Bill Totten's Weblog

Tuesday, December 07, 2010

The IEA's New Peak

by Tom Whipple

Post Carbon Institute (November 24 2010) (November 25 2010)

For two weeks now the peak oil portion of cyberspace has been abuzz with commentary on the International Energy Agency's (IEA) newly released World Energy Outlook 2010 {1}. Without missing a beat and without much explanation, the world's leading compiler of everything about energy has gone from denying that conventional oil production will peak in our lifetime to saying it happened four years ago. Will wonders never cease! The Agency, of course, did not predict an immediate cataclysm, as it managed to conjure up enough undiscovered, undeveloped, lousy quality, and very-expensive-to produce oil to keep the world sort of growing for another 25 years. Needless to say the conjuring was met with much derision from those who believe they can discern the possible from the impossible.

Before getting into the implications of all this, it is well to remind ourselves that, in the case of this particular publication and set of forecasts, the IEA has a nearly impossible mission. Although in theory independent of the 28 national governments that support the Agency, in reality it has many political masters none of which are as yet ready to grapple with the myriad of problems that will occur when their peoples recognize that significant economic contraction is the only possible course ahead.

On the other side of the equation are a growing host of sophisticated IEA watchers who are ready to pounce on any inconsistencies and tear at the Agency's credibility. Just last year, a whistleblower made headlines {2} by asserting in the British press that the IEA understood that world conventional oil production had peaked, but were under pressure from the "Americans" not to say so.

Thus the new document is a blend of dodging and weaving, writing around issues, and having it both ways - oil has peaked, yet it will not peak for another 25 years. There is something - and nothing - for everybody. Kjell Aleklett, the President of ASPO-International, sees this year's release as a cry for help {3}. The Agency wants to tell the truth, but is constrained by its masters. The answer is to continue its tradition of predicting future demand for oil that permits some semblance of economic growth (although highly constrained) without really making the case that it will ever be possible to fulfill this demand.

Last year the Agency foresaw global oil production reaching 106 million barrels per day ("b/d") by 2030. This year it forecasts only 99 million b/d by 2035. Aleklett points out that we can interpret this drop as saying that global economic growth is no longer possible. Kenneth Deffeyes, one of the early writers to describe the peak oil phenomenon, points out that the IEA is trying to say "look, oil production peaked five years ago and nothing catastrophic happened" - that is if you ignore the worst global recession in eighty years which certainly was helped along by the $147 a barrel oil we had two years ago.

There are really only two overridingly important questions the IEA has to answer today:

1. How soon will world oil production and the production of other fossil fuels peak and what will their rates of decline be?

2. How many parts per million of carbon are going to make it into our atmosphere, in what time frame?

The answers to these questions will determine what global economic activity will look like in the years ahead, and perhaps even more important whether human life can survive.

This year the IEA focuses much attention on limiting greenhouse gas emissions as the central issue in what the global energy situation will look like 25 years hence. By developing a "New Policies" scenario and a 450 parts per million ("ppm") of carbon in atmosphere scenario, the agency attempts to show that the world will be quite different depending on the outcomes of concerns about carbon emissions.

The IEA tells us that even if governments live up the pledges made in 2009 at Copenhagen, which does not seem likely at the minute, the resulting emissions are likely to raise global temperatures by at least 3.5 degrees Celsius. This of course is getting close to the six degrees Celsius increase at which some believe life on earth ends.

The key part of the document, however, which has come in for much criticism, is the agency's scenario for replacing the 54 million barrels per day ("b/d") of conventional oil production from existing oil fields that will be lost to depletion in the next 25 years. To its credit the Agency is now projecting that conventional oil production will drop off from the current seventy million b/d to sixteen million b/d in the next 25 years. The problem comes with from where and how is this drop in production going to be replaced, so that with some heavy oil from Canada and Venezuela and some more natural gas liquids, global production continues to climb, albeit slowly.

The usual suspects are trotted out. The Saudis will produce five million b/d more; the Iraqi's 4.5 million more; Brazil 3.5 million; Kazakhstan 2.5 million more; and the UAE, Kuwait, Iran, Qatar, Nigeria, Libya, and Nigeria anywhere from 500,000 to one million b/d more than they currently produce. In the heavy oil department, Venezuela and Canada are projected as coming up with 1.5 million and two million b/d increases in production respectively. While all this does not add up to the missing 54 million barrels, when you throw in the oil we will discover in the next twenty years you are off to a good start.

Does all this make sense, given what we know about how oil is currently produced and used and what we can sense about the future? The staff over at The Oil Drum has given some thought to constraints that will impede the IEA's New Policies scenario of slowly increasing energy production over the next decade from actually happening.

The IEA does not seem to consider net energy or the increasing amounts of energy it is taking to produce more energy. There is also the type and quality of energy issue. There may be more natural gas, but this will not run planes, ships, cars, and trucks without massive rebuilding of our transportation infrastructure.

Oil prices are nearing the point that, based on what we saw in 2008, they will do serious to devastating economic damage to the global economy. The idea that oil prices will remain below economically damaging levels for the next 25 years seems far-fetched. The idea that there will be trillions of dollars around to invest in very expensive sources of energy also seems a reach.

Then there are the dubious estimates of the reserves that are still around to be discovered and produced. We know that much of OPEC official reserves are political fiction and even the ten-year old USGS estimates of undiscovered reserves are not wearing well as time goes on.

An important, yet unaddressed by the IEA, issue is peak exports. We know that producers will be using an increasing share of their own production and that the oil available for export will drop faster than actual production. This is bound to have a major impact on the OECD countries.

The list of holes in the IEA's "we can continue to grow" scenario goes on and on. Shale gas may not turn out to be all that is hoped or hyped. All the hoped-for benefits of the smart grids may not be there. Will more energy efficient devices from airplanes to light bulbs come in time to make a difference? What of resources - water, food, rare earths?

What about forecasts that there are simply not enough new oil productions projects currently underway to prevent global production from falling in about three or four years resulting in economy-killing higher prices?

The bottom line is that simply listing where barrels of oil might come from twenty years from now will no longer do it.

As a document, WEO 2010 breaks some significant new ground both in calling the peak of conventional oil and the attention it focuses on the impact of carbon emissions. At the same time it offers succor to those who insist on denying the reality of the 21st century.






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Bill Totten


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