CERAWeek Day III: On peak oil demand & more

As the end of day III of CERAWeek nears, for the Oilholic one panel session stood out in particular - Oil Demand: How will it look in a decade? This emotive and extremely polarizing subject turned hot late last year after the International Energy Agency issued a forecast predicting a peaking of oil demand in the 2030s. 

Naturally, OPEC blasted the IEA and said demand would continue to grow for many, many years. It also offered a bullish scenario of 116 million barrels per day in global oil demand by 2045. 

If the Oilholic were to offer his tuppence, oil will indeed continue to be a major part of the energy landscape not just for many years, but many decades. The stark reality of the matter is that no one can say for sure when oil demand will peak whether it is the IEA or OPEC. 

But kudos for the CERAWeek panelists to have at least tried. They included names familiar to the readers of this blog - Joseph McMonigle, Secretary General of International Energy Forum and Jeff Currie, a former Goldman Sachs partner and Chief Strategy Officer of Energy Pathways at Carlyle. 

Both were joined by Fred Forthuber, President of Oxy Energy Services, and Arjun Murti, Partner, Energy Macro and Policy at Veriten, and another former Goldman Sachs executive. The discussion was as lively as it gets. Here's the Oilholic's full report on the goings-on of the panel via Forbes. 

The panel followed a related quip by Shaikh Nawaf al-Sabah, CEO of Kuwait Petroleum Company, earlier in the day's proceedings. He told delegates that global energy demand will increase faster than the population growth rates through to 2050. "That means that we're going to require more energy intensity for the population in the world."

KPC's answer - why of course - increase its production capacity to 4 million bpd by 2035 from its current level of 3 million bpd. 

See, again the thing here is (as asserted earlier by yours truly), if the various forecasters can't even agree on what demand growth will be like at the end of 2024 (with the IEA predicting 1.3 million bpd and OPEC predicting 2.25 million bpd) - how can they predict for sure what the approaching horizon may look like in 2030! And on that note, it's time to say goodbye. More musings to follow soon. Keep reading, keep it here, keep it 'crude'! 

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© Gaurav Sharma 2024. Photo: CERAWeek 2024 panel on - Oil Demand: How will it look in a decade? © Gaurav Sharma, March 2024. 

Perspectives on a changing energy landscape

That we're in the midst of a profound change in the energy markets in unquestionable. However, fossil fuels still remain the default medium of choice. Within those broader confines, the oil market is seeing a supply-driven correction of the sort that probably occurs once in a few decades.

Meanwhile, peak oil theorists are in retreat following in the footsteps of peak coal theorists last heard of during a bygone era. However, what does it all mean for the wider energy spectrum, where from here and what are the stakes?

Authors and industry experts Daniel Lacalle and Diego Parrilla have attempted to tackle the very questions in their latest work The Energy World is Flat: Opportunities from the end of peak oil (published by Wiley).

In a way, the questions aren’t new, but scenarios and backdrops evolve and of course have evolved to where we currently are. So do the answers, say Lacalle and Parrilla as they analyse the past, scrutinise the present and draw conclusions for future energy market pathways.

In this book of 300 pages, split by 14 interesting chapters, they opine that the energy world is flat principally down to "ten flatteners" along familiar tangents such as geopolitics, reserves and resources, overcapacity, demand displacement and destruction, and of course the economics of the day. 

Invariably, geopolitics forms the apt entry-point for the discussion at hand and the authors duly oblige. As the narrative subtly moves on, related discussions touch on which technologies are driving the current market changes, and how they affect investors. Along the way, there is a much needed discussion about past and current shifts in the energy sphere. You cannot profit in the present, unless you understand the past, being the well rounded message here.

“New frontiers” in the oil and gas business, today’s “unconventional” becoming tomorrow’s “conventional”, and resource projections are all there and duly discussed.

To quote the authors, the world has another 1.5 trillion barrels of proven plus probable reserves that are both technically and economically viable at current prices and available technology, and another 5 trillion-plus barrels that are not under current exploration parameters but might be in the future. Furthermore, what about the potential of methane hydrates?

Politics, of course, is never far from the crude stuff, as Lacalle and Parrilla note delving into OPEC shenanigans and the high stakes game between US shale, Russian and Saudi producers leading to the recent supply glut – a shift with the potential to completely alter economics of the business.

What struck the Oilholic was how in-depth analysis has been packaged by the authors in an engaging, dare one say easy reading style on what remains a complex and controversial discussion. For industry analysts, this blogger including, it’s a brilliant and realistic assessment of the state of affairs and what potential investors should or shouldn’t look at.

The Oilholic would be happy to recommend the book to individual investors, energy economists, academics in the field and of course, those simply curious about the general direction of the energy markets. Policymakers might also find it well worth their while to take notice of what the authors have put forward.

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© Gaurav Sharma 2015. © Photo: Front Cover – The Energy World is Flat: Opportunities from the end of peak oil © Wiley Publishers, Feb, 2015.

The inimitable Mr de Margerie (1951 – 2014)

The Oilholic woke up to the sad news that Total CEO and Chairman Christophe de Margerie had been killed in a plane crash at Moscow’s Vnukovo airport. This tragedy has robbed the wider oil & gas fraternity of arguably its most colourful stalwart.

Held in high regard by the industry, de Margerie had been the CEO of Total since 2007, later assuming both Chairman and CEO roles in 2010. Instantly recognisable by his trademark thick moustache, de Margerie increased the focus of Europe’s third-largest oil and gas company on its proven reserves ratio like never before.

He joined Total in 1974 straight after graduating from the Ecole Superieure de Commerce in Paris and spent his entire professional life at the company. Rising through the ranks to the top of the corporate ladder, de Margerie was instrumental in taking Total into markets the company hadn’t tested and to technologies it hadn’t adopted before. Wider efforts to improve Total’s access to the global hydrocarbon pool often saw de Margerie take actions frowned upon by some if not all. 

For instance, Total went prospecting in Burma and Iran in the face of US sanctions. France has a moratorium on shale oil & gas drilling, but de Margerie recently saw it fit to get Total involved in UK's shale gas exploration. Over the last decade, as this blogger witnessed Total ink deals which could be subjectively described by many as good, bad or ugly, one found many who disagreed with de Margerie, but few who disliked him.

Even in the face of controversy, the man nicknamed “Big Moustache” always kept his cool and more importantly a sense of humour. Each new deal or the conquering of a corporate frontier saw de Margerie raise a spot of Scotch to celebrate. That’s some tipple of choice when it came to a celebration given he was the grandson of Pierre Taittinger, the founder of Taittinger champagne.

The Oilholic’s only direct interaction with the man himself, in December 2011 at the 20th World Petroleum Congress (20th WPC) in Doha, was indeed a memorable one. Jostling for position while the Total CEO was coming down from a podium, this blogger inquired if there was time for one question. To which the man himself said one could ask three provided they could all be squeezed into the time he had between the auditorium and VIP elevator!

In a brief exchange that followed, de Margerie expressed the opinion that exploration and production (E&P) companies would find it imperative to venture into "geologically challenging and geopolitically difficult" hydrocarbon prospects.

“All the easy to extract oil & gas is largely already onstream. We’re at a stage where the next round of E&P would be much more costly,” he added. One could have gone on for hours, but alas a few minutes is all what Qatari security would permit. Earlier at the auditorium he was leaving from, de Margerie had participated in deliberations on Peak Oil, a subject of interest on which he often “updated” his viewpoint (photo above left).

“There will be sufficient oil & gas and energy as a whole to cover global demand…Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million barrels per day (bpd) in total energy production, and our expectation for 2030 is 325 million bpd,” he said.

De Margerie forecast that fossil fuels will continue to make up 76% of the energy supply by 2050.

“We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the late Total CEO quipped.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, were to be exploited, there will be sufficient oil to meet current consumption for up to 100 years, and for gas up to 135 years. What he astutely observed at the 20th WPC does broadly stack-up today.

In wake of sanctions on Russia following the Ukrainian standoff, de Margerie called for channels of dialogue to remain open between the wider world and country’s energy sector. Total is a major shareholder in Russian gas producer Novatek, something which De Margerie was always comfortable with. He ignored calls for a boycott of industry events in Russia, turning up at both the St Petersburg forum in May and the 21st World Petroleum Congress in Moscow in June this year.

However, the shooting down of Malaysian Airlines MH17 over eastern Ukraine in July prompted him to suspend buying more shares in Novatek. That cast a shadow over Total’s participation in Yamal LNG along with Novatek and CNPC. Nonetheless, de Margerie was bullish about boosting production in Russia. 

According to Vedomosti newspaper, he was in town on Monday to meet Russian Prime Minister Dmitry Medvedev and discuss the climate for foreign direct investment in the energy sector. As events conspired, it turned out to be the last of his many audiences with dignitaries and heads of capital, state and industry.

Later that foggy Monday evening, the private jet carrying de Margerie from Vnukovo airport collided with a snow plough and crashed, killing all on-board including him and three members of the crew. Confirming the news, a shocked Total was left scrambling to name a successor or at least an interim head to replace de Margerie.

In a statement, the company said: “Total’s employees are deeply appreciative of the support and sympathy received, both in France and in the many countries where Christophe de Margerie was admired and respected.

“Mr de Margerie devoted his life to building and promoting Total in France and internationally. He was equally devoted to Total’s 100,000 employees. As he would have wished, the company must continue to move forward. Total is organised to ensure the continuity of both its governance and its business, allowing it to manage the consequences of this tragic loss.”

According to newswire AFP, Total’s third quarter results would be released as scheduled on October 29. Paying tribute, French President Francois Hollande said the country had lost “a patriot” while OPEC Secretary General Abdalla Salem El-Badri said the industry had lost “an extraordinary and charming professional, who will be sorely and sadly missed by all who had the honour of knowing and working with him.” 

In a corporate sense, Total will move on but French commerce and the oil & gas business would be intellectually poorer in wake of de Margerie’s death. His forthright views sparked debates, his stewardship of France’s largest company inspired confidence, his commanding presence at market briefings made them more sought after and his sense of humour lit up forums. But above all, in the Oilholic’s 17 years as a scribe, one has never met a more down-to-earth industry head. Rest in peace sir, you will be sorely missed.

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© Gaurav Sharma 2014. Photo: The late Christophe de Margerie, former CEO and Chairman of Total, addresses the 20th World Petroleum Congress, Doha, Qatar, December 2011 © Gaurav Sharma.

A chat at Platts, ‘LHS’ & the Houston glut

The 'Houston glut debate' gained further traction this summer as the metropolitan area has been a recipient of rising inland crude oil supplies heading towards the US Gulf Coast. New light and heavy grades of crude are showing up – principally from the Eagle Ford, Permian Basin, North Dakota and Western Canada.

The ongoing American oil production boom complements existing Texas-wide E&P activity which is getting ever more efficient courtesy horizontal drilling. Yet, infrastructural impediments stunt the dispatch of crude eastwards from Texas to the refineries in Louisiana.

In fact, many analysts in Chicago and New York have long complained that Houston lacks a benchmark given it has the crude stuff in excess. It seems experts at global energy and petrochemical information provider Platts thought exactly the same.

Their response was the launch of the Platts Light Houston Sweet (or should we say ‘LHS’) in July. Nearly four months on, the Oilholic sat down with Platts Associate Editorial Director Sharmilpal Kaur to get her thoughts on the benchmark and more. So first off, why here and why now?

"We launched the new crude assessment this year as we felt it was finally time for a benchmark that reflected the local dynamic. I’d also say the US was ripe for a fresh benchmark and we went for one based on the price of physical crude oil basically FOB out of three major terminals in Houston."

These include Magellan East Houston Terminal, Enterprise Houston Crude Oil (ECHO) Terminal, and the Oil Tanking Houston Terminal – the location markers for the assessment. Kaur says as the Houston crude transportation infrastructure develops, Platts may consider additional terminals for inclusion in its LHS assessment basis.

Specifically, completion of the Kinder Morgan/Mercuria 210,000 barrels per day (bpd) rail terminal on the Houston Ship Channel could potentially provide another avenue for both WTI Midland and Domestic Sweet quality crudes to enter the Houston market.

The chances of Platts making a fist of LHS are good according to anecdotal evidence, especially as half of the supply side analyst community has been calling for such an assessment. The minimum volume considered by the information provider is 25,000 barrels, or 1,000 bpd rateable, in line with other US domestic pipeline grades.

Platts publishes LHS as a flat price; which is assessed using both fixed as well as floating price information. In the case of floating prices against WTI, Platts generally calculates the fixed price assessment using calendar month average (CMA) WTI or front-month WTI as the floating basis, depending on the WTI basis reported in bids, offers, and transactions.

In the case of light sweet price information reported against the Louisiana Light Sweet (LLS), Platts calculates the fixed price using LLS trade month. In the case of ICE Brent light sweet crude market, Platts calculates the resulting fixed price using an ICE Brent strip that reflects the value of ICE Brent for the relevant pipeline month. Additionally, in the absence of spot activity for light sweet crude in Houston, Platts will look at related markets such as WTI at Midland or WTI at Cushing and adjust its daily LHS assessment accordingly.

That absence won’t be all that frequent as the Houston crude oil distribution system looks set to receive new supplies of over 1.7 million bpd in terms of pipeline capacity delivering into the region by the end of June 2014.

A regional trading market for producers and dispatchers selling the crude stuff to Gulf Coast refiners is well past infancy. Kaur reckons Houston’s spot trading market could rival those at Cushing, Oklahoma and St. James, Louisiana. (See Platts map illustrating the area’s crude oil storage and distribution projections on the right, click to enlarge).

 

So far so good, but in the ancillary infrastructure development and supply sources to Texas, does Kaur include Keystone XL at some point in the future?

"Yes, the pipeline extension will be built and despite the uptick in US crude oil production remains as relevant as ever. There are facets of Keystone XL which are hotly contested by those for and against the project – from its job creation potential to environmental concerns. My take is that Keystone XL would offer is incremental supply of heavy crude out of Canada that comes all the way down to the Gulf Coast and then gets blended."

"What’s produced domestically in the US (say in the Eagle Ford and Bakken) is light crude. What Gulf Coast refiners actually like are heavier crudes blended to form a middle blend. Canadian crude has started pushing out the Latin American crudes and the reason for that is pure pricing as Canadian crude is cheaper than Latin American crude. That trend is basically continuing…it’s why the pipeline extension was planned, and why every refiner in Houston will tell you its needed. President Barack Obama will get there once the legacy component of Keystone XL has been worked out."

As for the hypothesis that Canada may look elsewhere should the project not materialise, Kaur doesn’t quite see it that way. Simple reason is that the Americans know the Canadians and vice versa with very healthy trading relations between the two neighbours for better parts of a century.

"China as an export market is an option for Canada. It’s being explored vigorously by Canadian policymakers – but I see two impediments. Pulling a pipeline from Alberta to British Columbia in order to access the Chinese market via the West Coast won’t be easy. It will, as Keystone XL will, eventually get built, but not overnight. Secondly, the Chinese have diversified their importation sources more than any other country in the world – OPEC, Latin America, West Africa and Russia, to name a few."

Furthermore, US crude imports from West Africa are on the decline. That cargo has to go somewhere and industry evidence suggests its going to China, followed by Japan and to a much lesser extent India.

 

"The Indians would like to get their hands on Canadian crude too – no doubt about that; but logistics and cost of shipping complicates matters. A simple look at the world map would tell you that. Don’t get me wrong; China needs Canadian exports, but given the global supply dynamic Canada probably needs China more as a major export market."

In sync with what the ratings agencies are saying, Kaur sees also E&P capex going up over the next two to three years. "Most IOCs and NOCs see it that way. If you drove through exploration zones in the Bakken Shale, you’d be a busy man counting all the logos of oil & gas firms dotting the landscape, ditto for the Canadian oil sands where foreign direct investment is clearly visible."

Sharmilpal Kaur, Associate Editorial Director, Platts

The Platts expert flags up a fresh example – that of Hess Corporation which recently sold its US trading operations to Centrica-owned Direct Energy.

"Here is a company indicating quite clearly that it’s selling up the trading book and using that money to invest in Bakken wells as well as globally. Right now, in terms of E&P – the market is so lucrative, with an oil price level to sustain it, that people are making sure they find the capex for it and in many cases preferably from their balance sheets." The integrated model is not dead yet, but IOCs holding refineries on their balance sheet have clearly indicated that their priorities are elsewhere.

"You see ageing refineries in trouble within the OECD; at least 15 have faced problems in Europe owing to overcapacity. Yet China, India and Middle East continue to build new refineries – often out of need."

"China has indicated that it wants to be a regional exporter of refined products at some point. That’s a trading model it wants to adopt because it now has access to multiple crude oil supply sources. As a follow-up to its equity stakes in crude production sites, China now has ambitions and wherewithal of becoming a global refining power. In the Chinese government’s case – its need and ambition combined!"

The Oilholic and Kaur agreed that the chances of US crude oil ending up in the hands of foreign refiners, let alone Chinese ones, were slim to none for the moment. In the fullness of time, the US may actually realise it is in its own interest to export crude. Yet, given the politics it is still a question of 'if' and not an imminent 'when'. 

Hypothetically, should the US employ free market principals and export its light crude which is surplus to its requirements, but get heavier crude in return more in sync with its refining prowess – the exchange would work wonders.

"It could command a better price for its light crude and actually buy the heavier crude cheaper. My thinking is that the US would actually come out on top and the rest of the world would benefit too. Here we have too much light crude, the rest of the world craves it – so there’s the opportunity in theory. In the unlikely event that this was to happen, we would see a very different supply dynamic. Price spikes associated with disruptions - for example as we saw during the Libyan conflict in 2011 - would be mitigated," says Kaur

Nonetheless, even with a ban on crude oil exports, the US oil & gas bonanza has weakened OPEC. There are two ways of approaching this – concept of incremental barrels on a virtual supply ledger and the constantly declining level of US imports.

"As US imports decline, barrels originally heading to these shores will be diverted elsewhere. That’s where the US has a voice when it speaks to OPEC. Supply side analysts such as you are tallying US, Russia and [OPEC heavyweight] Saudi Arabia’s production level. Now add Canada, prospects of a Mexican and Iraqi revival, a gradual Libyan uptick and some semblance of a resolution to the Iranian standoff – then there’s a lot of it around and OPEC understands it."

While Platts does not comment on the direction of the oil price, what Kaur sums up above is precisely why the Oilholic has constantly quipped over the course of 2013 that a three-figure Brent price is barmy and unreflective of supply side scenarios in an uncertain macroeconomic climate. Blame the blithering paper barrels!

"At least, you can take comfort from the fact that the peak oil theorists have temporarily disappeared. I haven’t seen one in Houston for while," Kaur laughs. In fact, the Oilholic hasn’t either – in Houston and beyond. That’s all for the moment from Platts' Houston hub! Keep reading, keep it ‘crude’!

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© Gaurav Sharma 2013. Photo 1: Oil pipeline, Fairfax, Virginia, USA © O. Louis Mazzatenta / National Geographic. Photo 2: Sharmilpal Kaur, Associate Editorial Director at Platts © Gaurav Sharma. Graphic: Map of Houston crude oil storage and distribution © Platts

A superb dissection of global oil & gas depletion

Any analysis of oil and gas depletion is always tricky and often coloured by opposing arguments, disinformation, politics, tangential debates about the resource curse hypothesis and extractive techniques. Given this backdrop, veteran industry analyst Colin J. Campbell’s attempt to tackle the subject via his Atlas of Oil and Gas Depletion, currently in its second edition, is nothing short of historic.

 

This epic work banks on decades of painstaking research undertaken by Campbell in his quest to provide definitive and pragmatic commentary on the subject of depletion. Nine parts and 77 chapters split this weighty, authoritative volume on the subject; wherein part by part, page by page it examines oil and gas depletion by region and jurisdictions. Not only has geology been taken into consideration but also the political climate of each region and country in question. The author also discusses the impact of emergent technologies and the costs involved relative to each E&P jurisdiction with a separate examination of conventional and unconventional sources.

Accompanying discourse on the history of the oil and gas business is carved up into two halves – the first half discusses the formation of the oil industry, which oversaw (or rather fuelled) the exponential growth of the global economy. The second half talks of a contraction as the easy to extract supplies dwindle, and the barrel spent per barrel extracted equation starts getting more and more worrying.

 

Campbell also discusses reporting practices and industry data interpretation techniques. The Atlas switches seamlessly to a country-by-country analysis in alphabetical order by continent. Every country imaginable in the context of the oil and gas business and even those that are unimaginable in mainstream discourse about our 'crude' world are examined, substantiated by industry data and accompanying graphics.

 

For purposes of reviewing the contents, the Oilholic selected 10 jurisdictions commonly associated with the E&P industry and another 10 jurisdictions, hitherto considered net oil importers. This blogger was quite simply blown away by sincerity and effort of the research, along with the brevity with which jurisdictional summation was provided duly taking each country’s 'crude' history into the equation. As a reader, you appreciate a book when it adds to your knowledge; Campbell’s Atlas certainly did it for yours truly.

 

If you are looking for an authoritative analysis of oil and gas depletion, minus caricature, clichés and political statements, but full of rational and apolitical scrutiny of the costs involved with extracting oil and gas, then look no further than this book. For an evolving industry, which has a finite natural resource as its core offering, Campbell’s Atlas of Oil and Gas Depletion is likely to stand the test of time.

The Oilholic is happy to recommend this book, and humbled to provide a review for the research conducted by an analyst of Campbell's credentials. The Atlas will educate and inform those interested in the oil and gas industry's future and the challenges it faces – be they existential or commercial. In particular, those professionals involved with policymaking, petroleum economics, history of the oil and gas business, academia and market analysis.

 

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To email: gaurav.sharma@oilholicssynonymous.com

© Gaurav Sharma 2013. Photo: Front Cover - Campbell’s Atlas of Oil and Gas Depletion © Springer 2013

We’re nowhere near “Peak oil” er...perhaps!

The 20th World Petroleum Congress could not have possibly gone without a discussion on the Peak Oil hypothesis. In fact, every single day of the Congress saw the topic being discussed in some way, shape or form. So the Oilholic decided to summarise it after the event had ended and before the latest OPEC meeting begins.

Discussing the supply side, starting with the hosts Qatar, Emir Sheikh Hamad bin Khalifa said his country was rising to challenge to secure supplies of oil and gas alongside co-operating with members of the energy organisations to which they were aparty, in order to realise this goal. Close on the Qatari Emir’s heels, Kuwaiti oil minister Mohammed Al-Busairi said his country’s crude production capacity is only expected increase between now and 2015 from the current level of 3 million barrels per day (bpd) to 3.5 million bpd, before rising further to 4 million bpd.

Then came the daddy of all statements from Saudi Aramco chief executive Khalid al-Falih. The top man at the world’s largest oil company by proven reserves of barrel of oil equivalent noted that, “rather than the supply scarcity which many predicted, we have adequate oil and gas supplies, due in large part to the contributions of unconventional resources.”

Rising supplies in al-Falih’s opinion will result in deflating the Peak Oil hypothesis. “In fact, we are on the cusp of what I believe will be a new renaissance for petroleum. This belief emanates from new sweeping realities that are reshaping the world of energy, especially petroleum,” he told WPC delegates.

Meanwhile, in context of the wider debate, Petrobras chief executive Jose Sergio Gabrielli, who knows a thing or two about unconventional told delegates that the speed with which the new sources of oil are entering into production has taken many people by surprise, adding to some of the short-term volatility.

“The productivity of our pre-salt offshore drilling moves is exceeding expectations,” he added. Petrobras now hopes to double its oil production by 2020 to over 6.42 billion barrels of oil equivalent. It seems a veritable who’s-who of the oil and gas business lined up in Doha to implicitly or explicitly suggest that Marion King Hubbert – the patron saint of the Peak Oil hypothesis believers – had always failed to take into account technological advancement in terms of crude prospection and recent developments have proven that to be the case.

But for all that was said and done, there is one inimitable chap who cannot possibly be outdone –Total CEO Christophe de Margerie. When asked if Peak Oil was imminent, de Margerie declared, “There will be sufficient oil and gas and energy as a whole to cover the demand. That’s all! Even using pessimistic assumptions, I cannot see how energy demand will grow less than 25% in twenty years time. Today we have roughly the oil equivalent of 260 million bpd (in total energy production), and our expectation for 2030 is 325 million bpd.”

He forecasts that fossil fuels will continue to make up 76% of the energy supply by 2050. “We have plenty of resources, the problem is how to extract the resources in an acceptable manner, being accepted by people, because today a lot of things are not acceptable,” the Total CEO quipped almost to the point of getting all worked up.

He concluded by saying that if unconventional sources of oil, including heavy oil and oil shale, are exploited, there will be sufficient oil to meet today’s consumption for up to 100 years, and for gas the rough estimate is 135 years. Or enough to make Hubbert stir in his grave.

© Gaurav Sharma 2011. Photo: Total's CEO De Margerie discusses Peak Oil at the 20th World Petroleum Congress © Gaurav Sharma 2011.

Messrs Voser, Brafau & Tillerson in town

Three heads of IOCs were all under one roof here at the 20th WPC today and all had a fair bit to say. Starting with Tillerson, the chairman and chief executive officer of ExxonMobil told delegates the future growth in world energy demand is a cause for optimism because it will signal economic recovery and progress.

ExxonMobil is forecasting the global economy to more than double in size between 2010 and 2040, and during that time energy demand will grow by more than 30%.

“So the energy and economic challenges the world will face in the decades to come require a business and policy climate that enables investment, innovation and international cooperation. Sound policies and government leadership are critical. When governments perform their roles effectively, the results are extraordinary – bringing enormous benefits in terms of investment enterprise, economic growth and job creation,” Tillerson said.

“By understanding our strengths and proper roles in economic expansion, we can clarify our policy choices, fulfill our core responsibilities and open up economic opportunities for decades to come,” he continued.

Tillerson opined that citizens and consumers need to understand the importance of energy, the vital role it plays in economic and social development, and how sound policy supports responsible energy development and use. “The debates and discussions in society at large need to be informed by the facts and fundamental realities of the challenges before us,’’ he added.

Turning to his hosts, Tillerson said the state of Qatar is a leading example of what can be done when policies are in place to enable investment and innovation. He also feels the current economic challenges will not last forever.

“There is reason for optimism but it is more important than ever that we swiftly take on these challenges with a sound and principled response,” he said. “History proves that energy policies that are efficient and market-based are the best path to economic growth and technological progress,” he concluded.

In his keynote address to the Congress, Peter Voser, CEO, Royal Dutch Shell (pictured left) said a number of interesting things but for the Oilholic, his take on diversity of supply stood out. “Diversity of supply will play a role. Our scenarios team believes that renewable energy sources could supply up to 30% of global energy by 2050, compared with just over 10% today (for the most part traditional biofuel and hydro-electricity). That would be a massive achievement, given the enormous financial and technical hurdles facing new energy sources. But it will also mean that fossil fuels and nuclear will still account for around two-thirds of the world’s energy in 2050,” he told delegates.

Shell sees supply growth coming mostly come from OPEC countries, growing at an average of 2% out to 2030, with an important role for Iraq. “However, we don’t yet know whether the recent developments in the some countries in the Middle East and North Africa region will impact the longer-term picture for OPEC supplies,” Voser said.

Non-OPEC conventional crude supply has been relatively flat over the past years and is projected to remain so. “We will also need to unlock significant additional non-OPEC conventional resources. This could come from offshore Brazil, further growth in Africa, and places like Kazakhstan,” he continued.

Further resources could come from unconventional plays such as the Canadian Heavy oil deposits, light tight oil in North America and, of course, the Arctic offshore, whether in Alaska, Greenland, Norway, or Russia. Much of this will take many decades and huge investments to unlock according to Voser.

Satisfying rising demand will be expensive – the world must invest US$38 trillion on supply infrastructure in energy projects over the period of 2010-2035, according to the most recent IEA’s World Energy Outlook.

“This is significantly higher than past spend trends. That said, although large in absolute terms, this investment is relatively modest to the size of the world’s economy, amounting to about 2.5% of global GDP on average over the next 25 years,” the Shell CEO concluded.

Repsol YPF Chairman Antonio Brufau nailed his colours to the mast declaring his company was certain that there are abundant resources waiting to be discovered and incorporated into production, always with the most demanding environmental and safety standards.

“But we cannot allow that to make us complacent: we must not settle for just that. As I have said, it is imperative to move toward an energy model with a lower carbon intensity. The stability of the planet's climate is at stake, and it is our obligation to be part of the solution,” he added.

“That is part of a further-reaching change in mentality. We are in a global situation in which hundreds of millions of people make up the middle classes in "developing" countries (by the way, we should start changing the terminology, as I would say that, in general, they are already well developed), Brufau continued.

New energy means new ideas and new attitudes according to Brufau. The types of energy used up to now, such as fossil fuels, will need to coexist with the new forms energy, in a complementary balance that the Repsol Chairman said he had no doubt will evolve very quickly.

“I think that in this new situation it is best to put aside unshakable axioms and replace them with imagination and a capacity for innovation,” Brufau concluded. More later; keep reading, keep it ‘crude’!

© Gaurav Sharma 2011. Photo: Peter Voser, CEO, Royal Dutch Shell speaks at the 20th Petroleum Congress © Weber Shandwick, Dec 2011.

‘Quest’ for energy security vis-à-vis geopolitics

The current disruption of the geostrategic balance that had underpinned the Middle East for decades is bound to cause ripples in energy markets. But don't these recent developments only add to scares of the past. In his latest work 'The Quest', a follow-up to his earlier work 'The Prize', author Daniel Yergin notes that in a world where fossil fuels still account for more than 80% of the world's energy, crises underscore a fundamental reality - how important energy is to the world.

This weighty volume is Pulitzer Prize winner Yergin's attempt to explain that importance intertwined in a story about the quest for energy security, oil business, search for alternatives to fossil fuels and the world we live in. Three fundamental questions shape this free-flowing and brilliant narrative spread over 800 pages split by six parts containing some 35 detailed chapters. To begin with, will enough energy be available to meet the needs of a growing world and crucially at what cost and with what technologies?

Secondly, how can the security of the energy system on which the world depends be protected and finally, what will be the impact of environmental concerns? The author gives his answers to these profound questions citing international events and technological developments of the decades past and present.

Part I discusses the new and more complex world order after the Gulf War, Part II focuses on energy security issues while Part III discusses the advent of electricity and "gadgetwatts". Part IV discusses climate change, Part V clean technologies and lastly in Part VI, Yergin offers the reader his take on the road ahead.

Shale, oil sands, 'rise' of gas, wind, solar, biofuels, offshore and peak oil versus the perceptively "ever expanding range of the drillbit" have all been discussed in detail by the author. In all honestly, it is neither a pro-fossil fuel rant nor does it belittle the renewables business. Rather it highlights the complexities of both sides of the carbon divide with the macroeconomic and geopolitical climate serving a constant backdrop.

Current the book surely is, accompanied by a healthy dosage of historical contextualisation and Yergin's own take on whether nation states - chiefly the US and China - are destined for a clash over energy security. The Oilholic read page after page fascinated by an extraordinary range of 'non-fiction' characters, places, technologies, theories and the dramatic stories they resulted in.

What really struck the Oilholic was that the narrative is free from industry gobbledegook (or its duly explained where applicable) and as such should appeal to a wider mainstream readership base than just energy professionals and those with a mid to high level of market knowledge. Its crisp mix of storytelling and analysis suits petroleum economists and leisure readers alike.

While the Oilholic attaches a caveat that a book of 800 pages is not for the faint hearted, he is happy to recommend it to business professionals, students of economics and the energy business, and as noted above - those simply interested in current events and the history of the oil trade. It is of course, a must for fellow Oilholics.

© Gaurav Sharma 2011. Photo: Cover of ‘The Quest: Energy, Security, and the Remaking of the Modern World’ © Allen Lane/Penguin Publishers 2011.

Chinese Tightening, Irish Overhang & ITPOES at it!

It has been an interesting five days over which, most notably, analysts at Goldman Sachs opined on Monday that the Chinese government will in all likelihood employ more tightening measures on the economy but their impact on the burgeoning economy’s oil demand for is likely to be “limited.”

The Goldman guys believe a far greater near term risk will come from the “current exceptional strength in diesel demand, which could push Chinese oil demand to new highs in November and December.” Fair dues I say, but not the best of expressions when talking about Ireland.

As further details about its imminent bailout are awaited not many in the City were keen to commit further funds towards crude futures. However, some city types I know were fairly cool about both the fate of the Irish and the connection of the country's troubles with an equities overhang on either side of the pond.

From Goldman analysts, the Irish and the Chinese to the ITPOES who were at it again last week. ITPOES are of course, the (UK) Industry Taskforce on Peak Oil and Energy Security, who warned the British government again last week that a new "peak oil threat" is likely to be felt in the UK within the next five years.

The ITPOES came into being in 2008 led by none other than the inimitable Sir Richard Branson. Their latest report, which is part rhetoric, part fact, is titled Peak Oil Implications of the Gulf of Mexico Oil Spill and was released on Friday (Available here).

Deepwater drilling, they say, is expected to constitute 29 per cent of new global extraction capacity by 2015, up from only 5 per cent. The result is that any future delays or problems associated with deepwater drilling in wake of the BP Gulf of Mexico accident will have much greater impact on supply than is the case today. Wonder whether that implies the end of "cheap oil" rather than the nearing of "peak oil."

© Gaurav Sharma 2010. Photo: Oil Rig, Santa Barbara Channel, USA © Rich Reid / National Geographic

Is Big Oil Really "Big" Any More?

A number of energy journalists have been asking this question at a pace which has gathered momentum over the past decade. Books have even been written about it. On Oct 7th, a week prior to Thursday’s OPEC conference, I had the pleasure of participating in a discussion under the auspices of S&P and Platt’s which touched on the subject in some detail, contextualising it with the Peak Oil hypothesis.

Here in Vienna, understandably, I find few takers for the hypothesis; at least not at OPEC HQ. But one statement has struck me. Celebrating the 50th anniversary of OPEC's foundation, in his opening address to the conference earlier on Thursday, Wilson Pástor-Morris, Minister of Non-Renewable Natural Resources of Ecuador and President of the Conference, noted:

“OPEC began as a group of five heavily exploited, oil-producing developing countries seeking to assert their sovereign rights in an oil market dominated by the established multinational oil companies. Today OPEC is a major player on the world energy stage. Our 12 Member Countries are masters of their own destiny in their domestic oil sectors and their influence reaches out into the energy world at large.”

Need one say more? OPEC feels NOCs are dominant; so does much of the rest of the market to a great extent. Pástor-Morris also said the issue production quota 'compliance' also featured in OPEC discussions, as the cartel reviews its production agreement.

“But we shall not lose sight of the bigger picture. Neither should anyone else. The achievement of market order and stability is the responsibility of all parties. It is not just a burden for OPEC alone. We all stand to gain from market stability, and so we must all contribute to achieving it and maintaining it,” he added.

© Gaurav Sharma 2010. Photo: Holly Rig, Santa Barbara, California, USA © James Forte / National Geographic Society

The Veraciously Detailed Analysis of Prof. Gorelick

The debate over the “peak oil” hypothesis used to keep rearing its head from time to time in media and commodities circles – but of late it has become a bit of a permanent mainstream fixture, with regular discussions in the popular press.

No one discounts the fact that oil is a non-renewable and finite hydrocarbon, but the positions people take on either side of the hypothesis often evoke fierce emotions. Enter Prof. Steven M. Gorelick – the author of the brilliant book – Oil Panic and The Global Crisis: Predictions and Myths.

In my years as a journalist who has written on oil and follows crude markets closely, I feel this book is among the most engaging, detailed and well written ones that I have come across in its genre. Gorelick examines both sides of the argument and allied “crude” topics in some detail. He notes that commentators on either side of the peak oil debate, their respective stances and the arguments are not free of some pretty major assumptions. This pertains, but is not limited, to the complex issue of oil endowments and the methodology of working them out.

The author examines data and market conjecture that both supports and rejects the idea that the world is running out of crude oil. Prior to entering the resource depletion debate, Gorelick charts the landscape, outlines the history of the oil trade and crude prospection and exploration.

Following on from that, he discusses the resource depletion argument followed by a refreshingly well backed-up chapter offering arguments against imminent global oil depletion. The veracity of the research is simply unquestionable and the figures are not substantiated by rants or guesswork, but by a methodical analysis which makes the author's argument sound extremely persuasive. If you are taken in by popular discourse or media chatter about the planet running out of oil, this book does indeed explode more than a few myths.

The text is backed-up by ample figures, graphics and forecasts from a variety of industry recognised sources, journals and organisations. Unlike a straight cut bland discourse, the narrative of this book is very engaging. It may well be data intensive, but if the whole point of the book is substantiating an argument - then the data adds value and makes for an informed argument - for which author deserves full credit.

Above anything else, I find myself in agreement with the author that the US, where production peaked a few decades ago, is a “pincushion of exploration relative to other parts of the world.” Backed-up by data, Gorelick explains that the Middle East, Eastern (& Central) Europe and Africa contain 75% of global crude reserves but account for only 13% of exploratory drilling. This must change.

Every key topic from the Malthusian doctrine to M.K. Hubert's approach, from Canadian Oil sands to drilling offshore and the relative cost of imported oil for consuming nations have been discussed in context of the resource depletion debate and in some detail.

Gorelick correctly notes that while the era of "easy" oil may well be over and how much oil is extracted from difficult sources remains to be seen. I quite agree with the author that the next or shall we say the current stage of extraction and prospection would ultimately be dictated by the price of oil.

Many commodities traders believe a US$50 per barrel price or above would ensure extraction from difficult to reach places. However, that is not to say that a high price equates to the planet running out of oil, according to the author. He writes so from a position of strength having spent years analysing industry data and I find it difficult not to be swayed by the force of his honest arguments.

© Gaurav Sharma 2010. Book Cover © Wiley

Adios Cheap Oil, Says Shell's CEO

As the crude oil price lurks around its 52-week high of $83.25 a barrel, one cannot but help thinking about what CEO of Royal Dutch Shell Peter Voser said earlier this month. Speaking at the Wall Street Journal’s ECO:nomics conference in California on March 4, Voser told delegates, "I think what is dead is cheap oil. There is sufficient oil around but producers will have to spend more to get it. And I think you'll see that in the end price for consumers."

Debunking the “Peak Oil” hypothesis, Voser said that by 2050 around 40% of cars worldwide will be electric leaving some two-thirds still running on oil. “We will need conventional oil for the foreseeable future,” he added.

Oil futures gained over 2% last week, on the back of positive U.S. jobs data and healthy market feedback on Chinese and Indian economic growth. According to an investors note sent out to clients, analysts at Commerzbank AG believe the price of oil could exceed the current trading circa of $70 to $82 a barrel.

Earlier today, the crude contract for April delivery rose to an intraday high of $82.47 a barrel on the NYMEX before being tempered by a rising U.S. dollar, with the ongoing Greek debt tragedy continuing to weigh on the Euro. At 17:15 GMT, NYMEX crude contract for April delivery was up 10 cents or 0.12% at $81.51 a barrel. Concurrently, London Brent crude contract was trading at $80.35 up 11 cents or 0.14%.

Classic problem for forecasters is that direction of the economy and currency fluctuation aside, ETFs have more or less converted investing in commodities into a pseudo asset class. Hence, retail investors could de facto bet on commodities consumption patterns of emerging economies by investing (or divesting) in commodities, especially oil, via ETFs.

Oil has always been the vanguard of the commodities bubble. Excluding, London and Singapore markets, in 2003, ratio of paper barrels traded to physical barrels traded on NYMEX stood at 6:1. By 2008, the figure had risen to 19:1 and continues to rise, according to industry sources. Now imagine adding London and Singapore markets to the ratios?

It is a no-brainer that anyone who holds a paper barrel hopes to profit from it and few have any intention whatsoever of ever taking an actual delivery of oil. I feel it is prudent to mention that I am not joining the “Hate Speculators Club”. While supply and demand scenarios should (and in most cases do) dictate market movements, there’s more than one reason why cheap oil’s dead.

© Gaurav Sharma 2010. Photo Courtesy © Royal Dutch Shell

Et tu Branson? Then let's debate “Peak Oil”

One must confess that until recently all talk of “Peak Oil” theories was confined to academics, geologists, the odd government white paper or publicity literature of environmental groups worried about a perceived global addiction to oil. But these days “Peak Oil” talk is all the rage. In December, IEA belatedly joined the debate. North Sea drillers voiced their supply concerns, difficulties and increasing expenses faced while prospecting for and extracting oil in the area. The Rig building lobby has given its take too.

Now their ranks have been joined by the inimitable Sir Richard Branson. Furthermore, the Virgin Group boss has brought some friends along too. The group, rather seriously titled as UK Industry Taskforce on Peak Oil and Energy Security (ITPOES), includes Arup (Engineering), Foster and Partners (Architects), Scottish and Southern Energy, Solar Century and Stagecoach (a British transport firm) along with Virgin Group.

Launching ITPOES’ second report on the subject at the Royal Society in London on February 10, Sir Richard said, “If somebody had been able to warn the world five years before the credit crunch, the credit crunch could have been avoided. The same thing could be said for the oil crunch. We suggest there should be a workforce for government and industry to work together on addressing this problem.”

He wants the world in general and UK in particular to move from coal and oil to gas and nuclear. “We need to move our cars from oil-consuming cars to electric cars and clean-fuel cars. The government should say, 'For 2020 there should be no more oil cars running in this country and for 2015 no new cars can be sold using oil,' just to force people to move over to clean energy,” he added.

Away from the Branson babble, the group believes a “Peak Oil” scenario may potentially occur as early as 2015, with oil production levels at 95 million barrels per day. According to published statistics, including both OPEC and non-OPEC output, 85 million barrels per day were produced in 2008.

The British government issued a swift response. A spokesperson for the Department of Energy and Climate Change (DECC) denied that it is ignoring the issue but said it was unsure as to when Peak Oil may occur and was taking action to mitigate those risks.

In more ways than one, I can feel Branson’s pain. The assembled party, including all the scribes, did not hear how much worry volatile oil prices were probably causing Virgin Atlantic and Virgin Trains. Since they are not publicly listed companies it is rather hard to get an accurate picture. However, we get the idea from their industry peers.

Putting a cynical hat on, it could be dismissed as yet another publicity stunt by the Virgin boss. However, one statement of his, was quite on the spot and got nods of approvals from market commentators. Branson suggested that the credit crisis stemmed a trend of rising oil prices and delayed the inevitable spike. Before the crisis took hold, crude oil price rose spectacularly to $147 per barrel in July 2008. At one point, with the fledgling U.S. Dollar, there was talk of prices rising as high as $200 per barrel. Then the credit crisis took hold and along with a recession driven drop in demand the crude price plummeted.

Subsequently, it is also worth noting that 2009 ended with just the sort of worries about the crude oil price spikes that we saw in 2008. I suspect 2010 will end in a similar fashion. So Branson and his ITPOES have a point. Those who have debated “Peak Oil” without receiving any concrete publicity or tangible answers will now hope that the subject becomes mainstream. It is a long journey and the Virgin boss would be a rather interesting companion.

© Gaurav Sharma 2010. Photo Courtesy © Virgin Atlantic

North Sea’s glory days have long gone

Oil extracted from North Sea once made UK the world’s six-biggest producer of oil and natural gas. However, the tide turned after 1999 when production peaked at 4.5 million barrels per day. Estimates suggest that production is down nearly 40% since then.

At end of 2006 and 2007, UK production had dropped to 2.9 million and 2.8 million barrels per day respectively, indicative of a terminal decline. Geologists are not yet suggesting the North Sea oil has nearly run out. Government and private sector research indicates there is still about 15 to 25 billion barrels beneath the UK Continental Shelf (UKCS). However, all the “easy oil”, to be read as easier to extract, has nearly dwindled.

Most new discoveries contain less than 50 million barrels; minuscule amount by global standards. Harder to extract oil requires additional investment as production becomes more and more capital intensive. Research by Oil and Gas UK (OGUK) suggests that there are already signs of a sharp slowdown in exploration and appraisal drilling activity. In its Economic Report (2009), it noted that the first quarter of 2009 saw a 78% drop in the number of exploration wells drilled.

OGUK expects investment to fall significantly and fears it could even drop below £3 billion in 2010. Historic data suggests investment stood at £4.9 billion in 2007. Furthermore, a fall in the value of the pound sterling against the US dollar and relatively smaller discoveries per exploratory project would imply that 2010 would result in investment of a comparable level yielding less than one third of the oil did in 2001.

OGUK is not shying away from admitting things are not what they used to be. To its credit, the lobby group meaningfully acknowledges UK’s internal “Peak Oil” argument. It believes the surge in oil price during 2007 and 2008 masked a steady decline in the competitiveness of UKCS extraction.

Pure economics also comes into the picture. Quite frankly, despite a decline in relative value of the pound sterling, it is clear that UK oil and gas exploration projects will lose out to other regions around the world which offer more substantial investment opportunities on better terms. For instance, Cairn Energy (LSE: CNE) made its mark in the North Sea, but is banking its future strategy on South Asia (India and Bangladesh), Tunisia and Greenland.

UKCS' decline is unlikely to be stemmed unless the government provides tax breaks to ensure some semblance of competitiveness, according to business lobby groups. Even at the time of the oil price touching dizzy heights of US$147 per barrel many were concerned. I recollect a conversation I had at a House of Commons event early in 2008 with Geoff Runcie, Chief Executive, Aberdeen & Grampian Chamber of Commerce (AGCC) and Howard Archer, chief UK economist, IHS Global Insight.

Runcie believed that despite repeated warnings of escalating oil extraction costs, the UK oil industry had to contend with two major tax increases in recent years. He said that investment in real terms had fallen by £1 billion between the first quarter of 2006 and the first quarter of 2008, despite rising commodity prices.

Archer noted that giving tax breaks to oil companies at a time when crude oil price was at $147 per barrel, household energy prices were rising and oil companies were booking record profits, was politically suicidal for any government. The financial tsunami that followed over 2008-09 and the current precarious state of the UK public purse currently makes allowance for such tax breaks unthinkable.

Furthermore, energy economists believe North Sea investment was hit both ways. High oil price masked under-investment and made tax breaks unpalatable for most of 2007-08. Subsequently, a greater decline in activity was an obvious consequence of a lower oil price which fell to $34 per barrel in December 2008 with no tax break in sight for entirely different reasons.

Despite evidence to the contrary, fall in oil production and two of Scotland’s largest banks being owned by the UK taxpayer, the Scottish National Party (SNP) still bases its case for Scottish Independence on North Sea oil deposits, majority of which lie in what could geographically be described as Scottish waters. The figures may add up today, but do not stand up to scrutiny for much longer. SNP does find common ground with oilmen and lobbyists who wish to see more exploratory activity west of Shetland Islands. Even before significant prospecting, geologists believe it could hold up to 4 billion barrels of oil.

However, commencing projects in the area is not easy. A sea bed with prospective hydrocarbons stored at high pressures, inhospitable climate and a lack of infrastructure temper enthusiasm as easier exploration options are available globally. Total has got one gas project going which was commenced in 2007. It believes the West of Shetland area represents about 17% of UK’s remaining oil and gas resource base and could contribute up to 6% of the country's gas requirements by 2015.

If even a new exploratory zone represents 17% of what is left, one wonders how much actually does remain. Shetland Islands Council EDU sees the inevitable but not immediate decline. West Shetland will not prevent the North Sea’s decline. Furthermore, several government papers between 2003 and 2007 recognise the problem. However, in my opinion none of the papers seem to provide any concrete contingency plans when and if, as expected, UKCS production falls to a third of its 1999 peak level sometime between 2020 and 2030.

Concurrently, Office for National Statistics (ONS) data after the second quarter of 2007 suggests the UK is fast becoming a net importer of crude for the first time in decades. Glory days have long, off-shore industry faces tough challenges, government finances are precarious and no one is in denial. In short, it’s a jolly rotten mess, albeit one which has been in the pipeline for some time.

© Gaurav Sharma 2010. Photo Courtesy © BP Plc, Andrew Rig, N. Sea

IEA Belatedly Joins the “Peak Oil” Debate

As 2009 drew to a close, the International Energy Agency (IEA) finally and formally admitted that projections on the timing of oil production reaching its peak were no laughing matter and seriously joined the debate. Previously, the IEA, which advises 28 OECD nations on energy issues, had never really been specific about when it thought conventional sources of oil would peak.

I personally recollect having met someone from the IEA in September 2008 on the back of an OPEC summit that year, who talked at length about the matter in private, but refused to discuss the issue on-record. Over the years, some observers have even alleged that the agency was fudging oil production projections.

This clamour, which had always been lurking in the background, gained traction following a report by Dr. Robert L. Hirsch for the U.S. Department of Energy in which he analysed the possible effects of Peak Oil (Viz. Peaking of world oil production: impacts, mitigation, & risk management). A truncated version of his thoughts was later published by the Atlantic Council of U.S.

Hirsch noted: "The peaking of world oil production presents the U.S. and the world with an unprecedented risk management problem. As peaking is approached, liquid fuel prices and price volatility will increase dramatically, and, without timely mitigation, the economic, social, and political costs will be unprecedented. Viable mitigation options exist on both the supply and demand sides, but to have substantial impact, they must be initiated more than a decade in advance of peaking."

In the four years that followed the Hirsch report, many stories in the popular press ran along the lines that all the easy oil and gas in the world had pretty much been found and that tougher times lay ahead. It is an argument which is not hard to dismiss in its entirety. Curiously enough, as an advisory agency to 28 leading economies, the IEA was somehow was not all that keen on discussing it.

All of that was laid to rest over a dramatic few weeks last month. On December 9th, the agency’s eagerly awaited World Energy Outlook 2009 (WEO) noted that conventional oil, from straight-forward to extract sources, is “projected to reach a plateau before” 2030. In the publication, the IEA is seen to have conducted a serious supply-side analysis including the largest oil fields, their rate of production and decline in its research.

Published material suggests that the IEA sees a decline of 7% in year over year terms over the coming years at these extraction site, nearly double the rate of earlier forecasts. Based on the projected rate of decline, the agency estimates that the world would need four new “Saudi Arabias”, a country which has 24% of the world’s proven crude reserves, by 2030 to meet demand. This too is based on the assumption that global demand remains flat at existing levels as does the rate of production decline.

However, quite frankly the agency still prima facie declined to say that the world has currently entered the era of peak oil. Furthermore, in order to perhaps soften its hard assessment, it pointed out that the first half of 2009 saw 10 billion barrels of new oil discoveries; an annual rate previously unheard of! It also said non-conventional sources such as the Athabasca Tar Sands (Canada) should not be discounted either.

Just as sceptics were rounding up on the agency, IEA Chief Economist Dr. Fatih Birol, set out to paint a more pragmatic picture. Having visited some 21 cities in the run-up the WEO’s release, Birol told several media outlets, most notably The Economist and The Guardian newspaper, that the crude production plateau which the agency mentions in the publication, could potentially arrive as early as 2020.

In a much more detailed conversation with The Economist, Birol also made another interesting observation. He said that a worldwide effort to restrict increase in global temperatures to 2 degree centigrade will restrict the increase in global demand for oil to 89 million barrels per day (bpd) in 2030 as opposed to 105 million bpd if no action is taken. That could, in theory, push back peak oil production scenarios as more time would be needed to produce lower-cost oil that remains to be developed.

Watch this space then - for next two decades that is! This argument is far from over. At least the IEA can now dodge accusations that it is not being realistic its assessments and shying away from debate.

© Gaurav Sharma 2010. Photo Courtesy: Martin Rhodes, Essex, England