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International Energy Agency Confronts "Peak Oil"
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By Adam Porter
03 Oct 2005 at 02:03 PM EDT
(http://www.resourceinvestor.com/pebble.asp?relid=13358
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PARIS (ResourceInvestor.com) -- The International Energy
Agency (IEA) report, “Resources to Reserves: Oil & Gas Technologies for
the Energy Markets of the Future,” has broken step with other oil bodies
by directly addressing the concerns of “peak oil” theorists.
In the introductory paragraph Claude Mandil, the IEA’s executive director,
wasted no time in examining the subject.
He said, “soaring oil prices have again spotlighted the old question. Are
we running out of oil? The doomsayers are again conveying grim messages through
the front pages of major newspapers. ‘Peak oil’ is now part of the general
public’s vocabulary, along with the notion that oil production may have peaked
already, heralding a period of inevitable decline.”
Yet Mandil dismissed the idea that this situation is worrisome by stating,
“the IEA has long maintained that none of this is a cause for concern.”
However not too far later on in the report, the IEA admits that most countries
outside of OPEC “have passed their peaks in conventional oil production,
or will do so shortly.”
They go on to paint a less than optimistic picture of future production in
non-OPEC fields.
“Their world is one of maturing oil fields. Their exploration and production
costs are typically higher but they limit OPEC’s monopoly effect, thus operating
with smaller margins. Cost reduction is therefore a constant concern. Proven
reserves (to) production ratios are small, averaging around 15 years and
production in the older fields is declining.”
What “peak oil” supporters might find even more strange, is the use of the
Hubbert Curve within the report, which is the mountain-shaped curve, showing
increasing then declining production. It was created by the former Shell
geologist M.K. Hubbert, to illustrate the theory of “peak oil.”
In a special section entitled just “Peak Oil” the IEA actually present the
theory to its clients. They sum up by saying that
“The striking success of Hubbert in predicting the peak of U.S. production
suggests that such conditions were more or less met in the U.S. during that
time period.”
They then appear to question the current relevance of Hubbert in today’s
oil market. Because they move on to say that “the controversies surrounding
peak oil in the literature revolve around four main points. Does the Hubbert
model apply to oil production worldwide? If the Hubbert model does apply,
when will the peak in worldwide oil production be? What happens after the
peak? How fast will the decrease of production be? What role does technology
play in such models?”
The basic counter thrust of the IEA’s argument is that new technologies and
increased investment can overcome any production inflection. But the level
of investment that requires is truly astronomical. Repeating a figure they
first used in the IEA World Energy Outlook report they estimate that the
total necessary investment cost “for worldwide upstream operations and transport
[of oil]” by 2030 will amount to “$5 trillion.”
That works out at roughly $564.5 million dollars a day, between now and 1
January 2030. Not surprisingly, they conclude that “neither private enterprises
nor national companies necessarily have the incentive to assume the risk
of tackling new types of resources such as oil sands or oil shales. Such
players might choose, for example, to focus instead on maximising returns
from their investments in deepwater in a high oil-price environment.”
The IEA goes on to say that “It should be noted, too, that there does not
tend to be great interest in new types of resources among service and supply-sector
players…they need to have ready customers for their new products and cannot
easily justify developing products for a market that does not yet exist.
Furthermore, private industry cannot be relied upon to invest in research
on technologies that are too far from being economical.”
Indeed the report does throw up a great deal of questions: Questions of funding,
or reserves and questions on the role of governments. But in doing so, has
the IEA unwittingly opened a Pandora’s box of debate by answering its critics
so directly?
Information box about Peak Oil:
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