If we were at peak oil, wouldn't markets want to know? by mattsteinglass

This Guardian article saying that whistleblowers at the International Energy Agency are routinely deliberately putting out inflated figures for potential future oil production in order to avoid panicking the world market with the real figures is certainly interesting. And it’d be nice if oil production were hitting a wall, forcing radical increases in the price of fuel and thus pushing a transition to a non-carbon economy even without the need for cap-and-trade or massive carbon taxes. But the whole logic seems weird to me. Kevin Drum says there’s no way to know what to think of it, and while it sounds sort of plausible:

Now the “peak oil” theory is gaining support at the heart of the global energy establishment. “The IEA in 2005 was predicting oil supplies could rise as high as 120m barrels a day by 2030 although it was forced to reduce this gradually to 116m and then 105m last year,” said the IEA source, who was unwilling to be identified for fear of reprisals inside the industry. “The 120m figure always was nonsense but even today’s number is much higher than can be justified and the IEA knows this.

“Many inside the organisation believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible but there are fears that panic could spread on the financial markets if the figures were brought down further. And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources,” he added.

A second senior IEA source, who has now left but was also unwilling to give his name, said a key rule at the organisation was that it was “imperative not to anger the Americans” but the fact was that there was not as much oil in the world as had been admitted. “We have [already] entered the ‘peak oil’ zone. I think that the situation is really bad,” he added.

…but would anyone really try to hide information like this from the markets? By what mechanism could an organization systematically raise its real estimates of future production by 20% or more without leaving all kinds of holes in the analysis? And isn’t any attempt to conceal information like this merely postponing and exacerbating the real buying panic when the actual limits on production start to become transparently clear? Wouldn’t you want pessimistic estimates like this out there as early as possible, 10 or 15 years in advance, so as to cushion the surprises later on? I think the theory has a problem of motive.


4 Comments so far
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Hi Matt, here’s my view. First of all, I think you are on the right track — there is no conspiracy to “hide the truth” here. International organizations like the IEA are not capable of pulling something like that off. And obviously no one really knows what “the truth” about peak oil is — not the peakists, not industry, and certainly not the IEA! But just by virtue of how big, slow-moving international organizations work, IEA projections are never going to be too far off from the consensus view of industry. And the peakists are outside the consensus — not because of any conspiracy but because the vast majority of petroleum geologists just don’t buy the peakist story. That said, even non-peakists have in the past couple of years started to question figures like 120 million bd for 2030 production — not only from the upstream perspective but also because it is no longer obvious demand will ever reach that level. (The US has already hit “peak gasoline demand.”) As the IEA realized this, they started revising downward. Final point — I know the geology is different, but the shale gas boom in the US is exactly why most people in industry don’t believe in peak oil. Emerging tightness in the market leads to higher prices which leads to technological innovation which means that suddenly you can produce a lot of gas, profitably, from formations where it was previously thought impossible. The general view in industry is that the same thing will happen/is happening on the oil side.

Comment by laurentruseckas

Laurent, it’s really irritating to have people around who actually know what they’re talking about. You shoot holes in all the fun stories.

Comment by Matt Steinglass

Mr. Steinglass,

There is no truth to be hidden from those who do not what to see it. Everyone knows that there may well be something called peak production, it occurred with in the US decades ago. It worth pointing out that way back in 1956 M. K. Hubbert created a model that had predicted that US oil production would peak between 1965 and 1970, a prediction that we quite accurate. This logistic approach, which has yielded multiple variations and updates since then, continues to be used by production managers and market analysts to accurate predict peak production in individual fields, regions, and countries. It is even used in some non-petroleum commodities. There are no secrets out there, anyone can literally do the math and calculate peak production for all sorts of things, including petroleum.

The real issue is anyone doing anything with these predictions or are the “leaders” simply sticking their heads in the oil sands and “hoping” some new source of petroleum, or new extraction technology, or something, is going somehow magically appear and through out all of the existing calculations. Maybe it will, who knows, but based on the facts before at the moment and using well established methods, we know pretty well when and where peak production will occur.

Anything else is just wishful thinking.

Comment by davidlosangeles

Mr. Steinglass,

Well, now the IEA is saying that “peak oil” is likely in 2020.

Perhaps even that is optimistic.

Comment by davidlosangeles

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