Kate Mackenzie Did the US pressure the IEA over oil supply forecasts?

Claims that the US has pressured the IEA to put a more optimistic spin on future oil supplies gained a huge amount of attention today. But just how likely a scenario is that?

Kevin Drum on Mother Jones wrote:

It’s almost certainly true that analysts within the IEA disagree with each other about long-term projections, and it’s also probably true that there are regional pressures of various kinds within the organization. That’s pretty normal for international groups.

The US is the most powerful of the IEA member countries. It is also the member that publishes the most comprehensive statistics on its own energy production and consumption. So of all the member countries who might lean on the IEA, the US would be in the best position to do so.

The question is: why would it want to? If a crime has been committed, the suspect certainly seems to lack a motive.

We were particularly baffled by one sentence attributed to one of the Guardian’s sources:

“And the Americans fear the end of oil supremacy because it would threaten their power over access to oil resources.”

The US is a net importer of oil and its own oil production is pretty much universally agreed to have peaked. Non-Opec oil supply is also due to peak – according to the IEA’s own report – by 2010, meaning the US will be increasingly dependent on other countries.

So, the allegation is that the US has been talking up future oil production prospects to make it look like it will be more dependent on Saudi Arabia, Nigeria, Iran and Venezuela? It all sounds very odd….

The IEA now forecasts oil production will be 103m barrels per day in 2030; actual supply, helped by processing gains, will be 105.2m, they say. Last year’s WEO put the numbers at 103.8m and 106.4m b/d, respectively.

The US’ Energy Information Administration’s forecast for 2030 production, by comparison, is just a tad higher at 106.6m barrels per day. If the US were really aiming to massage the supply outlook, why would it not start with its own official estimates?

Anyway, for those who are interested, here are the replies from IEA executive director Nobuo Tanaka and chief economist Fatih Birol at a press conference in London today, where the question (inevitably) came up:

Nobuo Tanaka:

We are a very neutral organisation and we are very proud of the analysis in these WEOs, which are published by my authority, and we have been always saying that investment is necessary (or) we cannot achieve the balance of demand and supply. We need 45m more barrels per day of capacity for 2030. We have always been warning and warning, and this year we are warning on gas.

Fatih Birol, chief economist:

I was both surprised and disappointed. I was up to now criticised as being too alarmist. We finished last year’s [WEO] as a wake-up call to governments. One should read very carefully [the report] before making such general judgments.

About 200 international experts review our work… we have received very good feedback.

Our decline rate numbers are the highest among our peers.

Unfortunately we couldn’t find an up-to-date chart of how different estimates compare. [Update - a few readers have reminded us there are some very interesting and more recent charts comparing numerous forecasts in an Oil Drum post from July, which show a greater range than the chart below.] But here is one from last year, published by the US National Petroleum Council (click through for full size):


Source: NPC

Depending on which scenario you look at (and we must point out that most of these figures have been superseded anyway) the IEA isn’t that far outside of the ballpark, and is even more optimistic than the average international oil company.

But even if the numbers don’t diverge wildly, the IEA tends to talk up the dangers of a shortfall in oil supply much more than most oil companies do. Since last year, the agency has repeatedly warned that the world needs to find ‘four new Saudi Arabias’ to meet demand.

“Production continues to outstrip discoveries,” last year’s report warned, and without investment, post-peak fields would decline by a very rapid 9 per cent per year. BP, by comparison, is more sanguine, as the Guardian itself notes today; the oil major says there is enough oil supply for 42 years.

The IEA points out that it has been accused by some of being alarmist. Last year’s WEO, which used a bigger pool of oil fields than before, substantially raised the estimate of the rate at which the output of mature oil fields declines, which in itself led to criticism (most notably from George Monbiot) about why the decline rate in previous years had been lower.

Want to find out more? The IEA today decided to make its chapter on oil production, which was a special feature of last year’s report, available online for free today. Or, you can ask Mr Birol, who is answering FT readers’ questions this week.

Update: Gregor makes an interesting point below. Separately, it’s also been suggested that because the US is more reliant on road transport than many other OECD members, it might be more reluctant to acknowledge increasing cost/decreasing supply.

We’re still not convinced though about the ‘markets will panic’ line. Many observers (from bank analysts to world leaders and, yes, the IEA) have warned this year that oil prices are becoming dangerously close to levels that could harm growth, yet equities and commodities markets seem unfazed.

Related links:

Has the IEA dramatically changed its output assessments? (FT Energy Source, 03/08/09)
Fossil fuel use must peak by 2020, IEA warns (FT Energy Source, 10/11/09)
Oil stat shock (FT Alphaville, 10/11/09)