The Oil Drum | Open Thread

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Freddy Hutter on January 10, 2006 - 3:45pm

Ah geez, just when u think the peak is around the corner, EIA comes around and spoils it for the Peakists (again). From today's STEO:
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Global Petroleum Markets -
With this January Outlook, EIA's assessment of world oil market balances is
extended to 2007. World oil demand growth is expected to increase from 1.2
million barrels per day (bbl/d) in 2005 to 1.6 million bbl/d in 2006, largely
because U.S. demand is projected to recover from a net decline in 2005 to show
growth of 410,000 bbl/d in 2006. Demand growth is projected to increase further
to 1.9 million bbl/d in 2007 as demand picks up because of economic growth in
developing Asian countries (excluding China). Other Asian growth had slowed
because of subsidy cuts in countries such as Indonesia and Thailand. Chinese
demand growth is projected to stay on its overall annual trend of about 500,000
bbl/d. OECD demand growth outside the United States is expected to remain low.
However, despite this strong projected growth in demand, world spare oil
production capacity is projected to increase during 2006 and 2007 as non-OPEC and
OPEC supplies increase. This increase in spare capacity is expected to ease the
current tightness in world oil markets and moderate the world oil price increases
seen during the past year. Non-OPEC supply, which grew by an average of 800,000
bbl/d between 1995-2005, is projected to grow by 900,000 bbl/d in 2006 and by 1.7
million bbl/d in 2007. This non-OPEC supply forecast hinges on the U.S. forecast,
and whether a repeat hurricane scenario next summer takes out production in the
Gulf of Mexico again.

Non-OPEC supplies are projected to show significant gains on a net basis over
2006-2007 despite continued declines in mature fields in the North Sea, Mexico,
and the Middle East, and slower growth in Russia. Outside of the United States,
net production increases for 2006 of 100,000-200,000 bbl/d are expected in the
Caspian, Canada, Angola, Russia, Brazil, and Mexico areas. Large new projects in
2007 are projected to lead to increases of almost 500,000 bbl/d in Angola, almost
400,000 bbl/d in the Caspian, over 200,000 bbl/d in Brazil, and over 200,000
bbl/d in Canada.
~~~~~~~~~~~~~~~~~~~~~~~~~~~~
So much for the plateau, eh!

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Hugo Chavez on January 10, 2006 - 3:59pm

Freddy, why do you do this? We all know what the EIA says, and they are great for getting past data, but predicting tomorrow using a straight line that goes through today doesn't work. It approximates, at best. You should know this.

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Stuart Staniford on January 11, 2006 - 2:26am

It's of particular interest to ask how they did last year. The January 2005 Short Term Energy Outlook includes some choice quotes such as:

WTI prices fell by $10 per barrel on average during the past two months due to: the ongoing restoration of oil production in the Gulf of Mexico shut in due to Hurricane Ivan, unseasonably warm weather in the United States, and rising U.S. and OECD commercial oil inventories in general. This Outlook extends the projection period through 2006. EIA's initial assessment is that WTI prices are likely to remain in the $42?$43 per barrel range (on average) throughout 2005?2006.

Oops. It's especially instructive to look at their figure 2, in which they quote a two standard deviation error bar that runs around $32-$52. Ie they thought the probability of $60 oil was negligible (I won't hold the $70 hurricane price against them since they had an explicit caveat about not including major supply disruptions.

Working gas in storage is estimated to have totaled 2,698 billion cubic feet at the end of December. This figure is 5 percent higher than one year ago and 12 percent higher than the five?year average. With the heating season now more than half over and ample storage, natural gas prices are likely to ease over the next several months. Henry Hub prices are expected to average $5.77 per mcf in 2005.

Oops again.

Domestic natural gas production in 2005 is projected to increase by 1.7 percent from 2004 levels, partly due to high gas?directed drilling rates and partly due to continued recovery in the Gulf of Mexico from the effects of Hurricane Ivan. Steady increases in liquefied natural gas imports, restrained export growth, and carryover from the robust storage levels noted above are expected to contribute to moderate improvement in the supply picture in 2005.

It's also interesting to look at Figure 16, where they expected 2005 to be the first year in 30 odd in which domestic oil production increased. The link is a PDF and I don't have a quick way to get the figure out of it, but it looks exactly like this one, except for the 2005 bar going up instead of down.

Hope springs eternal at the EIA.

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JD on January 11, 2006 - 5:26am

where they expected 2005 to be the first year in 30 odd in which domestic oil production increased.

According to the EIA 2004 Annual Energy Review, U.S. domestic petroleum production increased 9 times in the last 30 years -- in 1977, 1978, 1980, 1981, 1982, 1983, 1984, 1985 and 1991.

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Stuart Staniford on January 11, 2006 - 7:55am

Thanks for the correction JD - sloppy of me not to check before extrapolating the general trend to a stronger claim.

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GreyZone on January 11, 2006 - 1:38pm

That's interesting, JD, but 1980-85 was the Alaskan north slope production entering the system and it didn't alter the downtrend for more than a few years.

Got another North Slope you can pop open every 5 years in North America?

But let's look at the US data from the EIA just so we can get a clear picture of what really happened.

When we look at that chart, the North Slope event is obvious and the other few years you mention are nothing but minor blips.

So yes, production managed to increase a few times, by minor amounts aside from the North Slope production. But those variations were irrelevant to the overall trend. I'll even say that I expect production to rarely increase in North America in the coming few decades but each such increase will again be tiny and have no real impact on the general downward trend of North American production.

What is of concern is the general trend. Should Stuart have double checked his facts? Sure. But even with the minor errors, the intent of his statement, that oil production has been on a 30 year downward trend, remains true.

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Halfin on January 10, 2006 - 4:39pm

For reference, the source for Freddy's quote is here:

http://www.eia.doe.gov/emeu/steo/pub/contents.html

Here is an interesting graph of predicted world oil production growth, let's see if I can inline it:

http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide9.gif

This shows the actual growth (or decline) in each region in 2005, and the predicted growth in 2006 and 2007. Of note is the U.S. which fell enormously in 2005 due to the hurricanes but is predicted to recover most of that. One odd thing is that I don't see many OPEC countries listed, and you'd think that would be important.

Another interesting datum is that they predict that the North Sea declines in Norway and the U.K. will be LESS (in absolute terms) this year due to new production coming online. Many people have commented here on the supposed collapse in North Sea production so it will be interesting to see if they can at least reduce the decline rate as the EIA predicts. They also predict that Mexico will have an increase in 2006 after coming off a declining year in 2005.

The EIA has kind of a bad name around here for over-optimistic forecasts, but predicting only one year ahead I would think they would try to be accurate. For example they are predicting higher oil and gas prices for 2006 than for 2005. So I am inclined not to write off their predictions as anti-peak oil propaganda. As I said it will be interesting to see how they do.

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Hugo Chavez on January 10, 2006 - 4:50pm

I'm not saying it's antipeak propaganda. They don't really predict because they're not really in the business of predicting.

It would be like if I wanted to predict how the DOW was going to perform this year. What If I disregarded any news about the economy and the stocks and sectors included in the DOW. Instead I just took the average return for the last 10 years and said that was going to be what we get this year. 10 years out, no problem, just multiply by 10. 25 years out? Same thing.

In fact, in some of their anaylsis they simply come up with three lines into the future(scenarios) based on three different prices of oil. we'll just throw a whole handful of darts, we're bound to hit something.

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DuncanK on January 10, 2006 - 6:24pm

"but predicting only one year ahead I would think they would try to be accurate"

Yes, but you would have thought that about the Exxon predictions of 3 years of production growth that they predicted in 2001 and that Stuart analysed last month. It ended up being essentially flat.

I think the EIA is making the same mistake - underestimating the decline rates.

For instance, I doubt Mexico will be able to increase production, especially if Canterell either a) declines in a similar fashion to the North Sea, or b) is hit by another Hurricane this year.

And I reckon that the UK decline rate will dwarf any new production there. One of my friends has just finished working for a swedish exploration company. He worked on a field on the UK side that was pumping 95% water!

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The Interloafer on January 10, 2006 - 6:33pm

Halfin, I'm missing something here, but I don't know what. The U.S. supply is supposed to grow in 2006 and 2007? Hasn't the U.S. supply been declining since 1970? I'd think if it was going to increase by 600,000 bpd, that would be huge news. On the other hand, if it was U.S. demand was supposed to increase by that amount, I wouldn't be shocked.

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Hugo Chavez on January 10, 2006 - 6:52pm

You are correct. The US increasing its production by 600,000 barrels in 2 years is beyond crazy. It has lost that much in the last 10 years.

Why would 2006 and 2007 be different from 2004 and 2005? makes no sense, prices have been increasing for at least 3 years. Oh, suddenly a bunch of domestic investment that nobody's heard of is going to come to fruition in the next two years?

ANWR isn't supposed to come online for a minimum of 5 years and more like 10.

So you can forget about 600,000 more barrels from the US and start looking somewhere else.

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DuncanK on January 10, 2006 - 6:57pm

The graph is showing the change relative to the previous year.

In other words, they are saying that the US will pump more in 2006 than they did in 2005, which is not too difficult given the huge shut-in figures from the hurricanes. But that is also assuming there are no big huricanes this year to produce similar shut-ins.

The 2007 increase is a little harder to understand, because they are saying that after recovering from last year's hurricanes, the US will then increase production still further! I would love to know where they think that's coming from. Maybe they think that ANWR will be pumping by then!

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DuncanK on January 10, 2006 - 7:17pm

Here's the North America specific graph:

[http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide10.gif]

I can't find where they are more specific about the "Gulf of Mexico Production Growth".

Maybe they're going to raise some of the sunken platforms and start them drilling again!

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DuncanK on January 10, 2006 - 7:29pm

Here's another one of their spoofy graphs:

[http://www.eia.doe.gov/emeu/steo/pub/gifs/Slide27.gif]

Are they really expecting us to believe this crap?

Anyone know where they're getting these increases from?

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Hugo Chavez on January 10, 2006 - 8:15pm

I think Yergin has a hotline to Karl Rove's desk. he just calls and has a marine squad sent over to the EIA Ministry of Oil to make sure CERA orders are carried out.

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Halfin on January 10, 2006 - 8:33pm

Duncan, when you inline those things add width="100%" to the IMG tags and it fits better:

and

As far as why they think U.S. production will be up in 2007, I don't know but maybe it is because there is still a certain amount of production shut-in right now in 2006 and they are figuring that that will slightly depress 2006 production from what it could be. They do note that they are assuming no major hurricane damage in 2006. However I don't think that will account for the change, so I guess they have some new GoM production in mind.

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DuncanK on January 10, 2006 - 7:57pm

Freddy, what I'd like to know is why a Canadian like yourself can be duped by this kind of US propaganda?

Figure 20 above must be proof to you that these guys are smoking some good shit!

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shez on January 10, 2006 - 8:24pm

This article should give Freddy some cheer (seeing as he's Canadian) but it doesn't sound too good for oil supplies overall...

Alberta oil sands will be world's largest source of new crude oil by 2010: CIBC

Alberta's oil sands will become the most important source of new oil in the world by 2010 as conventional crude dries up, CIBC World Markets says in its latest monthly report.

Alberta will sit on one of the most valuable energy sources in the world by that time, and one of the few still open to private investment, said Jeff Rubin, chief economist at CIBC World Markets, the bank's wholesale banking arm.

He added that conventional oil production around the world apparently peaked in 2004....

[see link for the rest]

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Hugo Chavez on January 10, 2006 - 9:10pm

Good article. I should state here that I think SUNCOR is a decent play, however maybe a little pricey at $70 now, I think. I would be looking to buy if it dips down below $40, though. From an investor's standpoint, I'm hoping they have some more fires in their tar-fields to kill their outlook for a few quarters.

The important part is the last paragraph. All of Canada's tar sands produced 270,000 bpd of liquid in 2005. That is projected to increase to ONLY 500,000 bpd in the next five years. This is at the same time that the cornucopians are adding 180 Billion barrels of this "sand" to worldwide reserves. Insanity. We need a million barrels per year, not 50,000.

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CmdrPhil on January 10, 2006 - 10:29pm

The Dow Jones Newswire is also carrying the CIBC story.

Although CIBC doesn't differ much from the EIA for new supplies coming online in 2006 they make a point of saying that most new supply additions are increasingly coming from deep water, tar sands, and other non-conventional deposits, and that the new supplies increasingly will not be able to keep pace with depletion in conventional fields. The EIA is pretty silent on depletion by comparison. Consequently the CIBC price estimates are substantially higher than the EIA's for the next year. If I were out to poke a hole in the EIA predictions I'd concentrate on their depletion estimates rather than their new supply numbers.

I agree with Freddy that we haven't seen peak production yet. If the recent flattening of the global production curve were due to supply constraints we would have seen a much stronger price response. Instead I think the slack production is due to weak demand, not so much in this country, but in less affluent parts of the globe. Gasoline prices here didn't stay high enough long enough to create much of a dent in long term behavior and after a few cold weeks in Dec the winter is turning warmer than average in the US. Rather consider the effects of diesel and cooking fuel price increases where the average wage is substantially below the western world (especially in Indonesia where domestic subsidies were partially eliminated last year) - I would wager that there is a lot more conservation and fuel switching going on in the third world. I haven't seen any statistics to support this, it's just my best guess.

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LevinK on January 11, 2006 - 11:20am

I'm with you here. Demand destruction already began in the 3rd world, most importantly China and India where demand essentially flattened. IMO we are going to see much smoother price increase than I personally hope because the prices are already too high for them. A lot of people are predicting 100-150$/bbl soon but I'm not sure they include in this prediction the resulting collapse of many third world countries.

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DuncanK on January 11, 2006 - 7:18pm

Yes but the third world countries that will experience demand destruction at these prices account for only a very small percentage of the daily oil consumption.

Remember that North America, Europe and Japan account for about half the daily oil consumption.

I remember reading somewhere that the OECD countries account for almost 60% of the daily oil consumption.

And Europe is already coping with petrol ('gas' to the US) prices double that in America, so that shows that the US, at least, can easily survive with $100-150 oil without much demand destruction.

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Hugo Chavez on January 10, 2006 - 8:11pm

Freddy apparently bailed on this "rational" discussion after he dumped a bunch of meaningless EIA garbage on us. I'm still cracking up that he's listed as a "critic" along with Yergin and Lynch under Wikipedia. Freddy, please tell me you didn't submit your own name. Oh, that is some funny stuff.

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SaturnV on January 10, 2006 - 11:02pm

Freddy, I have just one word for you - Burgan.

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BeaconBoy on January 10, 2006 - 11:20pm

Freddy

Forecasts even the best ones are best guesses and hopes.

I got one last year from a well regarded bank on oil prices and it was wrong from day 1. It did not get any better for the other 364 days in the year past.

I just can't wait to see all that production coming on line and driving down prices. North Sea and Mexico humming along merrily disregarding decline opportunities.

Maybe we might keep this and compare it with reality in 365 days time.

Can't wait.

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Leanan on January 11, 2006 - 12:58pm

I don't think the peak is around the corner. I think it's past.

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121 comments on Open Thread

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“If kindness and comfort are, as I suspect, the results of an energy surplus, then, as the supply contracts, we could be expected to start fighting once again like cats in a sack.”

—George Monbiot