The 2009 IEA Oil Report & World Energy Outlook

Brian Hicks

Written By Brian Hicks

Posted November 13, 2009

The International Energy Agency (IEA) released its annual World Energy Outlook (WEO) this week — a report I always anticipate eagerly. Hey, it’s like Christmas for energy geeks.

The IEA found coal in its stocking though, after a report the previous evening in the UK’s Guardian newspaper cited unnamed whistleblowers alleging the agency had been distorting its true view on peak oil in order to prevent public panic.

The internal sources claimed its analysts did not really believe that global oil supply could rise to the level in the official forecast, but that the agency had bowed to U.S. pressure to paint a rosier picture.

The quotes were unquestionably damning:

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. . .

We have [already] entered the ‘peak oil’ zone. I think that the situation is really bad. . .

. . . imperative not to anger the Americans. . .

Peak oil analysts nodded their heads in agreement. It was hardly a revelation.

John Hemming, the MP for Britain’s all-party parliamentary group on peak oil and gas (yes, they actually have one — jealous?) was gruff: "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."

I’ve critiqued the reports of the Energy Information Administration (EIA) and the IEA many times over the years (here, here and here), and concluded that both agencies understood the reality of peak oil well enough, but somehow had been pressured to spin the story in the most optimistic way possible. Either that or they had some seriously schizophrenic people.

I have no doubt that a cohort of government and industry representatives from the U.S. and other OECD countries (at whose pleasure the IEA serves), have made their preferences known to the IEA leadership, and possibly reminded them who’s their daddy. After all, the agency was created after the 1974 oil crisis for a fundamentally political purpose: to safeguard the West’s energy supplies.

To be clear, my analysis of the agency’s data supports the allegations. Uncertainty has always been used to put an optimistic spin on the reports.

Several years back, it was the uncertainty around enhanced oil recovery and new discoveries, and the potential for higher prices to increase recoverable reserves

When conventional crude flatlined at 74 mbpd in 2005, despite a tripling of prices afterward, the emphasis shifted to the unrealized potential for non-OPEC supply.

When that didn’t pan out, the potential for unconventional sources such as natural gas liquids, tar sands production, extra heavy oil, coal-to-liquids, and biofuels defined the optimistic gray zone.

There were also a few disturbing discontinuities along the way in which report summaries didn’t quite match up with the details in the later chapters. Various kinds of unconventional fuels began creeping into the "conventional crude" category.

The spin was absolutely detectable to a sharp eye.


Concealed Clues

At the same time, another transformation was taking place.

The edges between the solid data and the gray zone gradually became sharper. Over the last few years, the agency’s estimates for peak oil production fell from 120 mpbd to 105 mbpd. . . but oddly, their forecast for the date of the peak remained stubbornly around 2030. Curves were gradually flattened, but reached the same point. Simple head-scratchers like that.

The language of the reports also grew in clarity and intensity, alarming critics. By last year, it had become downright shrill: "The world’s energy system is at a crossroads" . . . "global trends. . . are patently unsustainable". . . "the era of cheap oil is over". . . "Time is running out and the time to act is now."

This year, they admitted what many of us had already figured out: non-OPEC supply has basically peaked, yet forecasted that global oil supply would still rise from 84.6 mbpd in 2008 to 105.2 mbpd in 2030.

They then devoted fully half the report to a "450 Scenario" in which a vigorous global investment in efficiency, renewables, carbon capture, and nuclear power averts global disaster by keeping atmospheric CO2 concentration below 450 ppm, with a price tag of $26.5 trillion (in 2008 dollars).

The good news now is the situation isn’t quite as dire as we thought it was last year. Their cost forecast has come down from $35 trillion, and they now think the world will only need to come up with 45 mbpd in additional crude capacity (another four Saudi Arabias) not 64 mbpd (another six).

Indeed, the divisions between reality and fantasy in this report grew sharper still.

They worry at length about the effect of the global financial crisis on investment in new energy supply, yet still imagine the world will spend about $1.5 trillion a year on new supply infrastructure.

While envisioning a massive investment in efficiency and renewables in the 450 Scenario, they observed that low oil prices, receding investment in cleantech in 2009, and general economic malaise could mean slower growth rates for the solutions.

They forecast that OPEC alone would come up with 17.5 mbpd in new supply — 85% of the global increase — but expect the Middle East to spend only $1.9 trillion out of a global total of $25.5 trillion.

In an extremely dubious scenario, they see global natural gas supply growing faster than demand, eventually resulting in a massive glut. At the same time, they published for the first time a detailed, field-by-field analysis of nearly 600 major gas fields, accounting for 55% of global production. It showed an average 5.3% post-peak decline rate for the world’s largest gas fields, and a global production-weighted decline rate of 7.5% for all post-peak fields — very similar to the decline rates they published (again, for the first time) last year on oil fields.

While noting that nearly all of the growth in global energy demand will come from the developing world, and that much of the investment capital needed to obtain their 450 scenario will need to be invested there, they also expressed significant uncertainty about those prospects.

Most telling, however, were the comments made in the press conference at the report’s unveiling.

When a reporter asked why they’re still sending a signal that the world will come up with another four Saudi Arabias of supply in their reference scenario, when no one believes that is possible, IEA chief economist Fatih Birol tipped his hand:

This is not the scenario we think is — first of all — likely; this is not the scenario that we want to happen. . . This is the scenario that, if it happens, we are going to have an accident in terms of climate, in terms of energy security, and other things, and it is the reason why we are pushing the 450. . . We push the 450 not only for the climate change reasons. . . it is also for the energy security reasons. And it is the reason why our ministers in October have endorsed our work in general. . . We think this [report] is a driver for [policies developing around climate change].

Essentially, he admitted that they deliberately tilted the report toward climate change with an expressly political purpose: to motivate capital and policy in the direction of a decarbonized energy supply. And they did that because it was politically expedient, with all eyes now on the upcoming Copenhagen summit on climate change.

Finally, the agency’s highly-nuanced, limp denial of the whistleblower allegations was well salted with impassioned pleas to reckon with their 450 Scenario, reiterating that "the era of cheap oil is over." Birol even emphasized that the IEA had decided to make their data on oil depletion available on its web site for the world’s free and transparent examination — a clue that was not concealed, but painted in fluorescent orange.

The Climate Change Stalking Horse

I have considerable sympathy for the IEA. It’s not easy to follow your heart and tell the truth for the benefit of humanity while the boss man is glaring at you and pulling a finger across his throat. Of course their report is politically distorted.

Yet, as I highlighted the key points in the report’s executive summary and mentally ticked off the articles I’ve written on each one over the last few years, I realized how far the IEA has really come. They may have no choice but to walk a tightrope in an intense global spotlight, but they’re backing into the truth as quickly as they think they can. For that fact alone, despite its flaws, this report gets my thumbs-up.

Regarding the IEA’s Reference Scenario, my view remains basically unchanged from what I said this time last year: "Here’s my prediction: their 2010 report will state that the new peak is only 95 mbpd, at a cost of over $30 trillion. And by 2012, they’ll admit that the peak was in fact in June of this year, at 87 mbpd. By 2030, fully 20 years past the peak, world oil production will likely be under 70 mbpd."

As for the 450 Scenario, I continue to believe that climate change is a backwards approach to the problem. I have seen no serious rebuttals to the studies by Kjell Aleklett and David Rutledge calling into question whether the world can even get to 450 ppm when peak oil, and then peak gas and peak coal, are properly considered. (Currently, no climate change scenarios have any cognizance of fossil fuel peaking whatsoever.) In e-mail correspondence this week, Aleklett told me that he will soon have two new newspaper articles published in his native Sweden (which will be translated to English) that demonstrate on scientific bases that all of the IPCC scenarios are wrong.

But even that is not important.

Climate change is merely a stalking horse for the IEA. Whether we focus on energy or on climate, the ends are largely the same. And the IEA has astutely recognized that there’s a whole lot more public momentum and investment money to be focused on climate change than there is on dour old peak oil.

What the 2009 WEO Really Means

I could go on for pages and pages, as I have in the past, pointing out the discrepancies and critiquing the scenarios. But that’s not really what this report is about.

Never mind the outlandishly optimistic oil and gas production scenarios. We can throw out the 450 Scenario, as well. They’re wrong, and we all know it — wink wink, nudge nudge.

The IEA doesn’t believe either one of its scenarios any more than they believe humans roamed the earth with dinosaurs. Some stories are meant to be read as parables.

The internal message of the 2009 WEO is clear: The world is facing an energy crisis of epic proportions. The path we’re on is precarious and unsustainable. (The word "sustainable" occurs 18 times in the report, which I’m sure is a record, and Birol repeatedly emphasized the phrase "energy revolution" in his comments.)

There is a way to avert disaster, but it’s going to require the world to commit an incredible amount of capital to the energy sector for many decades to come. And if we fail to rise to the challenge, we’ll be dead in the ever-rising water.

That, of course, is our entire raison d’être here. To motivate capital, rise to that challenge — and make some cheese in the process.

And making cheese is exactly what people who see the forest for the trees have been able to do — not just by questioning what is fed to them via sugarcoated goverment reports. . . but also by following the guidance of experts.

My work gives me the pleasure of working with people who know how to surpass the cold feet many investors have these days and invest with success. My colleague Ian Cooper is one such person. Members of his Pure Asset Trader have been having nothing but success, in spite of the market’s volatility. In fact, they’re trading with a 94.2% success rate. You can read more about Ian’s service here.

Until next time,

chris nelder


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