Peak Oil News: International Energy Agency Confronts "Peak Oil": Part 1

Monday, October 03, 2005

International Energy Agency Confronts "Peak Oil": Part 1

Resource Investor

By Adam Porter

The International Energy Agency (IEA) report, “Resources to Reserves: Oil & Gas Technologies for the Energy Markets of the Future,” has broken step with other oil bodies by directly addressing the concerns of “peak oil” theorists.

In the introductory paragraph Claude Mandil, the IEA’s executive director, wasted no time in examining the subject.

He said, “soaring oil prices have again spotlighted the old question. Are we running out of oil? The doomsayers are again conveying grim messages through the front pages of major newspapers. ‘Peak oil’ is now part of the general public’s vocabulary, along with the notion that oil production may have peaked already, heralding a period of inevitable decline.”

Yet Mandil dismissed the idea that this situation is worrisome by stating, “the IEA has long maintained that none of this is a cause for concern.”

However not too far later on in the report, the IEA admits that most countries outside of OPEC “have passed their peaks in conventional oil production, or will do so shortly.”

They go on to paint a less than optimistic picture of future production in non-OPEC fields.

“Their world is one of maturing oil fields. Their exploration and production costs are typically higher but they limit OPEC’s monopoly effect, thus operating with smaller margins. Cost reduction is therefore a constant concern. Proven reserves (to) production ratios are small, averaging around 15 years and production in the older fields is declining.”

What “peak oil” supporters might find even more strange, is the use of the Hubbert Curve within the report, which is the mountain-shaped curve, showing increasing then declining production. It was created by the former Shell geologist M.K. Hubbert, to illustrate the theory of “peak oil.”

In a special section entitled just “Peak Oil” the IEA actually present the theory to its clients. They sum up by saying that

“The striking success of Hubbert in predicting the peak of U.S. production suggests that such conditions were more or less met in the U.S. during that time period.”

They then appear to question the current relevance of Hubbert in today’s oil market. Because they move on to say that “the controversies surrounding peak oil in the literature revolve around four main points. Does the Hubbert model apply to oil production worldwide? If the Hubbert model does apply, when will the peak in worldwide oil production be? What happens after the peak? How fast will the decrease of production be? What role does technology play in such models?”

The basic counter thrust of the IEA’s argument is that new technologies and increased investment can overcome any production inflection. But the level of investment that requires is truly astronomical. Repeating a figure they first used in the IEA World Energy Outlook report they estimate that the total necessary investment cost “for worldwide upstream operations and transport [of oil]” by 2030 will amount to “$5 trillion.”

That works out at roughly $564.5 million dollars a day, between now and 1 January 2030. Not surprisingly, they conclude that “neither private enterprises nor national companies necessarily have the incentive to assume the risk of tackling new types of resources such as oil sands or oil shales. Such players might choose, for example, to focus instead on maximising returns from their investments in deepwater in a high oil-price environment.”

The IEA goes on to say that “It should be noted, too, that there does not tend to be great interest in new types of resources among service and supply-sector players…they need to have ready customers for their new products and cannot easily justify developing products for a market that does not yet exist. Furthermore, private industry cannot be relied upon to invest in research on technologies that are too far from being economical.”

Indeed the report does throw up a great deal of questions: Questions of funding, or reserves and questions on the role of governments. But in doing so, has the IEA unwittingly opened a Pandora’s box of debate by answering its critics so directly?


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