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Energy Bulletin has a report by Sally Odland on a recent talk to the CFR by the IEA's Fatih Birol - Gleanings from Fatih Birol’s presentation of the WEO 2008 to the Council on Foreign Relations. Note all the "ifs" required to keep the IEA's supply projections intact.

Last week, Fatih Birol, chief economist to the International Energy Agency, presented the IEA’s World Energy Outlook 2008 to the Council on Foreign Relations in New York City. In an unusual gesture, this CFR session was opened to invited guests, which is how I cleared its thick oak doors.

As the program noted, ‘The World Energy Outlook series is widely recognized as the most authoritative source for forward-looking energy market analysis.”

The one-hour session was held ‘on the record’. Fatih had 15 minutes to present the 569-page report, followed by a 15-minute dialog with host Edward Morse (Managing Director, Louis Capital Markets, former publisher of Petroleum Intelligence Weekly, co-founder PFC Energy), followed by 30 minutes Q&A. (The CFR runs their sessions as strictly as the ASPO conference!) ...

The IEA recently realized how critical the decline of the existing oil production base is to future oil production rates. That prompted an in-depth field-by-field study of decline rates. Birol warned that the equivalent of 4 new Saudi Arabias must come on line by 2030 just to offset expected decline, 2 more on top of that if we are to ‘grow’ production to the Reference Scenario. I’m not sure the audience fully appreciated the enormity of those statements.

By now, everyone who follows energy has seen the IEA’s Reference Scenario production growth to 2030 (attached below). Imagine my shock when this slide flashed on the screen, without the gaping, scary red triangle of yet-to-be-discovered crude oil. Unless I was hallucinating, it had been colored light blue along with the oil that has already been reported as discovered-awaiting-development. This resulted in a nice growth wedge of enhanced oil recovery (EOR), unconventional oil and natural gas liquids built atop a reassuring plateau of conventional oil production through 2030.

A full 1/3 of the talk and questions concerned climate: CO2 emissions and carbon policy, the need for cap-and-trade carbon market, China buy-in, investment in carbon capture/sequestration (CCS), etc. The handouts were a CFR flyer and their Independent Task Force Report on the climate change crisis and strategies for U.S. foreign policy to address it.

For an agency whose original mandate was to assure continuity of oil supply to its 28 OECD member nations, the IEA is banking mighty heavily on an energy fix through climate policy. Birol expressed strong hopes for a proactive outcome to the 2009 Copenhagen climate meeting. He commented that the solutions for the climate problem will also be the solutions to the energy problem.

Tellingly, when asked what actions he thought were most critical he said “1) efficiency, 2) efficiency, and 3) efficiency”.

There were surprisingly few questions for Birol, mostly concerning climate policy and oil pricing. I gave my affiliation as Columbia University AND the Association for the Study of Peak Oil and launched in:

Q: This year’s WEO report represents a radical departure from 30 years of optimistic, demand-driven consumption projections. In the past, the IEA always relied on the ‘Call on OPEC’ to make production rise to the level of projected demand. Your new bottoms-up, field-by-field analysis of supply and depletion rates is a major improvement and we commend you for it. Yet this report still relies on the Call on OPEC to fill the production gap. Do you, personally, believe that it will be remotely possible to keep supply flat in the next 5-10 years, given the current economic and geopolitical situation?

A: If you read the report carefully, or run a word search on it, you will see that two words occur more frequently than any others. The first word is “oil”. The second word is “if”.

This got a rumbling chuckle from the audience. But no one publicly connected the dots that in order for the IEA’s supply projections to work out, ALL of the non-trivial IFs mentioned in his talk must materialize:

* IF the current low oil prices rise back above the $75-$95/bbl marginal cost needed to bring on new non-OPEC supply in time to offset the declining production base
* IF oil-producing countries and China stop subsidizing petrol prices to their own populations
* IF OPEC gives the International Oil Companies access to explore and develop their national reserves
* IF $26 Trillion in exploration and infrastructure capital is invested
* IF OPEC decides to invest seriously in capacity increases
* IF EOR can really increase the recovery rate to the extent hoped
* IF the unaudited reserves reported by OPEC and Russia are really there
* IF the optimistic USGS 2000 predictions of Yet-to-Find oil are correct
* IF the Saudis are capable of reaching and sustaining 15 mbd, and willing to do so (Ok, he didn’t mention these last three)
* IF, IF, IF, etc.

AND virtually all of these IFs are outside the control of any policies that might be set by the oil-importing OECD.

Someone asked Birol if he would have changed anything in the report had he known the financial and oil price meltdowns would occur before it went to the printers. He said “No.”

No one made the obvious peak oil/climate connection.

I got the impression that, within the halls of policy, climate change mitigation is considered the only politically expedient cover for curtailing fossil energy use.

The Asia Times has an article on the IEA report, pointing to Phil Hart's expert analysis at TOD ANZ - Cheap-oil era is over. I'm not sure talking about "cheap oil" disappearing is all that effective at the moment (with oil getting cheaper by the day) but I suspect the oil price will be below the cost of p[oduction for many producers now and we'll see supply start to fall away in the coming months as depletion and economics take their toll (for the time being).

The International Energy Association (IEA) was formed in 1974 at the initiation of then United States secretary of state Henry Kissinger. It was established in reaction to the 1973 oil embargo. Its initial charge was to establish surplus oil reserves in the US, Europe and Japan, so these oil-importing nations would not be vulnerable to embargoes or other sudden changes in global oil supplies. Over the past 35 years, IEA has evolved into one of the major sources of information on the global oil industry; that is an extremely problematic role.

Now, just as the world economy slows and oil drops below US$50 a barrel, the IEA has released the most important report in its three-decade history, World Energy Outlook 2008. This report does something both very important and most amazingly unprecedented. It takes an extensive inventory of global oil supplies.

It would seem fairly logical that an organization responsible for tracking the global oil industry would as a matter of course, indeed of its very nature, take a close look at actual oil supplies every year, but this in fact has not been the case. For almost its entire existence, the IEA has quite unbelievably looked at demand and assumed supply would be there to meet it.

So after their first real inventory of global oil supplies, extrapolated from 800 largest oil fields, the IEA's conclusion? Mr Tanaka put it quite succinctly, "The era of cheap oil is over." And despite some of the report's optimistically shaded opinions, a closer look at the World Energy Outlook 2008 leaves a rather more ominous conclusion. Not only is the era of cheap oil over, but the era of oil as a yoke on future economic growth has begun.

The report states that current field production is declining 9% a year. Even with the most advance technology, this decline will only be stemmed to 6.7% a year. Mr Tanaka adds, "Even if oil demand was to remain flat to 2030, 45 million barrels per day of gross capacity - roughly four times the current capacity of Saudi Arabia - would need to be built by 2030 just to offset the effect of oil-field decline." In 20 years, to just run in place, we have to replace almost 60% of the oil we're currently producing. ...

What the IEA is admitting here is in a open secret in the oil industry. In the mid-80s, many OPEC nations doubled their oil reserve numbers in order to beat quota limits imposed in reaction to the collapse of oil prices
in the last global recession. Nonetheless, the IEA did not change their figures. It kept the doubled reserve numbers, and most alarming, further in the report claims, "The bulk of the increase in world oil output is expected to come from OPEC countries, their collective share rising from 44% in 2007 to 51% in 2030."

In addition, respected oil industry investment banker Matt Simmons writes, "Sadad al Husseini, former head of E&P [exploration and production] in Saudi Aramco, has said the Saudis should not produce more than 12 mbpd (million barrels per day) if they want to avoid damaging their reservoirs. He has also said that Middle East OPEC will never produce more than 25 mbpd. Yet IEA projects that these countries will produce 37.1 mbpd by 2030." So, the two areas IEA claims will make up over 50% of global oil supply in the next 20 years are at very best problematic, and most realistically fairly useless.

The next area, shaded red, is an estimation of undiscovered oil, which IEA claims will, "account for about a third of the remaining recoverable oil." Simmons reveals that IEA's estimate is based in great parts on a United States Geological Survey from 2000, which has since proven wildly optimistic, or more accurately, quite wrong. The USGS estimation of new reserves has been off to date by over two-thirds. ...

The struggle to control oil, even when it was plentiful, was one of the great sources of tragedy in the 20th century. It needn't be in the 21st. The world can rip itself apart fighting for remaining reserves, or we can begin to change our ways and usher in a new and vibrant era.