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IEA: Washington made us fudge oil data

Washington's motive, apparently, is to prevent panic in the markets when traders realise the world has much less oil than we've been told.

Last modified: 10 Nov 2009 12:52
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The Guardian reports:

[A] senior [International Energy Agency] official claims the US has played an influential role in encouraging the watchdog to underplay the rate of decline from existing oil fields while overplaying the chances of finding new reserves.

Washington's motive, apparently, is to prevent panic in the markets when traders realise the world has much less oil than we've been told.

The accusation may appear dramatic, but the Guardian's piece is not actually saying anything that wasn't already in the public domain.

Warnings about declining supply and the theory of Peak Oil, have been around for decades, and the IEA's estimates have long been regarded with scepticism.

In its 2007 outlook, the IEA spoke of a decline in production from major sources of 3.7%, but by its 2008 outlook, the numbers had changed radically:

The production-weighted average decline rate worldwide is projected to rise from 6.7% in 2007 to 8.6% in 2030.

The point was driven home by investigative journalist George Monbiot in an interview with the IEA's Fatih Birol:

 "we are expecting that in three, four years' time the production of conventional oil will come to a plateau, and start to decline. In terms of the global picture, assuming that Opec will invest in a timely manner, global conventional oil can still continue, but we still expect that it will come around 2020 to a plateau as well"

The subject of declining reserves was given real momentum  by M. King Hubbert , who correctly predicted a decline in US oil output in the 1970s, even as Texas companies were denying his research.

King's methodology has predicted a similar fate for world oil production.  Hubbert's former colleague Kenneth Deffeyes and oil analyst Matthew Simmons say production from existing major sources may already have peaked. 

Naturally enough, the implications of such a theory are enorrmous, but there's also a significant constituency that dismisses entirely the peak oil theory - a constituency that has traditionally included the International Energy Agency, the oil industry, OPEC and Washington.

The whole, very complicated debate, can be followed through the links above, but there are few points worth making here.

Firstly, the oil producing nations have never allowed any independent audit of their actual reserves. Every number you have ever heard has been an estimate provided by  - the oil producer.  Faith in those estimates has been severely tested ever since a quite remarkable about-turn 20 years ago:

In 1985, Kuwait revised its reserve estimates by 50% overnight. It was soon followed by United Arab Emirates, Iran, and Iraq. In 1988 Saudi Arabia became the last to join the revised reserve estimates party, adding a whopping 88bn barrels.

The story resurfaced in 2001 with major rumours, never officially denied, that Kuwait's reserves are in fact a quarter of what the country claims.

in 2004, Shell admitted that 20% of the "proven" reserves listed on its balance sheet were illusory.

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. Most of the players in Big Oil have since been taking a very strong interest in the field of renewable energy.

So where next? If the IEA, and OPEC in particular, finally do release some real data on oil reserves, will Washington's fears be realised?

Simmons thinks so. He has bet that the price of oil will be at least 200 dollars per barrel on average for the whole of 2010.