<DrumBeat: November 19, 2008 The Oil Drum DrumBeat: November 20, 2008>

87 comments on The IEA WEO 2008 - Objectivity of the International Energy Agency

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joe costello on November 19, 2008 - 12:54pm Permalink | Subthread | Comments top

A little to add to the history. The IEA was initiated by Henry Kissinger. It's initial charge was to build up surplus reserves so OECD countries would not be as susceptible to oil embargoes/disruptions as they were in 73.

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ROCKMAN on November 19, 2008 - 1:26pm Permalink | Subthread | Parent | Comments top

Gail -- Very interesting insight into the inner workings of the IEA. I’m sure more interesting tidbits will be ferreted out by this forum.

I’m personally torn between admonishing their effort and defending them. As you and others know I do such analysis of reserves for a living. We all recognize the lack of basic data available to them. This is not uncommon in such efforts. Though they are looking at a very large aggregate of results, the effort still reduces to evaluating individual fields. In my personal efforts I’ve done such analysis with less then complete data but could still offer a range of risked possibilities. But there have been times when there wasn’t sufficient info to do such an approximation. At that point I can only offer the client a simple answer: I DON’T KNOW. But beyond that conclusion I can also offer that any results offered by another party should be considered highly suspect. Not every client has appreciated such conclusions and some have insisted upon a certified answer. At that point my only option is to resign from the effort.

If the IEA charter implores them to produce an independent and accurate analysis of remaining global reserves and a production schedule of the same then, from your analysis and that of others here, their answer should be simply: WE DON’T KNOW. But it’s easy to imagine how poorly such a statement would be received by TPTB.

OTOH, perhaps their mandate allows the use of fuzzy and unaudited data to make crude and inherently inaccurate estimates. If so…such is life. But their true mortal sin would be to offer the world their results without such qualifications. From an ethical standpoint (yes…we do have an ethics code…see AAPG Code of Ethics) which clearly states that offering unsupported results is a violation of the higher order. But the staff at the IEA has mortgages to pay, kids to send to college, etc. For some it’s an easy choice. But that choice may not always represent the best in us.

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Nate Hagens on November 19, 2008 - 2:23pm Permalink | Subthread | Parent | Comments top

If the IEA charter implores them to produce an independent and accurate analysis of remaining global reserves and a production schedule of the same then, from your analysis and that of others here, their answer should be simply: WE DON’T KNOW. But it’s easy to imagine how poorly such a statement would be received by TPTB.

Precisely.

I’m personally torn between admonishing their effort and defending them

I feel the same way. I think they are trying to steer the ship into the arena of concern. Its just the biggest ship that was ever built, so they are, by definition, limited. I hope they can succeed in pushing through data reform and adhering to the precautionary principle. "I don't know" should become a common response in science and industry, but our current culture frowns on such frankness. (I remember in my early days at Salomon Brothers, if I tried to BS my way through an answer, I would get bludgeoned by the senior employees until 'I don't know but I can find out', became an appropriate answer drilled in my head. Our future challenges would be better served if people adhered to that principle, but as I've pointed out before, energy is probably not our Liebigs limiting variable, but rather politics.

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xeroid on November 19, 2008 - 4:02pm Permalink | Subthread | Parent | Comments top

The reality is WE DON'T KNOW the future - none of us! ... I think all on TOD would agree with that.

The IEA is charged to see if there is enough reserves of oil in the world to continue economic growth for at least 30 years or so ... their answer is yes ... I think all on TOD would agree with that.

The IEA further says that if the oil exporting nations (mostly OPEC) don't invest enough then the flows will be inadequate, soon ... I think all on TOD would agree with that.

It looks like the only use for the IEA is planning for short term emergencies, not peak oil - so is it value for your tax dollar, probably not?

The political reality is that we collectively vote in democratic Governments to give us growth - so that is what they will attempt, adequate oil or not, and they will never tell us that the future can't be growth. But the reality also is that the IEA sponsors HAVE NO CONTROL over the investments made in the exporting countries.

Live with the reality that we don't know what the future WILL be and that the past most definitely is no guide to the future, but we do know what it can't be (with a high degree of certainty).

The uncertainty is just the timing of inevitable things such as peak oil, peak gas, peak coal, peak phosphorous, peak fresh water, peak food, peak humans, peak investment, failing fiat currencies, climate change etc etc.

What we consider normal is actually very, very abnormal in the ~4,500,000,000 year life of the earth - it will not last!

Enjoy life and try and have a flexible personal plan that can cope with rapid change, don't rely on the efforts of others, your life is what you make of it - some of the bad things will likely happen in the next 50 years or so (and judging by recent historical data, may even be happening now).

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Will Stewart on November 19, 2008 - 4:39pm Permalink | Subthread | Parent | Comments top

enough reserves of oil in the world to continue economic growth for at least 30 years or so?

But the IEA has made it a practice to predict production rates as well, so it isn't just reserves. If by economic growth you mean continuation of BAU, then I would say "no". Counting oil shale and even some tar sands must account for EROEI, so simple reserves won't be realistic.

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Gail the Actuary on November 19, 2008 - 4:32pm Permalink | Subthread | Parent | Comments top

The IEA's method of prediction seems to bring supply up to demand, by assuming price changes and additional investments to provide the needed supply. The increased prices slightly affect demand, so the process is iterative.

These are the words of the IEA on methodology:

Matching oil supply and demand

Total oil demand is the sum of regional oil demand, world bunkers and stock changes. Equilibrium between oil supply and demand in the World Energy Model results from an iterative process. First, projections of oil supply from countries closed to international investments are run separately under a policy-driven scenario of national investments. Second, projections for the group of countries open to international investments are run under a given price scenario.

Third, the resulting total world oil supply is then compared to the results of the oil demand module under the same price scenario. The process of adjusting the price scenario and the investment policies of closed countries is repeated until an empirical convergence is found between closed countries’ capabilities and investments policies, open countries’ market-driven supply potential and the price elasticity of oil demand in the WEM regions.

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Matt on November 20, 2008 - 10:40am Permalink | Subthread | Parent | Comments top

The world has just completed a giant live experiment by trying to grow the economy against limited crude oil supplies at around 74 million barrels/day. Result: bank failures, company bankruptcies, airline closures, a car industry at its knees and many rescue packages which mean new debt. Assuming we come out of the current crisis, who would want to repeat that exercise? When will we repay debt at all?

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drillo on November 21, 2008 - 5:52pm Permalink | Subthread | Parent | Comments top

Thanks for bringing up this excerpt. I had also to do with modelling in my earlier life. However these models dealt only with natural parameters, so it had a fairly narrow and "predictable" range of results.
But the IEA model has to deal with quite a few "unpredictable" parameters, e.g. politics, so they have a big array of srews they turn manually according to their personal assumptions. So simply depending on these manual adjustments the model can produce an huge array of results.
It is a pity that they don't provide more transparency by publishing all details (source code, data etc.) on the modelling process.

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Aniya on November 19, 2008 - 11:04pm Permalink | Subthread | Parent | Comments top

Thanks (as always), Gail and Hi Rockman,

re: "In my personal efforts I’ve done such analysis with less then complete data but could still offer a range of risked possibilities. But there have been times when there wasn’t sufficient info to do such an approximation. At that point I can only offer the client a simple answer: I DON’T KNOW."

And "But their true mortal sin would be to offer the world their results without such qualifications."

The second sentence I quote more or less sums up what I wanted to say about the first quote.

Given the enormity of the implications, it seems that it's crucial for the organization to:

1) Put the range of results in context.

2) Point out the implications for the specifics listed in the range.
This would be in economic terms, and physical terms, for example.

3) Assign some meaning to the risk and the ranges of risk, even if one cannot assign a specific risk.

4) It also seems that on the issue of the "bigger picture," "I don't know" is not really satisfactory. The "bigger picture" lends itself to other tools, doesn't it?

Just some thoughts.

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ROCKMAN on November 20, 2008 - 7:51am Permalink | Subthread | Parent | Comments top

Aniya,

"I don't know" might not be very satisfying but if it's true then that's the answer. As far as "other tools" go, yes....they are available and would generate a reasonable result. But there are no tools which can make up for the lack of basic data. The KSA has a very good estimate of their remaining reserves as well as future production rates. They've had some of the best (and most expensive) reservoir modelers working on Ghawar and its other fields for decades. But they are not willing to share those answers. If they were allow others to analyze the production histories we would all know the answer. But they won't. Compare that policy to those of US public corporations who are required by law to present independent third party audits of their reserves which must conform to very strict criteria.

Ranging the risk to any value is fine but one must have a credible baseline to work with. Making a wild and unsupported estimate and then assigning a heavy risk to your answer is deceptive. The MSM and the public will generally use your answer and then conveniently forget to mention the qualifying risk. With regards to the "big picture" the KSA won't even admit how much oil has been produced from its fields since production began or even how much each produced last month. Even if you magically knew how much oil was in Ghawar initially you couldn't even tell today if it were 40% depleted or 70%.

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drillo on November 22, 2008 - 8:35am Permalink | Subthread | Parent | Comments top

Exactly.

Of course the executives who want to base their decision on such studies want to hear more than "I don't know", otherwise they wouldn't have hired you. Finally they want to know if they shall drill/build/invest or not, so you should give them a clear answer. But normally even under big uncertainties I always could draw conclusions from my data. These could result in a range of values and perhaps an average, and if the client preferred for exaple a conservative statement he could chose the lowest value.

Of course there should never be inconsistencies like in the WEO's chapter of Saudi Arabia:

"There are 6.2 billion barrels of reserves in 11 other known fields in Saudi Arabia that have yet to be developed — the highest in the world. Each of them holds reserves of at least 150 million barrels and the average is 450 million barrels."

Classical maths says: 11 fields x 450 million = 4.95 billion.

If these data weren't mixed up by mistake then the report could have said something like this:
The exact reserves are unknown. 6.2 billion barrels of reserves are reported in (source a), however (source b) has 11 fields of 450 million barrels each. So we estimate the total resource is probably in a range between 4.95 and 6.2 billion barrels.

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87 comments on The IEA WEO 2008 - Objectivity of the International Energy Agency

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