Very, very cool

For what its worth, front month crude (WTI) was down 75 cents today while crude for 2012 delivery was up 50 cents to an all time high ($72.30) today. Perhaps someone with money that doesnt read TOD read the IEA report....

Some fodder for the has light sweet oil already peaked debate, from page 45:

Likely Evolution of Global Supply Quality

Global average crude and condensate quality for 2006 is estimated at 32.6°API and 1.18% sulphur. Looking at 2007-2012, the net change in global quality will be minimal, with gravity lightening from 32.7°API to 32.8°API. Global refinery feedstock becomes marginally sourer, as sulphur content increases from 1.15% to 1.16%. However, the five year trend masks divergent moves in the interim, as production first becomes both lighter and sweeter in the period through 2009, turning sourer thereafter. Despite becoming more sulphur-prone in the longer term, the global barrel continues to lighten.

Dissecting these trends regionally provides some explanation for apparently contradictory movements in quality. The surge in OPEC condensate supplies during 2007-2009 underpins the increase in global quality. FSU supply is also becoming markedly lighter and sweeter in this period, as Urals crude is progressively replaced by Caspian volumes and by lighter/sweeter Sakhalin crude. While these elements continue to drive global supply lighter through 2012, lower-quality supply from the Americas, (Canadian oil sands, Brazil, GOM) begins to play an increasing role. This curbs the lightening of the global barrel, while also turning it sourer from a sulphur low of 1.13% in 2009, to 1.16% in 2012.

From the EB:

http://energytechstocks.com/wp/?p=43
Prediction #1 (of 3) from Oil Expert Matt Simmons:‘Real Risk’ Gas Pumps Run Dry This Summer
Energy Tech Stock

...[Matthew] Simmons told EnergyTechStocks.com that U.S. refineries simply aren’t capable of running at a sufficiently high capacity to produce enough gasoline for the many millions of American motorists who, despite ever rising pump prices, continue to drive more miles each year. “The refineries are too old,” he said.

Simmons made an analogy between an old house whose plumbing and wiring have been modernized and an old oil refinery which, like U.S. refineries, has had its equipment modernized. “It’s still an old house,” he said.

To be sure, thanks to increasing amounts of refined gasoline imported from Europe, up until now America has been able to quench motorists’ thirst. But Simmons believes that imports can no longer fill the breach. “We’ve pretty well drained that option,” he told EnergyTechStocks.com, adding that it would take years before any new refineries that were built in the U.S. would make a significant difference in available supply.

How might the gas shortage that Simmons fears unfold?

“You won’t see it until it’s happened,” he said. It could start in any region of the U.S., he added, and once the media gets wind of it, Americans everywhere will rush to “top off” their gas tanks, exacerbating the situation until it becomes a full blown emergency.

Part 2 of 3 will appear tomorrow
(9 July 2007)

For those who know more than the rest of us casual observers, is this as bad as it looks? From skimming the report, it looks like an offical "brown smelly substance hitting a vortex", but not a SHTF announcement. Am I reading this right?

It may be better to be a live jackal than a dead lion, but it is better still to be a live lion. And usually easier. - Heinlein
To Ride, Shoot Straight and Speak the Truth - Col Cooper

I cannot help but suspect that the IEA is slowly climbing on the peak oil bandwagon. The secret to never admitting you were wrong is to reverse your position slowly! The beginning of the Executive Summary reads: "Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with OPEC spare capacity declining to minimal levels by 2012."

Thanks for the clarification. Its time to invest in that wood stove. I hope this doesn't create a panic in the next year.

It may be better to be a live jackal than a dead lion, but it is better still to be a live lion. And usually easier. - Heinlein
To Ride, Shoot Straight and Speak the Truth - Col Cooper

From Green Car Congress: http://www.greencarcongress.com/2007/07/iea-sees-oil-su.html#more

"Peak oil? The IEA report notes that “The concept of peak oil production and its timing are emotive subjects which raise intense debate.”

Much rests on the definition of which segment of global oil production is deemed to be at or approaching peak. Certainly our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak.

Having attained 40 mb/d back in 2003, conventional crude supply has remained unchanged since and could do so through 2012. While significant increases are expected from the FSU, Brazil and sub-Saharan Africa, these are only sufficient to offset declines in crude supply elsewhere. Put another way, all of the growth in non-OPEC supply over 2007-2012 comes from gas liquids, extra heavy oil, biofuels (and, by 2012, 145 kb/d of coal-to-liquids from China). As overall non-OPEC liquids capacity increases, this plateau reduces the share of non-OPEC conventional crude supply from 77% in 2000, to 74% in 2006 and 67% in 2012.

While there might be a temptation to extrapolate this trend, citing a peak in conventional oil output, a degree of caution is in order. Firstly, the concept of ‘conventional’ oil changes with time, technology and economics. In the early 1970s, much offshore production was deemed unconventional, but this portion of global supply has since grown to account for 30% of the total. Evolving economies of scale and infrastructure development could do the same for GTL, oil sands and ultra-deepwater reserves in the future, shifting today’s unconventional resource into tomorrow’s conventional supply category.

Moreover, rapidly-growing condensate and NGL supply is scarcely ‘non-conventional’ in a technical sense now. We also note that for certain regions, notably the FSU and West Africa, the turn of the current decade is likely to mark a hiatus in crude supply growth. Strong growth is expected to resume here towards the middle of the next decade. Whether this will be sufficient to offset the declines expected for mature OECD crude supply, preventing overall decline for non-OPEC, is less easy to predict.

Finally, we note that focussing on non-OPEC crude alone is a rather selective way of considering the sustainability of global oil production. Peak or plateau production is frequently taken as shorthand for impending resource exhaustion. While hydrocarbon resources are finite, nonetheless issues of access to reserves, prevailing investment regime and availability of upstream infrastructure and capital seem greater barriers to medium-term growth than limits to the resource base itself.

"

http://www.themoscowtimes.com/stories/2007/07/10/042.html
Tuesday, July 10, 2007. Issue 3695. Page 5.
The Moscow Times: Alfa Report Sees Trouble Looming in Russian Oil Sector
By Anatoly Medetsky
Staff Writer

Alfa Bank warned on Monday that "production stagnation is unavoidable" at the country's oil fields and further downgraded its target prices for shares in most Russian oil companies.

The dramatic worsening in its outlook was the result of the government's reluctance to consider lowering taxes on oil firms and a higher proportion of water in the declining output, the bank said in a research report.

Alfa has led the way in cautioning investors about oil sector profits over the last six months, with other brokerages following suit in reducing expectations. . . .

. . . Alfa Bank first downgraded its projections in the sector in March, saying that oil majors were depleting existing fields while heavy taxes on the industry were preventing the development of new fields.

In Monday's report, the company described the situation as "substantially more dangerous" than it had suggested four months ago.

The increasing proportion of water in total output was a major source of concern, the bank's analysts wrote. This causes a quickening in the rate of natural production decline at most fields.

Frankly, I don't see how we get 3 or 4 years down the road without the world economy going into the crapper. The American economy is so jacked up that they are cooking every statistic they can to make things look swell! China and India are burning down the barns with +12% growth, and we know how sustainable that is. The world speculation in credit derivatives is what, 3 times Global Production? Pakistan is trying as hard as it can to implement 'Nukes to Kooks'.

If we make it to peak we will be lucky. All it will take at this point is some freak incident, and 1929 looks like a passing shower.

The OPEC spare capacity calculations are as much nonsense as ever, but there are several amazing statements in this report.

the implied net non-OPEC decline rate for baseload production is around 4.6% per year. This covers not only fields in decline, but also older supply which is at or approaching plateau. With net decline from OPEC assumed at 3.2% per year, this gives a global annual decline of 4%, suggesting that 3.2 mb/d of new production must be found each year just to stand still.

Moreover, this net global decline for existing assets masks fairly aggressive assumptions for parts of the OECD and for deepwater projects elsewhere. Development schedules for the latter can show rapid ramp-up followed by abrupt annual decline in a 15%-plus range.

This is from the IEA, not a peak oil bottom-up forecaster! They do slightly temper that by going back to above-ground factors:

Without minimising the importance of this variable, particularly given a shortage of comprehensive fieldspecific production and reserves data, our analysis suggests that variance from the original non-OPEC forecast in recent years has not primarily been due to understatement of field decline rates.

Certainly our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak.

To put some meat on this religious conversion on the part of the IEA, on page 31 they have a chart of non-OPEC liquid supply. Crude oil and condensate plateau is highest ("peaks") in 2010-11 and is (ever so slightly) lower in 2011.

Have they ever shown that before? I doubt it. A tiny increase in decline rates, which they concede as possible in the text, would bring non-OPEC peak oil forward to 2009 (for crude and condensate).

Peak Oil presentations are going to be so much more fun now. I can quote the IEA on every slide :-)

cheers!
Phil.

Hello TODers,

I obviously have no way to prove this, but I think all Peakoilers, Peak websites, Peak blogs, Peak books, Peak videos, etc have helped contribute to this more realistic posture by the IEA.

From the books by Deffeyes, Heinberg, Simmons, Campbell, et al.

From the websites: TOD =), EB, LATOC, Peakoil, etc.

From the Orgs like: ASPO, ODAC, Willits, etc.

From the blogs: R-squared, Graphoilology, etc, [more down the left side of page].

From the videos & audios: Bartlett's Exponential [IMO, priceless!], Global Public Media feeds, etc, and assorted DVDs.

From the ceaseless MSM writing by Tom Whipple, plus the other reporters/writers who have the cojones to tell the truth. Big tip of the hat to Congressman Roscoe Bartlett, too.

From the exasperating work done by James Hansen and other climate researchers, RealClimate, IPCC, etc. PO + GW are inextricably linked, IMO.

I feel we should all briefly thank ourselves for keeping the heat turned up by our mutual efforts, but we are only just starting.....

It is a huge ongoing effort, but maybe, just maybe, the rudder might have imperceptibly moved with this latest IEA report. Time will tell.

Bob Shaw in Phx,Az Are Humans Smarter than Yeast?

One wonders why you are labeled 'cultists'?

You all seem so overjoyed by the 'amazing' statements from the IEA. But it's clear that only words from a powerful international bureaucracy aren't enough, you all need to see chaos - riots on the streets over gasoline; grass spurting up on the interstate highways; animals inhabiting old suburban tracts; death; war; misery...

You yearn for it. You wait for that magical day, where the monotony of cheap-oil fueled life is thrown violently to a standstill; where we are forced to learn, again, the skills of food production; hand holding; and local smiling amongst one another. Why do you all yearn for such a seemingly disastrous path?

Because you all are dissatisfied with oiled life. It really is ridiculous isn't it? All of us living on the shoulders of 1 billion years of sunlight; in the space of a geological blip, we erect a complex that does nothing more than reveal ALL of time.

But really it is your dissatisfaction that causes you to yearn for disaster. And that I conclude is kind of sick. We need a different politics than - lets wait for the crisis and say "we were right - stupidheads!" We need a politics that connects issues of "peak oil" - which is really just a energy issue - and the distribution of energy to people. How will (can?) energy - of all kinds, including food - be distributed in this peak oil 'future' you map out? And don't give me - we'll all be in self-sufficient local communities enduring the collapse. No. Any capacity to produce energy - food, wood, oil, coal, etc - will be a matter of concern for various competing interests. Understanding the dynamic social and political relations between those interests is the most pressing concern. NOT perusing yet another mathematical logarithm predicting the decline of this or that field, revealing, yet again, the biophysical fixity and stubbornness of 'nature' - damn her. Fuck that.

We must understand oil and power. A politics of 'peak oil' must direct its attetntion away from biophysical fixities, and toward a human politics.

The seriousness of this problem is utterly lost in much the blogosphere and MSM. Here's an example from the MSM:

http://www.reportonbusiness.com/servlet/story/RTGAM.20070709.wenergy0709...

I fail to see how this is a "bullish" report.

Similarly, I've seen a lot of blog posts about this. Many are promoting the technology will save us angle:

We need to be sinking major dollars into the development of new technologies and focusing on making them affordable to all consumers, not just the rich (e.g hydrogen/electric transportation -cars, planes, trains). Time is quickly running out for the environment and our way of life.

Maybe we should think about the term "consumers" a little more deeply.

http://money.cnn.com/news/newsfeeds/articles/prnewswire/CLM06509072007-1...

wanted to spread some good news on the drum.

The process generates energy from plastics or rubber, and can produce up to 18 times the energy that is used to fuel the machine. For instance, a 10 ton per hour unit operates on 950,000 btu per hour, and the process can generate on average of 17,300,000 btu per hour output.

18 times!! helluva EROEI!!! More info on their site:

http://www.globalresourcecorp.com/

This is huge folks and if it works on oil shale like they say, then say hello in the future to American oil independence.

IEA’s July 2006 Medium Term Oil Market Report (MTOMR), under the heading “OPEC Crude Oil Capacity Developments”, pp 39-40
http://ecofuels.ca/files/pdf/Medium%20Term%20Oil%20Market%20Report.pdf

disclosed this about Saudi Arabia:

Saudi Arabia drives the expected increase in crude capacity, adding 1.6 mb/d on a net basis by 2011. OMR estimates of current Saudi capacity have typically come in lower than announcements from the Kingdom itself. However, this is more due to definitional differences than any inherent scepticism over Saudi physical capability. OMR estimates for OPEC correspond to capacity which can be activated within 30 days and sustained immediately thereafter for 90 days. Surge capacity is disregarded under this definition, as is capacity shut-in due to gas-flaring restrictions. In the case of the estimate for Saudi Arabia, the OMR also attempts to exclude condensate volumes and Bahrain’s share of production from the Abu Safah field, amounting to a combined 300-400 kb/d.

Saudi Arabia has well documented plans aimed at pushing capacity to 12.5 mb/d by the end of the decade, with a further optional increase to 13.1 mb/d by 2013. The later increases are seen dependent on demand. Sequentially, the projections in this report assume new field start-ups as follows:

* Khursaniyah (Arab Light), 500 kb/d beginning in late 2007;
* Shaybah (Arab Extra Light), 200 kb/d starting in the second half of 2008;
* Nuayyim, (Arab Super Light), 100 kb/d from in the second half of 2008;
* Khurais (Arab Light), 1.2 mb/d starting from 3Q 2008;
* A 200 kb/d expansion of Partitioned Zone capacity shared with Kuwait, beginning in late 2009 and early 2010;
* A further 200 kb/d expansion from Shaybah entering service at mid-2010.

(only Saudi Arabia forecast capacity figures extracted, rounded to mbd)
2005, 2006, 2007, 2008, 2009, 2010, 2011
10.44, 10.73, 10.80, 11.17, 11.47, 12.26, 12.33

(also another column but only Saudi Arabia)
National Government Forecast of 12.50 mbd in 2010

Longer-term plans to add up to 1.0 mb/d of mothballed Arab Heavy crude at the Manifa development by 2013, with start-up in 2011, have been excluded from this forecast. Although this project has been sanctioned by Saudi Aramco, construction start in 2008 is believed subject to underlying demand. While increased volumes of Arab Heavy might be diverted by new-build complex refining capacity within the Kingdom, it is uncertain whether sufficient refiner demand will exist at that time in import markets elsewhere.

Decline rates for Saudi Arabia have been held within a 1-3% range depending on location. There has been much controversy lately over actual performance at baseload Saudi oilfields such as Ghawar. Clearly, if Aramco fails to meet its aspiration to boost drilling activity threefold by the end of the decade, it may struggle to attain target production levels. However, the company in the past has been adept at pre-ordering drilling capacity well ahead of requirements, making it well-placed relative to some of its competitors. With the bulk of Saudi expansions coming from onshore fields, for which prevailing global tightness in drilling capacity is less pronounced, so delays in obtaining rigs may be less prevalent than for other, notably non-OPEC, producers.

Saudi Arabia disclosure under same heading for July 2007 MTOMR page 42, was much less than last year

(only Saudi Arabia forecast capacity figures extracted, rounded to mbd)
2006, 2007, 2008, 2009, 2010, 2011, 2012
10.73, 10.80, 11.17, 11.46, 12.17, 12.31, 12.57

Saudi Arabia is responsible for almost half of expected OPEC capacity growth to 2012, as capacity reaches 12.6 mb/d in 2012, a rise of 1.8 mb/d from 2007. The 900 kb/d Manifa project (Arab Heavy) is now included from 2011, with crude here likely destined for new complex Saudi refining capacity. Otherwise, Saudi crude expansion largely centres on its lighter/sweeter grades from Khursaniyah, Shaybah and Khurais, together with associated gas liquids. Questions over Saudi and other OPEC members’ capacity expansion plans in the face of demand uncertainty are believed related to the next, post-2012, phase of expansion rather than the current cycle.

What’s the difference between this year and last year?

Last year there were four paragraphs about Saudi Arabia’s crude oil capacity including projects; this year just one paragraph with no detail about the projects. Last year Manifa, 1 mbd, was excluded from the forecast; this year, it is included at a lower rate of 900 kbd.

Last year there was disclosure of decline rates of 1-3% (per annum) for Saudi Arabia. This year on page 30, an OPEC decline rate of 3.2% pa was assumed. However, a quick calculation on last year’s forecast implies a very low decline rate of only 1.53% per annum on Saudi Arabia’s 2006 production of 10.73 mbd. This gives a 2011 production rate of 9.93 mbd before capacity additions. Last year’s capacity additions are 2.4 mbd and when added to 9.93 mbd give 12.33 mbd which is equal to last year’s 2011 production forecast. This tells us that the IEA is using a decline rate of 1.53% per annum for Saudi Arabia instead of their stated 3.2% pa.

Last year, there were two capacity additions scheduled for 2009/10 of 200 kbd for the Partitioned Zone (aka Neutral Zone/Al Khafji) and another 200 kbd for Shaybah expansion. Given that the 2009 and 2010 forecasts are similar for both last year and this year, it’s safe to assume that these two projects are also included for this year. However, last month these two projects are no longer included in Saudi Aramco’s project schedule.
http://www.saudiaramco.com/irj/go/km/docs/SaudiAramcoPublic/FactsAndFigu...
Maybe the IEA forgot to read Aramco’s latest project schedule and exclude the capacity expansions from these two projects.

This year and last year, the forecasts for Saudi Arabia’s capacity show a clear uptrend from year to year. Last year Saudi Arabia’s national capacity forecast of 12.5 mbd for 2010 was disclosed; this year no forecast was disclosed.

The IEA forecasting method is misleading. It appears that the IEA uses Saudi Arabia’s forecast capacity target of 12.5 mbd and then calculates a decline rate for current production to calculate forecast production, without capacity additions, which when added to forecast capacity additions is approximately equal to 12.5 mbd. Their calculate decline rate for current fields is about 1.53% per annum.

The tone of this latest July 2007 MTOMR is exceptionally conservative. The IEA should probably issue a stronger warning about total liquids production probably being on a peak plateau but instead statements like these are made about above ground risks and peak oil:

Page 27
“All told, the forecast suggests the industry needs to generate 3.0 mb/d of new supply each year just to offset decline. Notwithstanding, above-ground supply risks are seen exceeding below-ground risks in the medium term.”

Page 28
“A levelling off in non-OPEC conventional crude supply is notable, but is inconclusive as evidence for an imminent oil supply peak.”

Page 30
“Without minimising the importance of this variable (the annual decline rate), particularly given a shortage of comprehensive field specific production and reserves data, our analysis suggests that variance from the original non-OPEC forecast in recent years has not primarily been due to understatement of field decline rates. Rather, we believe that project slippage, weather, and unplanned production
stoppages for technical, economic and geopolitical reasons, have been, and will continue to be in the next five years, the main risk factors. Put another way, while
we continue to monitor and actively adjust for shifts in field and aggregate decline, we see above-ground risks more prevalent, for now, than below-ground risks.”

Page 30
“The concept of peak oil production and its timing are emotive subjects which raise intense debate. Much rests on the definition of which segment of global oil production is deemed to be at or approaching peak. Certainly our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak.”

Page 31
“Finally, we note that focussing on non-OPEC crude alone is a rather selective way of considering the sustainability of global oil production. Peak or plateau production is
frequently taken as shorthand for impending resource exhaustion. While hydrocarbon resources are finite, nonetheless issues of access to reserves, prevailing investment
regime and availability of upstream infrastructure and capital seem greater barriers to medium-term growth than limits to the resource base itself.”

Page 31
“Upstream Operating Environment Remains Stretched
In last year’s MTOMR, we identified several factors which characterised the upstream operating and investment environment for 2006-2011. These were:
1. Rising crude oil price assumptions employed by operating companies;
2. Increasing spending and activity levels;
3. The expanding reach of consumer country NOCs;
4. A declining trend in exploration expenditure as a share of IOC total spending;
5. High costs and tightness in construction, drilling and service capacity;
6. Correspondingly, a tendency for new upstream project delays;
7. A compounding impact of delays to new pipeline and gas processing capacity ;
8. Proliferating geopolitical risks and barriers to oil company access.

Arguably, the first three factors could accelerate the pace of expansion in non-OPEC and OPEC supply. However, the balance of risks deriving from factors 4-8 lies heavily on the downside and would seem to argue for slower growth in global production capacity relative to historical trends.”

I should remark, the front page story in the FT today is:

World will face oil crunch ‘in five years'

Admittedly it then softpedals on OPEC capability, missing much of the good stuff. However the business community will take note.

As a "bottom-up peak oil forecaster" -- thanks, Phil Hart (his remark above) -- I wanted to point you to some columns I've written over at ASPO-USA that anticipate everything the IEA says and more.

First, look at my 2nd column Decline Rates and Non-OPEC Supply in which I show how various non-OPEC supply forecasts have failed (including Wood Mackenzie, who I excoriated the other day in a Drumbeat). In this column, I calculate the IEA's 4% net decline rate.

Second, look at The Call on OPEC? in which I show how the IEA and OPEC duke it out by revising their required non-OPEC supply forecasts.

Third, look at The Gulf of Despair? in which I point out the problems in the GOM. The IEA notes these problems, talking about Thunder Horse. There are many other projects that are in trouble or have large associated uncertainties.

I must say, at this point, that it is somewhat satisfying that Fatih Birol has read the writing on the wall. On the other hand, after a moment of reflection, I must admit the chilling and depressing emotional effects of being right.

Page 26, Saudi Arabia oil demand will grow almost +4.3% per year reaching 2.8 mbpd in 2012:

At this rate, domestic demand could reach 5 mbpd in 2025! Also, the productive capacity forecast for Saudi Arabia (blue dashed line noted "IEA, 2007") is not very different from the previous forecasts (very close to the 2005 forecast):

Click to Enlarge.

Steve Andrews is debating the IEA report and Peak Oil on CNBC.

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Some points on the IEA Oil Market Report

Non-OPEC
Don’t know if this has been done to death already, but the report implies a decline in non-OPEC output if you exclude OPEC NGL (the IEA include this as non-OPEC since it’s not suhject to quota) and biofuels

IEA numbers (all here and below mm bbs/day) 2007 2012
Non-OPEC incl. biofuels, OPEC NGL 50.0 52.6
- OPEC NGL 4.9 7.1
- Biofuels 1.1 1.75
=Conventional Non-OPEC output 44.0 43.75

The IEA’s disclaimer is “A levelling off of non-OPEC conventional crude supply is notable, but is inconclusive as evidence for an imminent oil supply peak” and they also point out that the definition of ‘conventional oil’ does change over time, but even so this their numbers are very suggestive.

OPEC
Again, not sure if this has been done to death also, but the OPEC projections are interesting for a couple of different reasons

Firstly, the very high dependence of their projects on Saudi capacity expansion with low depletion rates

2007 2012
IEA Projected Crude Capacity for OPEC 34.4 38.4
Increase +4.0

o/w Saudi +1.8
o/w UAE +0.5
o/w Angola +0.5
o/w Kuwait +0.4
o/w Nigeria +0.4

Analyzing the Saudi net increase of 1.8m bbl between 2007 and 2012 we see that it compares to the known project sizes as follows

Saudi net increase +1.8

o/w Khursaniyah +0.5
o/w Shaybah +0.25
o/w Khurais +1.2
o/w Manifa +0.9
o/w Nuayyim +0.1
Total gross expansion projects +2.95

(note the IEA explicitly include Manifa, which is somewhat controversial!)

Total implied depletion/writedown between 2007-2012 -1.15m bbls
As % of claimed Saudi current capacity (10.8mm bbls) 10.6%
Implied % decrease over 5 years 2007-2012 2.1%

(NB: Natural gas to liquid projects are not included in any of the production or projects listed above, since under IEA methodology they are included with Non-OPEC production since are not subject to quotas)

Note that Khurais and Manifa, the two Saudi megaprojects account for more than 50% of the IEA’s global projected capacity increase between 2007 and 2012!

This analysis, although using slightly different numbers to ace’s analysis in this thread, comes to pretty much the same conclusion, that the IEA’s net capacity numbers, the gross capacity numbers published by Saudi Aramco, and the IEA’s claim that they’re using a decline rate for (presumably all of) OPEC of 3.2% do not add up.

Furthermore, we can see the extreme importance of the Khurais, Manifa and (to a lesser extent) Khuransiyah to making the IEA’s numbers add up.

The second point that is interesting is that the IEA assumes (they have no choice really I guess) that the current Saudi capacity is 10.7m bbls/day and this is the basis for their future projections. I don’t know anyone who believes that Saudi capacity is this high and I think there are signs the IEA don’t (comments by both Fatah Birol and Claude Mandil mentioned previously on TOD). What other assumption could we make for Saudi capacity given the complete lack of transparency?

1) We could assume that their capacity is at most the highest production rate that they have pumped in the last 3 years – on the basis that anything which hasn’t pumped in 3 years is probably dead – this is 9.6m bbls/day
2) We could assume that their effective, sensible, non-surge capacity is what they’re pumping now, since we are at near-record prices for crude oil and they haven’t uttered a squeak about supplying more – this is 8.55m bbls/day

Taking the average of these two numbers gives 9.1m bbls/day – ie ‘writing off 1.6mm bbls/day of claimed Saudi capacity

2007 2012
IEA estimated total OPEC Capacity 34.4 38.4
o/w Saudi Arabia 10.7 12.6
- 1.6 mmbbls/day ‘writeoff’ -1.6 -1.6

Adjusted estimate total OPEC Capacity 32.8 36.8

IEA estimated ‘call on OPEC’ 36.2

Given that oil consumption (and hence call on OPEC) varies seasonally this would mean that the world would be running at absolutely flat-out capacity in Q1 and Q4 2012.

My overall conclusion is that this IEA report is a very high quality piece of work, I’m more and more impressed the more I delve into it, and I read economic and financial research for a living. Also that the IEA is calling for help as loudly as it possibly can. Bear in mind that the IEA’s mandate is business-as-usual. They simply cannot say ‘we’re all stuffed and we may as well go home’. And it’s not really their job to propose solutions either – so I think the balance they’ve struck in this report – making the problem very clear but not panicking – is entirely the one they ‘should’ be striking.

P.S. I can’t help but wonder if this report wasn’t made public immediately (which it shouldn’t have been) as a deliberate ploy (or possibly a thank-you to TOD ☺ )

Cuchulainn