Last week, Fatih Birol, chief economist to the International Energy Agency, presented the IEA’s World Energy Outlook 2008 to the Council on Foreign Relations in New York City. In an unusual gesture, this CFR session was opened to invited guests, which is how I cleared its thick oak doors.
As the program noted, ‘The World Energy Outlook series is widely recognized as the most authoritative source for forward-looking energy market analysis.”
The one-hour session was held ‘on the record’. Fatih had 15 minutes to present the 569-page report, followed by a 15-minute dialog with host Edward Morse (Managing Director, Louis Capital Markets, former publisher of Petroleum Intelligence Weekly, co-founder PFC Energy), followed by 30 minutes Q&A. (The CFR runs their sessions as strictly as the ASPO conference!)
Around 175 participants registered, big investment and financial companies heavily represented, but also including folk from the likes of Exxon, Alcoa, Natural Resources Defense Council, and the Washington Post.
Birol’s talk was fairly dry, understated and nuanced. His slides were essentially the PR set you can download from the IEA website. He stated right up front that the Business-as-Usual reference scenario projection for energy consumption to 2030 was unsustainable. But the compelling reason he gave was because BAU would cause a 6-degree global temperature rise, not because oil supply shortfall challenges might make those levels of consumption unfeasible.
Not that he short-changed supply. The IEA recently realized how critical the decline of the existing oil production base is to future oil production rates. That prompted an in-depth field-by-field study of decline rates. Birol warned that the equivalent of 4 new Saudi Arabias must come on line by 2030 just to offset expected decline, 2 more on top of that if we are to ‘grow’ production to the Reference Scenario. I’m not sure the audience fully appreciated the enormity of those statements.
By now, everyone who follows energy has seen the IEA’s Reference Scenario production growth to 2030 (attached below). Imagine my shock when this slide flashed on the screen, without the gaping, scary red triangle of yet-to-be-discovered crude oil. Unless I was hallucinating, it had been colored light blue along with the oil that has already been reported as discovered-awaiting-development. This resulted in a nice growth wedge of enhanced oil recovery (EOR), unconventional oil and natural gas liquids built atop a reassuring plateau of conventional oil production through 2030.
A full 1/3 of the talk and questions concerned climate: CO2 emissions and carbon policy, the need for cap-and-trade carbon market, China buy-in, investment in carbon capture/sequestration (CCS), etc. The handouts were a CFR flyer and their Independent Task Force Report on the climate change crisis and strategies for U.S. foreign policy to address it.
For an agency whose original mandate was to assure continuity of oil supply to its 28 OECD member nations, the IEA is banking mighty heavily on an energy fix through climate policy. Birol expressed strong hopes for a proactive outcome to the 2009 Copenhagen climate meeting. He commented that the solutions for the climate problem will also be the solutions to the energy problem.
Tellingly, when asked what actions he thought were most critical he said “1) efficiency, 2) efficiency, and 3) efficiency”.
There were surprisingly few questions for Birol, mostly concerning climate policy and oil pricing. I gave my affiliation as Columbia University AND the Association for the Study of Peak Oil and launched in:
Q: This year’s WEO report represents a radical departure from 30 years of optimistic, demand-driven consumption projections. In the past, the IEA always relied on the ‘Call on OPEC’ to make production rise to the level of projected demand. Your new bottoms-up, field-by-field analysis of supply and depletion rates is a major improvement and we commend you for it. Yet this report still relies on the Call on OPEC to fill the production gap. Do you, personally, believe that it will be remotely possible to keep supply flat in the next 5-10 years, given the current economic and geopolitical situation?
A: If you read the report carefully, or run a word search on it, you will see that two words occur more frequently than any others. The first word is “oil”. The second word is “if”.
This got a rumbling chuckle from the audience. But no one publicly connected the dots that in order for the IEA’s supply projections to work out, ALL of the non-trivial IFs mentioned in his talk must materialize:
- IF the current low oil prices rise back above the $75-$95/bbl marginal cost needed to bring on new non-OPEC supply in time to offset the declining production base
- IF oil-producing countries and China stop subsidizing petrol prices to their own populations
- IF OPEC gives the International Oil Companies access to explore and develop their national reserves
- IF $26 Trillion in exploration and infrastructure capital is invested
- IF OPEC decides to invest seriously in capacity increases
- IF EOR can really increase the recovery rate to the extent hoped
- IF the unaudited reserves reported by OPEC and Russia are really there
- IF the optimistic USGS 2000 predictions of Yet-to-Find oil are correct
- IF the Saudis are capable of reaching and sustaining 15 mbd, and willing to do so (Ok, he didn’t mention these last three)
- IF, IF, IF, etc.
AND virtually all of these IFs are outside the control of any policies that might be set by the oil-importing OECD.
Someone asked Birol if he would have changed anything in the report had he known the financial and oil price meltdowns would occur before it went to the printers. He said “No.”
No one made the obvious peak oil/climate connection.
I got the impression that, within the halls of policy, climate change mitigation is considered the only politically expedient cover for curtailing fossil energy use.
A year ago, Randy Udall wrote me, “The engine of incessant pursuit is running a quart low.” Take out another 2 quarts for the current evaporation of credit and investment capital and the engine of oil-based prosperity is in danger of seizing.
It appeared to me that most people in the room did not register the precariousness and urgency of the supply situation. If they do, they are holding their cards very close.
Low price and underinvestment may have forced us to what I’ll call “practical peak oil” right now. With luck, strategic planning and cooperation, we can prolong the plateau, spending our resources intelligently to build the bridge to the new energy economy and a prosperous way down the fossil energy slope. Let’s hope Mr. O and his advisors get it right.
(Note: Commentaries do not necessarily represent ASPO-USA’s positions; they are personal statements and observations by informed commentators)
Sally Odland, a former exploration geologist, works as an administrator at Lamont Doherty Earth Observatory of Columbia University. She has written an MBA dissertation on managing the transition from peak oil to a reduced petroleum economy and is a Board member of ASPO-USA.
