Recent Articles on Peak Oil - It is Closer than we Think

[Jon Bryant]

The Guardian
Terry Macalister
Key oil figures were distorted by US pressure, says whistleblower
9 November 2009

The world is much closer to running out of oil than official estimates admit, according to a whistleblower at the International Energy Agency who claims it has been deliberately underplaying a looming shortage for fear of triggering panic buying.

The senior official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

The allegations raise serious questions about the accuracy of the organisation's latest World Energy Outlook on oil demand and supply to be published tomorrow – which is used by the British and many other governments to help guide their wider energy and climate change policies.

'There's suspicion the IEA has been influenced by the US' Link to this audio In particular they question the prediction in the last World Economic Outlook, believed to be repeated again this year, that oil production can be raised from its current level of 83m barrels a day to 105m barrels. External critics have frequently argued that this cannot be substantiated by firm evidence and say the world has already passed its peak in oil production.

Now the "peak oil" theory is gaining support at the heart of the global energy establishment. "The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year," said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. "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," he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was "imperative not to anger the Americans" but the fact was that there was not as much oil in the world as had been admitted. "We have [already] entered the 'peak oil' zone. I think that the situation is really bad," he added.

The IEA acknowledges the importance of its own figures, boasting on its website: "The IEA governments and industry from all across the globe have come to rely on the World Energy Outlook to provide a consistent basis on which they can formulate policies and design business plans."

The British government, among others, always uses the IEA statistics rather than any of its own to argue that there is little threat to long-term oil supplies.

The IEA said tonight that peak oil critics had often wrongly questioned the accuracy of its figures. A spokesman said it was unable to comment ahead of the 2009 report being released tomorrow.

John Hemming, the MP who chairs the all-party parliamentary group on peak oil and gas, said the revelations confirmed his suspicions that the IEA underplayed how quickly the world was running out and this had profound implications for British government energy policy.

He said he had also been contacted by some IEA officials unhappy with its lack of independent scepticism over predictions. "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," said Hemming.

"This all gives an importance to the Copenhagen [climate change] talks and an urgent need for the UK to move faster towards a more sustainable [lower carbon] economy if it is to avoid severe economic dislocation," he added.

The IEA was established in 1974 after the oil crisis in an attempt to try to safeguard energy supplies to the west. The World Energy Outlook is produced annually under the control of the IEA's chief economist, Fatih Birol, who has defended the projections from earlier outside attack. Peak oil critics have often questioned the IEA figures.

But now IEA sources who have contacted the Guardian say that Birol has increasingly been facing questions about the figures inside the organisation.

Matt Simmons, a respected oil industry expert, has long questioned the decline rates and oil statistics provided by Saudi Arabia on its own fields. He has raised questions about whether peak oil is much closer than many have accepted.

A report by the UK Energy Research Centre (UKERC) last month said worldwide production of conventionally extracted oil could "peak" and go into terminal decline before 2020 – but that the government was not facing up to the risk. Steve Sorrell, chief author of the report, said forecasts suggesting oil production will not peak before 2030 were "at best optimistic and at worst implausible".

But as far back as 2004 there have been people making similar warnings. Colin Campbell, a former executive with Total of France told a conference: "If the real [oil reserve] figures were to come out there would be panic on the stock markets ... in the end that would suit no one."

[Jon Bryant]

Oil's Troubles Continue
Energy and Capital's Weekend Edition
By Keith Kohl
Saturday, December 12th, 2009

Welcome to the Energy and Capital weekend edition — our insights in investing, as well as the top stories this week from Energy and Capital and our sister publications.

After watching the dollar strengthening for most of the week, we knew crude oil was in for a rough patch. After all, whenever the dollar gains momentum... you can bet investors will lose their interest for commodities.

Oil prices opened on Monday this week at $75.80 per barrel, and briefly traded over $76 per barrel. However, things quickly took a turn in the opposite direction. By Wednesday, crude prices had fallen more than 7%.

Once the EIA's weekly oil report showed another increase in gasoline supplies, nothing was going to change the week's sentiment. Even after a slight drop in crude oil inventories, the fact is that they are still 7% higher than the five-year average. Friday marked the eighth consecutive drop for oil prices and the first time in a while that we've seen oil fall below $70 per barrel.

Despite being less than two weeks away, we're not expecting much to come from OPEC's December 22 meeting in Angola. It will be difficult to reprimand members for breaking their quotas considering they're all currently producing above those quotas. Production is expected to remain around 24.8 million barrels per day. OPEC officials have repeatedly stated the organization is satisfied with current prices.

Recently, the IEA cut its forecast for non-OPEC oil supplies due to delays in North American projects. Remember, non-OPEC producers account for approximately 60% of the world's total output. According to the IEA, non-OPEC producers will supply 265,000 barrels per day less than previously expected. One of the reasons for the revision is due to delayed start-up dates for projects in the Gulf of Mexico.

Although the bidding process for developing Iraq's oil fields has been complicated (to say the least), new contracts were awarded on Friday. Winning bids were received by both Royal Dutch Shell and China's CNPC. During the auction, two projects received no bids, while one bid for the Qaiyarah field was rejected because the feel was too high.

As oil supplies get increasingly tighter at super-giant fields due to depletion problems, companies will have to continually look further and drill deeper than ever before. A recent Douglas-Westwood offshore report showed that more than $330 billion will be spent on offshore operations over the next five years.

Trying to hedge itself from lower oil prices, Mexico weighing its options — literally. The country's Finance Ministry announced it is spending over $1 billion on put options, which gives them the right (but not the obligation) to sell oil at that price next year. According to Finance Minister Agustin Carstens, "We want this as an insurance policy."

Until next time,



Keith Kohl
Energy and Capital

[Jon Bryant]

Reply to NYT: Peak Oil is not a theory; Peak Oil is the reality of past and future oil production.
Submitted by Kjell Aleklett on Wed, 2009-09-09 20:16. Headline news
(On August 24, 2009, New York Times published an Op-Ed contribution by Michael Lynch with the title: 'Peak Oil' Is a Waste of Energy. Kjell Aleklett, president of ASPO International, has written an answer that NYT decided not to accept. ASPO International is now publishing this contribution.)

Kjell Aleklett, Professor in global energy systems at Uppsala University, Sweden (www.fysast.uu.se/ges) and president of ASPO International (www.peakoil.net).

Over the past five years, Mr. Michael Lynch and I have debated future global oil production at meetings in Gothenburg (Sweden), Paris and Shanghai. We have also conducted the debate through an exchange of emails published in the British journal Science and Public Affairs in December 2008. The arguments that Mr. Lynch advances are, therefore, well known to me. The fact that he is an economist and I am a natural scientist means that we see the future of oil production from two different perspectives, but are in agreement that access to oil is of great importance to the world economy and our future.

What has prompted Mr. Lynch to write his recent opinion piece in the New York Times appears to be a statement from Dr. Fatih Birol of the International Energy Agency (IEA) that Peak Oil is near. At the same time, Mr. Lynch attempts to discredit a number of dedicated and qualified people who work on the Peak Oil issue as well as ASPO, the Association for the Study of Peak Oil&Gas. To suggest that Dr. Birol would base his assertion on "anecdotal information" is astonishing. One wonders what secret information Mr. Lynch possesses and does not wish to share with the IEA.

Oil was formed millions of years ago. Now that the entire world (with the exception of some offshore regions) has been explored to assess its oil resources, we know quite well where the favorable geological structures are located in which oil might be found. We know also that oil resources are unevenly distributed and that more than half of the entire world's original and its remaining oil is concentrated in the Middle East. Additionally, most of those nations that had lesser quantities of oil have already, at some point in their history, passed the point of peak production. Not even Mr. Lynch can deny that the USA's year of peak oil production (1970) has come and gone. This fact means that Peak Oil is now reality for the USA. Examining oil production in most of the oil-producing nations outside of the Middle East shows that they have also passed their use-by-date, i.e. they have also experienced Peak Oil.

The claim that the few nations not yet at their maximum production could compensate for other nations' declining production, while at the same time continuously increasing their own rate of production without reaching Peak Oil and thereby permitting global production to grow for the remainder of this century, is suspect at best. Those who believe this are, primarily, highly educated economists who assert that the peak oil reality that many nations have experienced is nothing but a theory without foundation. On the contrary, there are many well-grounded theoretical models that describe future oil production.

In his article, Mr. Lynch referred to what is known as the "Hubbert model", a theoretical model that describes quite well the historical and probable future production of oil in the USA. This model characteristically predicts maximum production when half the oil reserves have been produced. For global oil production, there is general agreement that this model does not approximate reality. By studying the production from individual fields in detail, one can see that there are other parameters that have greater importance for the future rate of production. One of these is the proportion of reserves remaining in an oilfield that can be produced every year. We call this parameter "depletion of remaining reserves". Different fields show different values for this parameter but, for the largest and most important fields, the depletion rate lies somewhere between 4 and 10 percent. When a field reaches a plateau or the maximum depletion rate for its field type, the field's production thereafter declines by this percentage value year after year. Investments and new technology can slow this trend but the changes in production thus obtained are significantly less than the volumes produced by the field in its heyday.

Nowadays, new projects must be financed with capital from the international finance market, obtained on the basis of a detailed description of geological factors. The IEA, CERA (Cambridge Energy Research Associates) and we at Global Energy Systems (Uppsala University, Sweden), all agree that it is these new projects that will slow the decline in production from existing fields. Uncertainties in the data on old oil fields will not determine the future; rather it will be by the realities that apply when financing must be found for new production.

When is oil discovered in an oil field? At some point the first well must be drilled so that one can state that oil exists underground. Then, to map the total volume of oil, more wells must be drilled. When an oilfield is announced, the entire field is considered to have been discovered although its total structure is not understood. In the BP Statistical Review of World Energy (a publication used by many economists), revisions in the volume of proven reserves in old fields are reported as discoveries in the year the revisions are made, giving the impression that the greatest volume of oil was discovered during the 1980s. However, backdating these revisions to the date of discovery shows that the greatest volume of oil was discovered during the 1960s.

For those observers of this debate who do not understand the details of reserves and production, the arguments can seem chaotic. We at Global Energy Systems always attempt to support our assertions by publishing our scientific analyses in peer-reviewed journal articles. It is these articles that form the foundation for my assertion that Peak Oil is imminent. The current reality seems to be a production plateau with production varying within plus or minus 4% of 85 million barrels per day. The plateau began in 2005 and production may well decline from that point during the next five to ten years. This includes Dr. Birol's peak oil date.

[Jon Bryant]

Oil prices hit high but report warns of supply crunch
Ashley Seager
The Guardian
19 October 2009 23.00 BST

World oil prices hit their highest point for a year yesterday, as a major new report urged governments around the world to take drastic action to head off an approaching oil supply crunch.

US light crude futures pushed above $79 a barrel, supported by the view that a recovering world economy would raise demand for crude. Oil prices have more than doubled from the low point they hit in the spring, but are still around half the all-time high of nearly $150 a barrel they reached in early summer last year.

Analysts have been surprised at the recent resilience of oil prices given the impact on energy demand of the global recession. In spite of this year's volatility in the oil price, the underlying trend for a decade has been for it to rise steadily.

A report from the non-governmental organisation Global Witness – famous for its exposé of so-called "blood diamonds" – pointed to an impending supply shock that could be so severe that many of the world's poor countries would simply be shut off from the world of energy by sky-high prices.

Two years in the preparation, Global Witness's report, Heads in the Sand, accused governments of ignoring the fact that the world could soon start to run short of oil. This would lead to huge consequences in terms of price shocks and much higher levels of violence around the world than last year's food riots.

"There is a train crash about to happen from an energy point of view. But politicians everywhere seem to have entirely missed the scale of the problem," said the report's author, Simon Taylor.

"We are all addicted to oil but if you look at the mathematics of the problem, they simply don't add up in terms of future supply and demand."

The report went through the latest figures from the oil industry and the Paris-based International Energy Agency, which last year drastically reduced its estimate of the available oil.

The IEA figures showed there could be a gap of 7m barrels a day between supply and demand by 2015. That represents about 8% of the expected world demand by then of 91m barrels a day.

The IEA expects production from existing oilfields to fall by 50% between now and 2020 and warned the world needs to find an additional 64m barrels a day of capacity by 2030 – equivalent to six times current Saudi Arabian production.

But Global Witness took issue with the IEA's recommendation that the oil industry spend $450bn a year chasing these supplies, many of which may well not be there. Because of the demands of climate change, the report argued, the money would be better invested in moving rapidly to a post-oil world of renewable energy and conservation.

Taylor said even the new IEA projections of how much new oil the world would discover were likely to be over-optimistic. He said the so-called "big" oil discoveries of the last few years added up to nothing like the "discovery rate" needed to replace the world's dwindling supplies from existing fields. They have totalled around 16bn barrels, or only around 1.7m barrels a day, once up and running.

The report said that between 2005 and 2008, global oil production ceased to grow in spite of widespread investment and rising prices, which should normally have brought forth a big rise in supply. It notes that the biggest year for new discoveries was 1965, since when they have been falling. Global oil production overtook new discoveries in 1984 and has outpaced them ever since.

It also dismissed as myth a widely held expectation that tar sands in Canada could fill the supply gap. Tar sands are unlikely ever to yield more than 3-4m barrels a day, equivalent to the pace at which existing fields are declining every year.

Taylor said the four key issues about oil – declining output, declining discoveries, increasing demand and insufficient projects in the pipeline – have been apparent for many years.

"But governments and multilateral agencies have failed to recognise the imminence and scale of the global oil supply crunch, and most of them remain completely unprepared for its consequences," he said.

"There has been a decade of dithering and it is now too late to avoid the consequences unless the authorities move like there is no tomorrow."

Dr Jeremy Leggett, author of books on peak oil and convenor of the UK Industry Taskforce on Peak Oil and Energy Security, said: "A steep premature descent in global oil production would be worse than the credit crunch in terms of economic impact. Unlike the credit crunch, however, the peak oil risk assessment involves big companies sounding the alarm alongside organisations like Global Witness."