If you?re the IEA the answer is simple. In their recent World Energy Outlook report they predicted production of 99 million barrels per day in 2035. That is about 13 mbpd higher than today but the devil is always in the details.
In the 2007 WEO they predicted production would be 116 mbpd by 2030. In the 2009 WEO they predicted 106 mbpd by 2030 and that was a decline of 10 mbpd in the estimate. Now in 2010 that dropped another 7 mbpd to only 99 mbpd and the timeline was extended for another five years.
For years the IEA has avoided the topic of peak oil and religiously denied its existence. In the 2010 report they actually acknowledged it by claiming it occurred in 2006. Of course they explained away why we have more liquids today than in 2006 by qualifying their definition of peak oil. In their terms they are only discussing conventional oil. They are doing this as a way to ease into the mainstream the concept of peak oil without saying "we screwed up for the last 20 years in claiming there was no peak oil on the horizon."
Now they can desensitize the term by claiming it is behind us and the world did not come to an end. To ramp up to today's roughly 87 mbpd of production they add in oil sands production which to them is not really oil. They add in natural gas liquids, ethanol, bio diesel, deepwater oil and shale oil. These are "non-conventional" sources and therefore don't count in the peak oil debate.
This is so funny it is laughable because they told us years ago that peak oil would not occur until well after 2050 because of strides being made in deepwater drilling and oil sands projects. They also hung their hat on future oil shale production even though there has never been any commercial production from oil shale to date.
FYI - Shale oil is different from oil shale. Oil shale that is prevalent in Colorado and Wyoming is immature source rock where the oil permeates the shale but does not flow because it is not a liquid. Shale oil is the oil deposits trapped in narrow shale formations like shale gas but can be produced by using horizontal wells. The Bakken is a prime example of this type of oil.
In its latest report the IEA claims we cannot hit their new target of 99 mbpd by 2035 unless there is sufficient spending on exploration and infrastructure. That target number is something in the $30 trillion range. Hang on, let me get my checkbook. That number is as much of a fantasy as the IEA's 99 mbpd estimate.
The IEA claims oil demand in developed nations (OECD countries) is declining and will continue to decline. That may be true to some extent but for different reasons. The U.S. demand has declined because real unemployment and under employment is now nearly 22%. That is a lot of people not driving to work every day. Demand is falling in many European countries as a result of the recession and will decline for the next several years as a result of the forced austerity programs.
Does this mean citizens in these countries no longer want to drive or travel? No, but it does mean that once the global economy accelerates there will be a sharp increase in demand. Oil consumption has a direct correlation with economic activity. Unless you are projecting these post recession doldrums to last forever there will be an economic improvement cycle in our future. Unfortunately that uptick in economics will probably come right about the time we reach "peak liquids" in the petroleum sector.
After an unprecedented increase in oil prices over the last five years you would expect a corresponding increase in production. Back in 2001 oil was selling for $20 a barrel and just over $10 in 1998. Today it is selling for $85. You would have expected an explosion in new production given that surge in prices.
Actually there was an explosion and the peak of the new production came in 2009-2010. The amount of new production added to the global total will begin to decline again in 2011 and continue as far into the future as we can see. Since it takes 5-7 years to bring a significant new project online we can look 7-10 years into the future and count the new projects. These require billions in new investment so they are highly visible. The Petrobras offshore discovery is a prime example. Discovered roughly three years ago and they don't expect production to really ramp up until 2020 despite hundreds of billions being spent on rigs, ships, pipelines and exploration. When that production arrives they expect 1.0-1.5 mbpd in 2020. Very big project but slow flows because of the complexity.
The reason there has not been a real explosion of new production as a result of the rise in price is the easy oil has already been found and produced OR it is in the hands of countries like Saudi Arabia, Kuwait, Nigeria, Libya, Iran, etc. The OPEC nations control two thirds of the remaining claimed reserves. It is not in their interest to rush out and drill wells as fast as they can. It is in their interest to take it slow and maintain a steady production schedule in order to maximize the price of oil.
It is also in their best interest to inflate their claimed reserves in order to keep the world from rushing around in a panic worrying over how to replace oil as an economic fuel. Many analysts believe OPEC countries have less than half the oil reserves remaining as they claim.
For me the answer is clear. The IEA is attempting to let their 27 member countries down gently by slowly ratcheting down their estimates for future production of liquids. Next year's report will probably fall from 99 mbpd to 95 mbpd and they will claim lowered economic activity and higher energy utilization has altered their forecast for future usage. Eventually they will lower estimates to something resembling actual production and blame the impact lower production has on economic activity as "insufficient investment" and claim, "we told you so."
Peak oil is coming. It does not matter if you call it peak oil or peak liquids. It is coming and the impact on global economics from ever-higher oil prices is going to be devastating. When gasoline is $8 a gallon WHEN you can get it, the prospect of traveling anywhere is going to be a terrifying and costly endeavor. Let's hope you live close to work, shopping and your family when it comes.
This newsletter is only one of the newsletters produced by OilSlick each day. The investment newsletter is also produced daily and contains the current play recommendations in the energy sector. Stocks, options and futures are featured. If you are not receiving the "Play Newsletter" please visit the subscribe link below to register.
Subscribe to Energy Picks Newsletter