THE energy industry is peculiar — in more than one ways. The issue of reliable data, or rather the lack of it, plagues the industry. National priorities, global geopolitics and corporate interests make the matter still worse.
The World Energy Outlook (WEO) compiled each year by the Paris-based International Energy Agency (IEA) is an eagerly sought after annual affair. The precious database compiled by the OECD energy watchdog is regarded — and indeed correctly too — as a guide post to industry trends.
The just released WEO ‘09 has been no exception. And as always it reached some interesting conclusions. Despite the repeated claims of peak oil pundits arguing it was just round the corner, the document concludes that as a consequence of the financial crisis, in fact the global energy use is set to fall this year. The report projected the global demand to remain lower than projected in last year’s report, reflecting the impact of the economic crisis and of new government policies introduced over the past year.
A person familiar with IEA’s plans said “demand-management policies” are having more impact, than previously expected, on the consumption patterns in the developed world, which accounts for about 55 percent of world oil consumption.
In addition, a drop in industrial activity from the recession is also a big factor in the downward revision. Baseline assumptions used in the previous long-term outlook, it seems, had to be adjusted down to account for the tough economic conditions of the past year.
However, it clarifies that in case of an economic upturn, it would resume its upward trend unless governments drastically change their policies on the way energy is produced and consumed today.
In the Reference Scenario of the report, global consumption would start recovering in 2010, reaching 88 million bpd in 2015 and touching 105 million bpd in 2030.
However, with the limitations envisaged by the IEA, the global energy demand to 2030 could remain parked at just above the current levels — to only 89 million barrels a day. The ongoing debate in Copenhagen could have serious repercussions for producers and consumers alike.
However, the IEA continued to emphasize that fossil fuels would still be dominating the energy mix in 2030, accounting for more than three-quarters of incremental demand.
However, here lies the catch too. As a result of the financial crisis, the WEO ‘09 says investment in upstream oil and gas has been severely cut by over $90 billion this year as compared to 2008. And in case the required investments are not made in the sector, the capacity of the industry to fill the gap would become a major sword dangling over the global demand-supply picture.
And the investment requirements of the industry are monumental. As per the OPEC World Oil Outlook 2009, up to 2030, the cumulative upstream investments requirements were estimated to be around the colossal sum of $2.3 trillion (in 2008 dollar terms).
Is that money coming into the sector is anybody’s guess. And if yes, from where? Major questions indeed!
In another sign of a changing world, the WEO ‘09 also projects that China would overtake the US as far as energy consumption is concerned — somewhere around 2025 — to become the world’s biggest oil and gas importer.
However, the interesting aspect is that even the WEO could not escape melodrama. On the eve of the report’s publication, Britain’s Guardian claimed that senior figures within the organization disagreed with the forecast, arguing that it would be impossible for the world to maintain oil supplies even at 90 million-95 million barrels. They claimed under pressure from the US, the IEA deliberately exaggerated — read fudged — the level of accessible new supplies of oil, so as to prevent panic on global stock markets.
The report said that a senior official associated with the International Energy Agency (IEA) has claimed that the data relating to global oil reserves has been twisted under pressure from the US. The official, on condition of anonymity, disclosed that IEA has been constantly underplaying the looming shortage of oil, as the US feared that original estimates would actually trigger panic buying.
The IEA insider also seemed to be underlining that the US has influenced and encouraged the IEA to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.
The IEA indeed took exception to the accusations. It had to. It responded by publishing on its website a key chapter from last year’s outlook report detailing how it estimates the decline in the rate of production from the world’s largest oilfields.
Dismissing the Guardian report as “groundless” and giving the reasons for publicly citing its findings, the OECD energy watchdog said it wanted to show the public that its research was independent. IEA Chief Economist and the principal author of the WEO Fatih Birol said: “We are very proud of our analysis and independence. We have a lot of critics. It’s not possible to make everyone happy.” The issue of reserves has been a thorny one for quite some time, inciting fierce debate within the fraternity. Eyebrows were raised when in 1985 Kuwait revised its reserve estimates by almost 50 percent. However, when stories surfaced suggesting Kuwait’s possible reserves were in fact much less, it gave credence to the Peak Oil theorists all around.
Many, hence, started questioning the estimates of other OPEC members too.
In 2004, Shell also admitted that 20 percent of the “proven” reserves listed on its balance sheet was illusory. Similarly, in 2005, Chevron’s chairman took out a two-page ad in the New York Times to air some thoughts about a possible decline in oil stocks and Exxon Mobil’s corporate communications began to quietly raise issues of future energy requirements.
The ongoing debate on WEO ‘09 has once again underlined the fact that reserves remain an explosive issue — and would continue to haunt the industry for some more time to come. To overcome the uncertainty the industry needs to find a resolution to the old issue.
