Wednesday, June 21, 2006

The Peak Oil Crisis: Recognizing the Peak

Falls Church News-Press

By Tom Whipple
June 15, 2006

It is conventional wisdom among students of peak oil that worldwide peak oil production will not be recognized, and certainly not "officially" certified by some organization or other, until some years after the event has passed. The exception to this, of course, is if some natural or man-made catastrophe shuts down a lot of oil production in a manner not likely to be restored for many years.

Without such a catastrophe, recognition of peak oil will be gradual, with month after month of volatile production statistics trending downward. At some point, even the most optimistic prognosticator will be forced to admit it is unlikely that world production will ever again climb above the highest production record previously achieved.

The world is currently producing somewhere around 84-85 million barrels a day of oil. Pessimists say the current production rate is beginning to look a lot like a peak. Maybe another million or so a day, but that’s it. Moderates on the issue will allow that another five million barrels per day looks possible and see a peak around 90 million barrels a day. Until recently, the optimists were talking 120 million barrels day, 20 or 25 years down the line, but numbers like this are appearing less frequently

Currently, there is a fair sized discrepancy regarding total world oil production between the world's two major production compilers, the International Energy Agency in Paris (IEA) and the Energy Information Administration in Washington (EIA). The IEA says we are currently producing 85 million barrels a day while the EIA says it’s closer to 84 million.

Now, I am not privy to the methodology used by these two agencies to compile their worldwide production statistics each month, but even from the outside, some problems are obvious. There is a distinction between those countries that make every effort to publish accurate and timely production statistics and those who, for a variety of reasons, want to give out a false (usually higher) impression of their actual production.

In the former category are North America , Europe , Russia and China and countries where most production is carried out by the major international oil companies. Here the statistics are, given the complexities of compiling such data, reasonably timely and accurate. Corrections are made promptly when new information is acquired. Production numbers from these countries shows that they jump up and down on a month-to-month basis. Old wells dry up; new ones are drilled; equipment breaks down; storms or extreme temperatures appear. By their very nature, oil production numbers are volatile. It is the trend that counts.

Then there are a group of countries where a state run oil company controls production and the local government feels it is in its interest to keep a tight reign on any official release of production statistics. The most prominent of these are Saudi Arabia , Venezuela and Iran , although a couple of other Middle East producers, such as Qatar and Kuwait , do not appear to be particularly forthcoming.

The non-cooperating countries are easy to spot, for their purported production remains the same month after month in the tables produced by the major compiling agencies. Rock steady production numbers means that even organizations with major resources behind them cannot come up with better numbers (at least that they can publish openly) and are forced to make educated guesses or go with the previous month's production number.

In a number of cases, the IEA and EIA are forced to use the estimates of "tanker trackers." These are private organizations maintaining contacts in the major oil exporting nations who simply note whenever a tanker leaves, where it is supposed to be going, and how heavily loaded it appears. As most of these ships are hard to miss, one can assume that counting departing tankers is about as an effective way as any of tracking country's exports.

In response to many complaints about the production data, a database called the Joint Oil Data Initiative was set up about a year ago. This is a public online database to which all producing countries are supposed to submit their production statistics. A quick perusal of the web site shows that it has many critical gaps and that the concept still has a ways to go.

You may wonder why we should really care if a country's production is going up, going down, or remaining flat. The answer of course is that, until recently, it really didn't make much difference to anyone, but the Saudis, if they produced 8 million, 10 million, or 12 million barrels of oil in a given day. If they didn't fulfill demand for their product, somebody else would. As long as there was sufficient oil to fulfill demand without forcing up prices too much, that was all that mattered.

As the worldwide oil supply and demands tightens however, the need for timely accurate production statistics becomes increasing important— so much so that at some point, timely and detailed knowledge of world energy supplies may become a matter of critical importance.

The reason behind this assertion is simple. As oil depletion nears, we are all —from the highest levels of governments to the individual citizen— going to have to make many, many decisions as we rearrange our lives and our livelihoods in response to cope with life in a world with declining availability of oil and all deriving from it.

To get through this transition, good and timely information as to when and how fast the energy situation is changing is going to change will soon become vital to all of us.


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