirmed that global oil production would start to decline around 2014? Was it because he saw what happened to his former boss when the later courageously tried to inform IEA’s member states about the seriousness of the situation?

I’ve contacted Birol’s assistant at the IEA and asked if he would comment on the meeting with Fleming; my request has yet to be answered.

A report[30] commissioned by the US Department of Energy concluded that we would need 20 years to prepare for Peak Oil otherwise we would face “unprecedented economic, social, and political costs”. 12 crucial years have just been lost, how many more will we waste before we finally start to prepare for this unprecedented event?

As I was able to say recently during my presentation on Peak Oil and the IEA at the European Commission, an independent and thorough enquiry into the actions of the Agency is urgently needed. Furthermore, the creation of a truly independent and transparent European Energy Agency needs to be considered.

Time is running out.

First published on the Energy Blog of French journalist, Matthieu Auzanneau.

[12] Ibid

Disclosure: No positions

Source: How the Global Oil Watchdog Failed Its Mission