Back in 2000, the EIA developed their first power-point presentation covering the topic of peak oil (http://tonto.eia.doe.gov/FTPROOT/presentations/long_term_supply/index.htm). A version of it was presented by EIA Administrator Jay Hakes to the American Association of Petroleum Geologists. The two images below are excerpted from that presentation.

What was the EIA’s rationale at the time? How has their view held up a decade later? To help evaluate their view and answer these two questions, here are a few of their verbatim statements:

–“Based on recent USGS estimates of the global oil resource base, worldwide oil production is likely to continue increasing for more than three decades” [up through 2030 and probably later].

–“High oil price case: $28.04/barrel in 2020. Low oil price case: $14.90/barrel in 2020. Reference oil price case: $22.04/barrel in 2020.”

–“A key assumption in estimating the peak production year is the shape of the production curve after the peak is reached (determined by the decline rate). The graph [fig #1 below] shows what happens if production both grows and declines at a rate of 2 percent per year until the 3,003 billion barrel mean resource estimate is recovered. In this instance, production is projected to peak in 2016.”

–“EIA postulated 12 scenarios based on three current USGS world conventional oil resource base estimates (2248, 3003 and 3896 billion barrels-corresponding to high, mean and low probabilities of occurrence) and four world oil production annual growth rates (0, 1, 2 and 3 percent).”

How have they done so far? First, EIA’s price forecasts have proven to be what the realists expected back in 2000: beyond incredulous on the low side. Half way to their target date, EIA has already admitted that oil’s price will likely be at least five times higher than their decade-old forecast.

Second, a growing list of oil industry CEOs (Christophe de Margerie, John Hess, James Mulva, Ray Leonard, etc.) have spoken out on world oil production limits; each says it is unlikely world oil production will exceed 95 million barrels/day. By comparison, a decade closer to EIA’s simplistic “likely case”-well over 120 million barrels a day by 2030-appears to be truly off the charts today.

Third, a significant number of recent technical reports (from the UK, USA, Sweden, even Kuwait) on the future of world oil production forecast a peak during this decade, most likely by 2015. EIA’s “accidental” reference case-a peak in 2016-looks fairly reasonable; their more firmly held opinion of a world oil peak after 2030 will likely miss the mark by decades and will mislead hundreds of key public-sector decision-makers in the process.

Finally, it seems as crazy today as when EIA did it a decade ago…to assume that world oil production won’t peak until roughly three-fourths of the recoverable oil-per EIA’s fore has been produced. One of the most common phrases used to describe world oil supply is that “the cheap and easy oil is gone.” To assume, as EIA did, that industry can continue ramping up conventional production for another two decades, during an era of increasing costs and risks, was a bad bet in 2000 and is a rotten bet today.

Figure #1 (slide #14): Think of this as EIA’s original reference case. Back in 2000, it looked optimistic-roughly 96 million barrels/day-but at least it appeared to be within the realm of possibility. However, EIA apparently didn’t like the answer-a peak in 2016-so they conveniently saw this as a remote possibility: “EIA felt that a different decline rate methodology is called for, and the next page illustrates the decline rate that was used in the EIA scenarios.” (see Fig. 2)

Figure 2 (slide #15). Presto! Peak oil production climbs to 146 million barrels/day, peak oil gets delayed 21 years, based on this scenario and rationale from EIA: “World production is assumed to begin to decline in a way that maintains a constant R/P [reserves-to-production] of 10… The reason for setting R/P equal to 10 is based on the United States experience….Therefore, a world R/P of 10 seems a reasonable assumption to reflect a mature state of world oil production, as it does for the United States…[W]orldwide oil production is likely to continue increasing for more than three decades.” So think of this as their most likely pair of scenarios, based on this comment and others.

Since 2000, EIA’s nearly continuous optimism remains in place today. (An EIA source told Peak Oil Review that the April 2010 story in Le Monde about EIA becoming more pessimistic was taken out of context.) By comparison, Peak Oil Review expects future production to fit the view of Total’s CEO Christophe de Margerie (2/09): “World oil production may plateau below 90 million barrels a day.”

(Note: Commentaries do not necessarily represent the ASPO-USA position.)

7 thoughts on “EIA’s first Peak Oil statement—how was their vision a decade ago?”

  1. Three related points:

    1) In the second scenario, the one preferred by the EIA, post-peak production drops off at a very high rate. As such, it doesn’t look anything like post-peak US production.

    2) The reason for the sharp drop-off after the peak is that this scenario assumes production will continue to rise well after 50% of the resource has been extracted. This is contrary to the experience of mature production regions around the world (including the US) which typically show production peaking at about 50% extraction.

    3) The difference between the low (2248 billion barrels) and mean (3003 billion barrels) estimate of global extractable oil is about 750 billion barrels. Since peak production tends to occur at 50% extraction and given that production near the peak is about 30 billion barrels per year, this extra 750 billion barrels delays occurrence of peak production by 0.5*750/30 = 12.5 years. The seemingly massive 750 billion barrel difference between scenarios translates into a mere 12.5 years in delaying the peak.

  2. The BIG problem with all these future oil production estimates is the human factor. People act in their own self interest. Once peak oil becomes evident by the oil price mostly going up, hardly ever down, only a foolish exporter will not begin to cut back on their exports in order to raise the price even faster. The exporters don’t do that now because some other producer still has excess capacity. That will change, probably in the second half of this decade because of increasing demand from China. And once one exporter does it, others will follow. Of course, they will need to be careful not to collapse the entire world economy, since many import a significant amount of their food, much of which arrives by ship. (I doubt that it will work out that way, but I can hope for no collapse.)
    The King of Saudi Arabia recently stated that the Kingdom didn’t intend to ramp up production because he wanted to save enough oil for his own people to consume. The real future oil production graph will look a lot different than all the academics assume. Trust that nice, smooth oil decline graph at your peril. Mathematical formulas can seldom account for human emotion. They are useful, but far from good at predicting all outcomes. Wall Street relied on math to forecast the performance of financial products related to housing. How did that work out? Twice. Remember Long Term Capital Management? They were the best and the brightest to be bailed out by the rest of us. The math is perfect. We aren’t.
    But maybe I am wrong, and all the oil exporters will become altruistic.

  3. Is the EIA’s optimism any different from the nonsense we hear about unemployment under 10%, our ‘nascent recovery’, ‘winning’ wars in ME, or any other fairy tale coming out of Washington?

  4. Lovins’ role is to suck oxygen from the alternative transportation atmosphere, thereby protecting the status quo. That was apparent a decade ago – unless one had a Rocky Mountain blind spot.

  5. Pingback: EIA Critique Redux

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