The Oil Drum

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