No ho-ho-hos from the International Energy Agency this Christmas. They chose December 27th, of all days, to announce that, er, their reserves data is – how to put it? – rather Enronesque.
As the FT says, the Agency “has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected”. The article continues: “To make amends, the International Energy Agency has started work on a new study to be published next year that will rework its long-term projections for global oil reserves”.
Alongside a plan to build a new set of data for the decline in production rates in the world’s top 250 oilfields, the IEA is also ready to reassess its own forecasts for projected oil discoveries, which it based on estimates by the US Geological Survey.
Any downward revisions in oil discoveries or upward revisions to decline rates will in theory increase the probability that global oil reserves will be smaller than expected and that global oil supply will peak much sooner than expected.
Natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate.
Doubts are also surfacing about the original estimates for new oil discoveries around the world that were calculated by the USGS in 2000. A USGS re-assessment of these statistics in 2005 showed that actual new oil discoveries averaged only 9bn barrels a year between 1996-2003, 60 per cent less than the average annual estimates for the forecast period of 1995-2025. Just a few months ago, the USGS also downgraded its estimates of future new discoveries around Greenland by 38bn barrels.
“Insufficient attention to supply bottlenecks”? Call me lacking in seasonal goodwill, but wasn’t the whole point of creating an International Energy Agency to have organisation whose job it was to pay attention to supply bottlenecks?
What’s all the more alarming about the IEA’s Yuletide admission is that the Agency was already sounding alarm bells and pointing to flashing red lights on the dashboard even before this announcement. Regular GD readers will recall that November 16 saw the publication of the latest World Energy Outlook, when the Agency said that over the next 25 years some $22,000 billion – just under half 2006 world gross product – would need to be invested in supply infrastructure. If even that astronomical figure was based on an over-optimistic assessment of reserves data, then – ?
Nor was this even the end of the IEA’s Christmas message to the world. The following day, it announced its finding that the rising cost of oil has already wiped out the benefits of increased aid and debt relief to non-oil producing African countries, according to an IEA survey of 13 countries including South Africa, Ghana, Tanzania, Ethiopia and Senegal. According to the IEA, the increased cost of oil bought by these countries since 2004 was 3 per cent of their combined GDP: “more than the sum of debt relief and aid received over the past three years by the countries, which have a combined population of 270m, of whom 104m live on less than $1 a day”. One implication:
The situation is raising fears that, in spite of the strong growth many African countries have seen in recent years, there could be a repeat of the 1980s’ debt crisis in the developing world that was caused in part by the oil shocks of the 1970s.