IEA boss denies and confirms peak oil in same breath

It seems that the International Energy Agency, the intergovernmental energy watchdog, has been going in overdrive lately. First, we had the interview of its chief economist warning us that we were going toward a wall without Iraqi oil, then the recent publication of their yearly outlook report predicting shortages within 5 years, and now we have another disquieting interview in Le Monde, the big French daily, with Claude Mandil, the head of the Agency, who pulls no punches, despite an apparent denial of "peak oil". Follow me below the fold for a translation.

L'OPEP s'est inquiétée des déclarations de pays consommateurs en faveur d'une réduction de la dépendance au pétrole et d'un axe Washington-Brasilia sur les biocarburants. Ces craintes sont-elles fondées ?Certaines déclarations du président américain George Bush ont semblé très inquiétantes pour l'OPEP, mais ses membres n'ont aucunes craintes à avoir. La demande de pétrole conventionnel va croître dans les années à venir, et compte tenu du recul annoncé de la production des pays non-OPEP (Russie, Grande-Bretagne, Norvège...), la part du marché mondial de l'OPEP progressera en valeur absolue d'ici à 2050. Quant aux biocarburants, l'OPEP sait que la substitution n'est pas possible. Ils ne représenteront jamais plus de 10 % de la consommation mondiale. Cela ne devrait pas lui donner de cauchemars. OPEC worries about declarations by consumer countries about lowering dependency and talk of a Washington-Brasilia biofuels axis. Are these worries legitimate?Some speeches by Bush may have sounded worrying for OPEC, but its members should not worry. Demand for oil will increase in the coming years and, taking into account the decline from non-OPEC country production (Russia, Norway, UK, ...), OPEC's share of the world market will increase in absolute value by 2050. As to biofuels, OPEC knows that substitution is impossible. They will never make up more than 10% of world production. This should not cause them nightmares.

Beyond the now familiar criticism of biofuels (boy has the wind turned on that topic!), the most interesting thing to note here is the inclusion of Russia in the list of countries in decline. While his statement is slightly ambiguous as he only mentions the 2050 date, I believe that it is a significant acknowledgement. When you look at where production increases have come in the past 5 years, Russia tops the list - in fact, the catch up in Russian production after the precipitous decline of the 90s (caused by Soviet collapse in a context of an already declining industry - Russia's production peak is and remains in 1986) was the main reason the massive demand increase of the past few years has been absorbed relatively painlessly. Noting that this solution is gone puts the focus, more than ever, on OPEC production.

L'OPEP (Organisation des pays exportateurs de pétrole) refuse de produire plus, affirmant que le marché est bien approvisionné. N'est-elle pas la vraie responsable ?L'OPEP connaît la situation : le marché n'est pas bien approvisionné. Elle doit vite augmenter sa production. Il est d'ailleurs possible qu'elle le fasse discrètement dans les mois à venir. C'est une abondance en trompe-l'oeil et saisonnière. Les raffineries devront fonctionner à pleine capacité pour produire de l'essence pour cet été et répondre à la forte demande des troisième et quatrième trimestres pour le fioul domestique. Les stocks risquent de ne pas suffire. La situation des prix est préoccupante. Mais je crois que le meilleur moyen de les faire baisser est encore d'améliorer l'efficacité énergétique, notamment dans les transports. OPEC refuses to produce more, saying that the market is well supplied. Are they responsible?OPEC knows the facts: the markets are not sufficiently supplied. It must increase its production. It is quite possible that it will do so in the coming months, discreetly. Today, we have a seasonal and misleading oversupply. Refineries should be working at full capacity to produce gas for this summer and to respond to strong 3rd and 4th quarter demand for domestic fuel. Stocks might not be sufficient. The price situation is worrying. But i think that the best way to get them down is to improve energy efficiency, especially on the transport front.

So: confirming market tightness and worries for the rest of the year, and essentially begging OPEC to put more oil on the table - while appearing to say "don't worry, we are dealing with this behind the scenes, trust us". A strange mix of messages...

Le thème du déclin rapide de la production pétrolière a ressurgi. Votre réflexion a-t-elle évolué sur ce point ?Je ne crois pas aux analyses des tenants du "peak oil". Le fondement de leur théorie, c'est de dire que l'on ne trouve plus de gisements géants. Pourquoi ? Parce que les réserves sont dans des pays où les compagnies nationales ont le monopole. Pourquoi voulez-vous, aux cours du pétrole actuels, que la Saudi Aramco fasse de l'exploration-production ? Les réserves géologiques restent très abondantes, mais se trouvent dans des régions fermées aux investissements occidentaux, comme le Moyen-Orient, ou de moins en moins ouvertes, comme la Russie et le Venezuela. Il est vrai que les zones d'exploration sont aussi des zones difficiles à exploiter (Grand Nord, offshore profond). Les grandes compagnies comme Exxon, Shell, BP ou Total ont un sérieux problème : leurs cibles se raréfient. Le problème essentiel, pour la sécurité d'approvisionnement, c'est que le monde va dépendre d'un nombre de plus en plus réduit de pays producteurs. Si, en plus, ils ne peuvent pas investir pour différentes raisons, la guerre en Irak ou des freins politiques et administratifs en Iran, on va au-devant de gros problèmes. The theme of rapid oil production decline has cropped up again. Has your position changed on this topic? I do not believe in the "peak oil" theories. The foundation of their theory is that we no longer find giant oil fields. But why is that? Because reserves are in countries where national companies have a monopoly. Why would Saudi Aramco want, with current oil prices, to do any Exploration & Production? Geological reserves remain abundant, but are in regions closed to foreign investors, like the Middle East, or increasingly hostile, lie Russia or Venezuela. It is true that current exploration zones are hard to put into production (far north, deep offshore). Big oil companies like Exxon, Shell, BP or Total have a serious problem: their targets are getting scarce. The main problem for security of supply is that the world will be increasingly dependent on a shrinking number of countries. If, in addition, they cannot invest for various reasons, the war in Iraq, political or administrative brakes in Iran, we go towards big problems."

The question was loaded, starting as it did with the "rapid decline" of oil production, which is probably not the first thing that can be said about peak oil. and it draws the usual denial (which Mandil delivered to me in person (he knows me and that I'm a blogger...) a couple of weeks back when I met him at an energy conference in Brussels). But Mandil's longer response is worth commenting in detail:

  • he is, like the IEA, unambiguous on the shrinking resource base directly controlled by "friendly countries" and, more widely, available to Western oil majors. The IEA report last week was quite scathing on these companies' preference for dividends and share buy-backs over investments, but he is more focused here on the fact that these companies simply no longer have access to reserves. As I've noted before, these companies have seen their production shrink in the past 5 years, despite the record oil prices.
  • his main argument against peak oil is that countries like Saudi Arabia and Iraq are under-explored and have plenty of untapped resources (he made that point more explicitly to me orally at that conference). So peak oil is simply not a worry because the resources are there, we just don't have access to them (and thus don't know about them)
  • while that argument above is a matter of belief, in the absence of proof (and we can certainly argue that the burden of proof should be on him and not on the peakoilers in that instance), in practie it matters little because, as he specifically notes, these reserves are (i) not accessible and (ii) controleed by entity that have no incentive to put them in production and every incentive not to do so. So the corresponding production, from his very admission, is unlikely to take place. Whether it is for geological or political reasons is fundamentally irrelevant - the oil will not be there, or, in any case, not in the volumes desired.
  • in effect, Mandil confirms that previous statements of his agency about a coming crunch and the utter inadequation of demand to supply. Furthermore, he notes that supply, even as it is constrained, will nevertheless be increasingly concentrated in unfriendly hands, a dire warning whatever the cause.

So, to his credit, Mandil put the blame squarely where it belongs, and points in the right direction for solutions:

Comment analysez-vous la reprise en main du marché par les producteurs ?Les pays consommateurs en sont largement responsables. Ils ne veulent pas se lancer dans une politique d'efficacité énergétique, pourtant la moins coûteuse. C'est une priorité absolue. Il faut notamment prendre des mesures sévères dans le secteur des transports comme la surtaxation des grosses cylindrées, la réduction des 4 × 4, les limitations de vitesse... How do you analyse the domination of the markets by producing countries?Consuming countries are largely repsonsible. They do not want to launch energy saving policies - despite the fact that these are the cheapest available. It's an absolute priority. We need to take tough measures in the transport sector, such as stiff taxes on large cars, limitations on SUVs and speed limits...

We are reponsible. Not the evil Russians, Saudis or Iranians. They are our dealers. That's bad, but it's just a consequence of our addiction. Ending that addiction will require changes, some of which appear wrenching or painful, but which are necessary, and which will in fact free us. At least Mandil, despite his (officially motivated?) soothing - if wildly optimistic - words about Saudi reserves, is right about where the blame lays - and where any solution can start.

Thanks, Jerome!

Mandil's response to the question "The theme of rapid oil production decline has cropped up again. Has your position changed on this topic?" is very close to a confession of peak oil. The above ground factors that he states almost confirms that the world oil production is on a peak plateau because national companies don't want to increase production or exploration and Big Oil have less targets.

Page 31 of IEA's recent MTOMR confirms these above ground factors.
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.”

When oil production starts declining sooner rather than later, no organization or institution will want to take the blame. The common phrase that will be used by not only Aramco but by the EIA and IEA will be "there is lots of oil resources in the ground but the production rates are falling due to an overabundance of above ground constraining factors including but not limited to high costs, lack of skilled people, shortage of rigs, shortage of service capacity, declining exploration expenditure, increased geopolitical risks, customers not telling OPEC what their demand will be for the next few decades, not enough gas and water to boil the Canada tar sands, environmental constraints, refineries unable to process heavy sour crude, project delays, Nigerian militants, Al Qaida, increase unplanned maintenance due to old infrastructure, etc, etc.

Every day that passes now gives more confirmation that the peak production plateau is here now.

Jerome, thanks once again for this translation. And congratulations to the French Press for conducting these interviews and teasing out this information.

I think we are seeing the IEA at a cross roads resulting in schizophrenic behaviour. Whilst denying peak oil they admit to a dwindling number of countries that have potential for production growth.

The notion that Saudi Arabia is under-explored is wide of the mark. The main point that Mr Mandil needs to grasp here is the reason why there is so much oil in Saudi Arabia. As pointed out by IHS energy some weeks back it is not because of prolific source rocks or wonderful reservoirs but because of the Arab D anhydrite seal. This provides a near perfect seal across the greater Ghawar area and it captured near all the oil that was ever generated from the source rocks.

This has important consequences for future exploration potential. Normally seals are imperfect and oil leaks vertically and is trapped throughout the geological column. This presents a challenging 3D environment for explorers and also means that much of the oil produced in "normal basins" leaks to surface. This complexity provides long-term exploration potential.

The prolific Arab D play in Saudi Arabia is essentially a 2D exploration system - Arab D zone 2 reservoir below Arab D zone 1 anhydrite. All the bumps / structures in this Anhydrite will have been drilled decades ago. The prospect of finding more giants or super giants in this prolific play therefore are IMO extremely remote.

We need to take tough measures in the transport sector, such as stiff taxes on large cars, limitations on SUVs and speed limits...

This is what I have been advocating since joining the PO debate. So the IEA are now advoacting the PO solution whilst still denying the problem.

Imagine that Mandil said instead “we’ve peaked”. Can you imagine the shock waves that would send? With oil at 80$, were would it stop?

I don’t think we'll have any blatant acknowledgment of PO from IEA before it is obvious to everybody else. It is a responsibility these guys are not willing to take, they fear to be market agitators.

Reading between the lines it is interesting to see how these guys are scared to death with the present energy situation. Speed limits, taxes on large cars, these guys do not say such things light heartedly.

I find it interesting that his dismissal of peak oil is based on belief in new discoveries but then goes on to say the necessary exploration isn’t happening and there isn’t the incentive for it to happen. He undermines his own argument, he admits “big problems” but won’t admit to “peak oil”. Why is that term so caustic when he feels able to talk about the production problems associated with above ground factors? This suggests to me a political decision to specifically deny “peak oil”. Is this encouraging because they are thinking about it or scary as they don’t feel able to talk about it?

What would happen if Mandil were to call peak in say 2010? Then call for exactly the same response he’s talking about here? Would the market notice, react? Does the market care if the IEA say oil supply problems are above ground or below ground – when the immediate impact is identical?

I interpret it as a way for him to let all the practical arguments and fact of peak oil slowly seep in (recognising reality) while refusing to acknowledge the label (to avoid panic) and pretending, for political reasons, that lack of exploration and production is somehow not the same thing as lack of oil...

Maybe this is the difference:

1) "Peak oil", the strong form, means "We will not be able to produce additional oil at that rate no matter what we do."
1b) "Peak oil", the doomer form: "and so we're doomed."

2) "Peak oil", the weak "realistic" form means, "I don't care what's hypothetically possible, what matters is what is likely to happen, and that pretty clearly is that we won't be producing additional oil at the same rate as before."

He interprets (conveniently) "Peak Oil" to mean 1a and 1b, and dismisses them, but may subscribe to Peak Oil form 2.

And that's what all the verbiage of "above ground factors", yadda ydadda, mean: when you combine geology with sociology and scatology, you get Peak Oil form 2.

More cynically it may be job protection. If enough people really believed in Peak Oil form 1, then all those oil industry employees are deemed superfluous.

If enough people believe in Peak Oil form 2 (but with optimistic spin), then the oil industry employees aren't superfluous, they are essential.

'geology with sociology and scatology'

Is this another way to say the shit will hit the fan? Because if it is, not bad.

Arthur Robey

Love it.
Arthur's secret oil formula.
Equal proportions of economy and scatology,
Blend and serve with a smile.

He interprets..."Peak Oil" to mean 1a and 1b, and dismisses them, but may subscribe to Peak Oil form 2.

"Peak Oil", as the term appears to be overwhelmingly used, refers to declining production caused by geological factors. If he doesn't believe that will happen soon, he doesn't believe in peak oil. What it seems like he does believe is that geological and political factors will make supply expand too slowly to keep up with present demand growth.

What he's saying is really quite a different statement from "oil is peaking", and it shows a certain narrow-mindedness and fixation to insist on interpreting his statements solely through the lens of "peak or not peak". This isn't a yes-or-no question.

Of course, I may also be injecting my own biases - what he appears to be saying is rather similar to what I usually say, which is that oil supplies are likely to become increasingly tight - and increasingly concentrated in the hands of a few countries - and hence there are strong economic as well as political reasons for aggressively reducing our oil consumption.

In terms of practical policy matters, differences between his position and yours are just a matter of degree.

...what he appears to be saying is rather similar to what I usually say, which is that oil supplies are likely to become increasingly tight...

"tight" sounds like weasel words, do you believe supply will increase or decline in absolute terms? If increasing then it's no big deal, perhaps it won't increase as fast as some would like but it doesn't affect the current growth paradigm. If on the other hand supplies decline in absolute terms the rules of the game change.

By dismissing peak oil by citing yet to be discovered oil and then saying the necessary exploration isn’t happening Mandil is suggesting absolute declines – that’s peak oil in my book.

A chance although increasing smaller exists for extensive discovery of new oil deposits and exploitation of those deposits. We have almost reached the point that we have to discover two ghawars worth of oil to grow oil production again. So oil production will peak because of above ground factors alone even if we have not used up 50% of our oil. Simply because we certainly have used up a significant amount of the oil thats easy to extract. We have probably reached and passed the point that we can increase production fast enough to keep the production rate from decreasing.

Peak production and the point at which we have used half the remaining oil reserves are related but not directly. The reason that production declines generally set in some time after 50% of the oil is extracted is both a technical and empirical observation at the field level that holds as you aggregate fields.

Our concern is the peak production rate. This is achieved when about 50% of the easily accessible oil is produced after this point the amount of remaining reserves which could easily be greater than 50% of the total only serve to provide a upper bound on how much oil is extracted.

Since we are fairly confident half of the easy oil or conventional oil has been or is close to being extracted then the concerns about above ground factors simply mean production will always be less than our prediction and in some cases a lot less i.e Iraq. As production continues to decline the chances of increasing it become remote in another year or two probably impossible no matter how much oil you believe is in the ground since too many fields will be in decline.

"tight" sounds like weasel words

No - it's simply a descriptive term. Oil supply is not a yes-or-no question, and it's foolish to fixate exclusively on whether it will increase or decrease.

You're drawing a false line between "increases 0.01%" and "decreases 0.01%", saying that the former is "no big deal" but the latter means "the rules of the game change". That's simply nonsense - those two scenarios are effectively identical.

Oil supply is not a matter of "yes" or "no", it's a matter of how much. Like a vise being tightened, it's all a matter of degree.

By dismissing peak oil by citing yet to be discovered oil and then saying the necessary exploration isn’t happening Mandil is suggesting absolute declines

He isn't saying that, though:

"Geological reserves remain abundant....The main problem for security of supply is that the world will be increasingly dependent on a shrinking number of countries. If, in addition, they cannot invest for various reasons...we go towards big problems."

He's saying the risk is that concentrating the (abundant) oil supplies in the hands of a few producers makes the supply more volatile, meaning that disruptions to the ability of only a small number of producers would then be enough to cause big problems.

He's not saying declines will happen. He's not even saying they may happen. He's just saying that concentrating the supply risks unspecified "big problems".

While you may interpret that phrase as meaning "peak oil", all that really tells us is about your personal biases. It's possible that by "big problems" he means "such slow growth that prices skyrocket and the world enters a lengthy recession." Indeed, based on some of his similar-sounding concerns a few years ago (saying KSA needed to increase production by 3mb/d or there'd be big problems; they didn't, and prices shot up), it seems likely that he is talking about prices, or is just prone to hyperbole.

Imagine that Mandil said instead “we’ve peaked”

Monday's IEA report does use the term "supply crunch" and "crunch" is the term a lot of the media picked up on. What is the difference between "peak oil" and "oil supply crunch"?

What is the difference between 'peak oil' and 'oil supply crunch'?

'Oil supply crunch' means the supply is not enough to meet demand. It still allows the possibility that supply is increased to match demand. Peak oil means supplies can never be increased again. Governments prefer 'supply crunch' which sounds less alarming, especially since everyone assumes that this is because of growth in China. This in turn is accepted as we all enjoy cheap imports from there.

You are confusing terms here big time:

'Oil supply crunch' means the supply is not enough to meet demand.

To meet demand at what price? You are missing the price variable. Maybe this is the current price? But then for some people $5/barrel could be the 'fair price' for oil. My interpretation to 'Oil supply crunch' would be that oil production is either falling or not rising enough to prevent constantly rising prices. And again such definition is assuming that there are no structural changes to the demand side - e.g. recession.

Peak oil means supplies can never be increased again

There still might be some year/year increases, but the general trend would be down. These increases will be the primary reason we will be able to detect PO only when we are well past it.

What really amazes me in all this is how the interview in Le Monde with Fatih Birol was not reported in papers like the FT and WSJ.

I mean, the guy was more or less daring the Saudis to allow their fields to be independently audited.

I'm wondering the same myself. It's certainly not due to not being newsworthy.

We need to take tough measures in the transport sector, such as stiff taxes on large cars, limitations on SUVs and speed limits...

Why limit this to transport sector? There is just as much unnecessary consumption everywhere else that is dependent upon oil. Transportation is just the poster child for Blind Faith Consumpitalism.

35% consumption tax, eliminate income taxes, eliminate revenue enforcement, make paying taxes an anonymous act. Drive commerce underground, bankrupt corrupt governments.
What's the downside? A consumption tax is a lot less regressive than a dead planet.

"If you want Change, keep it in your pocket."

Shhhh - don't want anyone to start thinking that the greens have been right for the last generation.

That's basically what I've been thinking for a while. I used to have a "green" teacher who tried to inform us about the issues with intensive agriculture, oil dependency and nuclear fission when I was in 8th grade (I think, must have been about 1988). I used to argue against her. I feel pretty ashamed and sad about it now but back then I was too brainwashed to realize how wrong I was.

Another thought: Mandil is for energy what Greenspan was for the 90ies (and internet) bubble (http://en.wikipedia.org/wiki/Irrational_exuberance).

Damned!

Or you could ban all marketing. So that people bought only what they need and vast effort and resources are not wasted. You could set up enforceable technolgy standards so that everything is compatible, modular, easily repairable, recyclable. Ban proprietary solutions, trade secrets, incompatibilty etc. Or just ban businesses from having over 200 employees [or another sensible number]. Eliminating income tax [which you have not convinced me on] is a completely different issue from taxing what is 'bad' heavily.

Eliminating income tax [which you have not convinced me on] is a completely different issue from taxing what is 'bad' heavily.

I did hear an interesting proposal of changing the tax system so all employment related taxes were replaced in a revenue neutral way with physical resources related taxes. The cost of employment would fall but the cost of resources would rise - the idea being this would tend to increase resource efficiency and employment.

"I did hear an interesting proposal of changing the tax system so all employment related taxes were replaced in a revenue neutral way with physical resources related taxes. The cost of employment would fall but the cost of resources would rise - the idea being this would tend to increase resource efficiency and employment."

Actually, tossing our tax code would eliminate a LOT of waste and have other benefits.

The National Sales Tax would be, IMO, the best method. It encourages savings. If you don't consume, you don't pay tax. So not only does one save money, but resources as well. The method for collection is already in place. All but a small number of states already collect sales taxes. Simply adding a percentage and sending the revenue to FedGov isn't diffucult. It's an extremely difficult system to cheat on. (There is the black market, but then, that will always exist.) Everyone pays in. No loopholes or breaks for cronies. Of course, it would devastate the accounting industry, and probably Intuit as well, but, IMO, the upside is worth it.

[Thanks Jerome for another illuminating translation/expose]

"Or you could ban all marketing..."

...but how are people to know what they need without marketing? ;o) Your tinkering with the foundations of our 'great' civilisation there!

marketing will play its role in the decade ahead and it will look something like this:

"XXX Hybrid -100mpg"
"YYY Solar -$1/Watt"
and
"ZZZ Prozac -best on the market"...

Nick.

"Or you could ban all marketing..."

Did you steal that from my blog?

...but how are people to know what they need without marketing? ;o) Your tinkering with the foundations of our 'great' civilisation there!

People that don't know what they need without marketing would become Soylent Green, so they can feed other peeeeeepul who DO know what they need without marketing. OH, wait, if peeeeepul knew that, we wouldn't need the Soylent Green.

Future Scatalogical Aerodynamics (it's either a compost turning machine, or WTSHTF)

"If you want Change, keep it in your pocket. You vote for a faux president every four years, but you vote for real corporations thousands of times each month. Your money is your only real vote."

"You could set up enforceable technology standards..."

I could kiss you for this. I've been trying to say the same thing ever since I was 15 and started working on cars that all had different bolt patterns. Competition isn't all it's cracked up to be in the world. Nasa got to the moon because of one reason: tight standards between hundreds of contractors.
We waste so many resources by having multiple factories, multiple marketing schemes, multiple insurance companies, etc. I'm not saying we shouldn't have choices, just that those choices should come with some commonality that fits our needs, rather than the needs of the marketing system. Eliminate the patent office. (you won't hear that one much) It is a quid-pro-quo system to increase resource consumption
in a perpetual growth model. As an inventor, I am disgusted by the crap that passes for 'useful' and 'nonobvious'. Even the patent office's own data shows that a majority of patents from the last 20 years shouldn't have been issued.
We need something else to ensure that ideas are rewarded. Something like Nobel prizes for usefulness to our great-grandchildren or usefulness to the planet.

"Eliminating income tax is a completely different issue from taxing what is 'bad' heavily."

The income tax issue is not different from it. The income tax infrastructure creates an 'accountant-friendly' business model due to the complexity, and ensures that most decisions are made for tax reasons or for monetary reasons alone. It treats every individual as a criminal, assuming they are cheating. It discourages savings and encourages excessive housebuilding. It favors banks and lawyers over everybody else (even accountants).
A sales tax, coupled with a prebate for necessity items puts the cost of government on the demand for stuff which causes the need for governments up front where everyone can see it and make a decision NOT to purchase.
In a world where the economy is going to fail anyway, isn't it just common sense to plan for it and simplify things, making tax paying anonymous?

"If you want Change, keep it in your pocket. You vote for a faux president every four years, but you vote for real corporations thousands of times each month. Your money is your only real vote."

Now you're starting to make sense. I suppose my objection was that I would still like to see unearned income taxed etc I accept there are pro and cons to the inequalities either way - and simple is better.

I realised a long time ago that most things were deliberately complicated to line the pockets of middle-men - private or government alike. Mortgages, taxes, benefits, widgets etc. The other purpose is to hide quantities. If people knew their total tax bill/mortgage interest/whatever and then thought of their benefit..they would feel sick as a chip.

I need a soothing drink when I hear a talking head saying we cant recycle plastic because there is 1000 types and margarine lids are different from yoghurt pots...It must be the inventor in me too. There arent many politicians I can take seriously either.

There have been quite a few pronouncements by the IEA in the last few days. Why does the MSM latch on to the statement "demand will increase by 2.2 mbpd in 2008". What does this mean? Does it mean anything? For instance does it mean "demand will increae by 2.2mbpd for Brent at 77.65 (todays price sometime)?". What if the price changes? what if less is available and the price goes up? Isn't the amount demanded the same as the amount supplied in that case? What if magically from somewhere another 10mbpd of light sweet suddenly appeared and the price went down to $25. The demand would be some other higher number.

The statement is completely meaningless as far as I can tell. I think the MSM intend their readers to interpret the extra demand as extra supply. Amazingly the great unwashed seem to swallow it all hook line and sinker.

When Schlumberger recently forecast 24mbpd declines from existing fields by 2010, the MSM didn't report that. It may have added usefully to the debate: Where to find another whole OPEC in the next 5 years!

You can't apply Economics 101 to these demand projections. You have to apply Stragic Planning 631.

For example, back during the tech bubble, human resourses were in short supply. However, we knew, as a business, that we had to accomplish certain things going forward in development, sales, and marketing. As part of our planning process we would develop a human resources plan. However, when it came time to actually hire according to plan we found that we either couldn't find the people we needed (peak human resources), or we couldn't afford them because salaries and stock option offers were sky rocketing (tight supplies). So our strategic plan failed. We had to scale back.

The oil demand projections are based on expectations going forward of "business as usual" growth. Business growth, population growth, etc. It is a demographic analysis. As in our case, if the supply isn't there, or it is too expensive, it won't be "business as usual" and something will have to be scaled back.

Of course quantity demanded is a function of price. So is the quantity that suppliers are willing to sell, and the intersection of those two curves determines quantity and price in the marketplace. But those curves also change over time. I think the projection means that they expect the entire demand curve to shift 2 mbd, meaning that for any given price, more people will be willing to pay it next year than this year.

Historically, the demand curve has been shifting to higher volumes, and this is expected to continue. The supply curve has also been shifting to higher volumes as more fields were developed, resulting in flat prices (subject to variability of course) and rising quantities. Peak Oil really means that the supply curve has stopped rising and started to fall (fewer suppliers willing/able to sell at a given price). We can expect rising prices, and it's hard to make predictions about quantity -- continually increasing prices could drive enough investment to keep quantities flat, for example, even as the demand curve continues to rise and the supply curve to fall. With variability and time lags in the system, we might even end up with an "undulating plateau".

So I don't try to forecast quantities. The only prediction I'm reasonably certain of is the "continually increasing prices" bit.

peace,
lilnev

Highlights of the latest Oil Market Report from the IEA is just out.
http://omrpublic.iea.org/
They did not mention World Oil Supply for June. I don't know why they ommitted this. Last month they had the May supply down by 565 thousand barrels per day to 84.9 mb/d. This month...silence. I was disappointed.

But their little chart on the right side of the page showed the oil supply for the second quarter of 07 way down from the first quarter. And they did not project any further than the second quarter.

Ron Patterson

They did not mention World Oil Supply for June. I don't know why they ommitted this.

Presumably because it wasn't very interesting or surprising. This is the highlights of a 50-page document, after all. Probably the only reason overall supply figured so prominently in the last report was because it acted in a surprising manner.

But their little chart on the right side of the page showed the oil supply for the second quarter of 07 way down from the first quarter.

Based on my screen-measurements, it's down about 250kb/d. Since we know May was down 565kb/d from April and April was up 200kb/d from Q1, we get that the two together provide 365 of the 750 deficit vs. Q1, meaning that June should be 335kb/d below Q1 average, or basically unchanged from May.

That seems worrisome at first glance; however, a second glance pointed out to me that Q2 saw a large decline in oil demand (~500kb/d), and that it seems to happen every year. So, as usual, we'll have to wait and see how things turn out.

And they did not project any further than the second quarter.

Based on past experience, those plots seem to be observed-supply, not projected-supply, and so they're never in advance of the current quarter.

Presumably because it wasn't very interesting or surprising.

Absolute nonsense! Nothing is more important or interesting that the latest world oil production numbers and the IEA is well aware of this fact.

And your math is a little suspect. The sidebar chart shows oil world oil supply at about 84.9 mb/d. April was around 85.5 mb/d, May 84.9 and the average for the three months, including June, was 84.9. That obviously would mean, if their chart is correct anyway, that June was about half a million barrels per day below May.

No way could you have two months at 84.9 and one month at 85.5 and the average for the three months at 84.9.

Ron Patterson

Absolute nonsense! Nothing is more important or interesting that the latest world oil production numbers

To you. Alas, I suspect the IEA doesn't write their reports with your personal preferences in mind.

And your math is a little suspect.

The math is fine; however, my estimate off the graph might be off - I was measuring with my mouse cursor.

Setting Q1 to 85.3, April to 85.5, and May to 84.9 (from the June OMR), assuming a Q2 of 84.9 gives a June of about 84.3. That'd be a second straight large monthly decline, which would be troublesome. Had the decline been that large again, I'd have expected them to mention it in the summary. (Not that they take my preferences into account either...)

Oddly enough, their chart suggests the same thing happened last year, but their monthly and quarterly data doesn't match up with that - their last quarterly numbers are 85.17 for 06Q1 and 84.93 for 06Q2, but the gap on the graph looks like substantially more than 0.24mb/d. Indeed, that gap looks to be a hair larger than this year's, which we're taking to be 0.4mb/d.

So it's not clear how much information we can really derive from the graph. We'll get the numbers in two weeks, though, so it's no big deal.

I have been reading that report for some time now; and in fact have a spreadsheet of the supply data going back to 2004 (if anyone is interested I have posted a copy on my website - go to www.sailready.com, scroll to the very bottom of the only page and click on the link).

They have mentioned changes in production every month in the past on their highlights page and the fact that they didn't for June was a little surprising.

The foundation of their theory is that we no longer find giant oil fields. But why is that? Because reserves are in countries where national companies have a monopoly.

I don't quite follow his logic. Large reserve numbers and discovery potential for a particular country are not a guarantee of finding super-giant or even giant fields. In fact, the parabolic fractal law governing field size distribution is telling us that their occurrence is extremely rare and most of them have been discovered a long time ago.

What this sounds like is that he does not believe in a peak oil theory, that there is plenty of oil, but we just won't be able to get it. It will be deep in the ocean, high in the arctic or in the hands of hostile nations.

That is a bit like the tree in the forest scenario. If you (The world) have oil, but you (the country)can not get it, then do you really have oil?