IEA chief economist Fatih Birol has told lastoilshock.com that the agency will review its use of resource estimates from the United States Geological Survey, in a move that seems certain to prompt a major downward revision of its long term oil production forecast.
Amid a growing consensus that global oil production will peak by around the end of this decade, the International Energy Agency’s forecast that world output will reach 116 million barrels per day in 2030 has looked increasingly isolated, particularly now that its latest Medium Term Oil Market Report – produced by a separate forecasting team – predicts an oil “supply crunch” in 2012.
As I report in The Last Oil Shock, a major weakness of the long term IEA oil supply model is that it relies in part upon resource estimates from the USGS World Petroleum Assessment, published in 2000, which are now demonstrably over-optimistic. For the USGS numbers to come good the world would need to discover 22 billion barrels of oil per year between 1995 and 2025. But as the USGS has now acknowledged, so far the world has only discovered 9bn bbls per year – a massive 60% less than forecast. Even if the rate of oil discovery were now to plateau at that level for the next two decades, the USGS resource numbers would still be 500 billion barrels too high. But since oil discovery has been in long term decline since 1965, despite rising oil prices and advancing technology, it is rather more likely that discovery will continue to fall and the USGS numbers prove yet more astray.
Speaking at the Oil & Money conference in London, Mr Birol listed a number of major uncertainties affecting the oil production outlook, including doubts about the true rate of decline in the existing oil production base. It was critical to understand this issue better, he said, because for every $4 invested upstream, only $1 is needed to meet demand growth, while $3 goes to making good production declines. As a result the IEA would conduct a major review of decline rates to be published in its World Energy Outlook 2008.
In an interview with lastoilshock.com Mr Birol went on to reveal that the IEA would also review the oil resource base afresh, and would be “addressing the limitations and uncertainties” of the USGS data. The Agency would also incorporate other sources of information to assess the “implications of different type[s] of data on our long term thinking”.
Given the widely-acknowledged over-inflation of the USGS figures – the Survey recently slashed its estimate for East Greenland from 47bn barrels to 9 billion – it is likely the IEA’s reappraisal will prompt a major downward revision in its long-term production forecast. And this in turn will undercut the generally sanguine view held by many IEA member countries such as the United States and Britain.
The UK position – recently reiterated on the Prime Minister’s website – is that “the world’s oil and gas resources are sufficient to sustain economic growth for the foreseeable future”. The British government has never conducted its own study of when oil production will peak and has always relied on the IEA to justify its stance.
The IEA will publish the 2007 edition of its World Energy Outlook on Wednesday 7th November, but the impact of its reappraisal will only be evident with the 2008 edition to be published next year.
Mr Birol’s remarks were made on the sidelines of a two-day conference at which both Shokri Ghanem, head of Libya’s National Oil Company, and Christophe de Margerie, chief executive of Total, said global oil production was unlikely ever to exceed 100 million barrels per day.