Saturday, June 5, 2010


(click on image to enlarge)

Here is some food for thought. Here is the link to the story:

June 02, 2010

EIA: Hard Core Peak Oil Forecast

Today Econbrowser is pleased to host this guest contribution from Steven Kopits, who heads the New York office of Douglas-Westwood, energy business consultants.

EIA: Hard Core Peak Oil Forecast

by Steven R. Kopits

The EIA has gone hard core.

The EIA, the statistics arm of the US Department of Energy, recently released its International Energy Outlook (IEO) for 2010. This is an important document for forecasters, as it represents the EIA's integrated view of the global energy markets in the years to come and contains a long term forecast on the range of energy sources and CO2. Like it or hate it, the IEO is a touchstone for the energy industry and is treated as the authoritative government forecast in the press and in capital raising documents like prospectuses. It influences policy-makers, the media, public opinion and investors. What it says matters.

And what does it say?

That peak oil is all but on us. And that's new.

As recently as 2007, the EIA saw a rosy future of oil supplies increasing with demand. It predicted oil consumption would rise by 15 mbpd to 2020, an ample amount to cover most eventualities. By 2030, the oil supply would reach nearly 118 mbpd, or 23 mbpd more than in 2006. But over time, this optimism has faded, with each succeeding year forecast lower than the year before. For 2030, the oil supply forecast has declined by 14 mbpd in only the last three years. This drop is as much as the combined output of Saudi Arabia and China.

But that's not the interesting part. The more salient development is the reduction in the forecast to 2020. Forecasts beyond ten years are highly uncertain and more subject to massaging and interpretation. Shorter term forecasts are more definite, and the forecasters are more accountable. As a consequence, the outlook for the short to medium term warrants greater attention. In the case of the EIA, the forecast changes most dramatically here. For the remainder of the decade, even though China would be expected to hit its stride for increased oil demand, the EIA sees no year in which liquids production will increase by even 1%. Petroleum liquids supply increases by an average of 0.6% per year from 2011 to 2020. In other words, the EIA is expecting the oil supply to be essentially flat for the rest of the decade. The supply will creep up from 86 mbpd today to approximately 92 mbpd to 2020, but that is not much growth, and indeed, is about the same as current global liquids production capacity. Moreover, it represents a reduction of nearly 4 mbpd from last year's forecast for 2020. On paper, the output of China has disappeared over the course of the last year.

In its forecast, the EIA, normally the cheerleader for production growth, has become amongst the most pessimistic forecasters around. For example, its forecasts to 2020 are 2-3 mbpd lower than that of traditionally dour Total, the French oil major. And they are below our own forecasts at Douglas-Westwood through 2020. As we are normally considered to be in the peak oil camp, the EIA's forecast is nothing short of remarkable, and grim.

Is it right? In the last decade or so, the EIA's forecast has inevitably proved too rosy by a margin. While SEC-approved prospectuses still routinely cite the EIA, those who deal with oil forecasts on a daily basis have come to discount the EIA as simply unreliable and inappropriate as a basis for investments or decision-making. But the EIA appears to have drawn a line in the sand with its new IEO and placed its fortunes firmly with the peak oil crowd. At least to 2020.

We'll see how it plays out. But for now, the EIA appears to be making a statement. Perhaps we should sit up and pay attention.


  1. The future is draft horses. Check out pioneer equipment in Dalton, Ohio. Four horses abreast on a motorized forecart can do just about anything except bucket work.

  2. The EIA report describes a contrived scarcity of fuel-stock for the future. This is Introductory Marketing 101. Perhaps the lesson in this report would be to refocus cooperative marketing efforts to issue press releases to the general public to contrive a scarcity of our own product. Sadly, the future may well be of draft horses and short-handle hoes, according to the current political climate for CO2 regulations. How would horses power a silage bagger?

  3. This contrived scarcity mentioned above is a brilliant idea, but getting the big coops to go along while they are in complete collusion with the processors would be impossible.

  4. I have done much research on peak oil and peak food for the last few years and agree that peak oil is often contrived as a scare tactic for political reasons - has been for decades now. I personally believe there is more oil than many admit to and in places that may surprise most all.
    However peak food is another matter - and something you will never hear anything of. Regardless of price points we have very little food carry over from year to year - major grain crops are normally pretty well used-up by or before the next season. A few million bushes here and there sounds like a lot but in reality it's really very little.
    Take also cheese stocks - a supposed reason for low milk prices (all bullshit I'm afraid). Everyone says we have the most cheese on hand since 1984, let's say the numbers are right and we have this cheese. In 1984 the world had less than 5 billion folks in it, as of today we have close to 7 billion, the U.S. had less that 240 million in 1984 and today about 310 million - that's 60 million more people just in this country and about 2 billion more folks worldwide - low cheese prices due to too much cheese? Think for yourselves, don't listen to what you're spoon fed - there is no reason for U.S. prices to be lower that world prices and no reason for low world prices, other than cheap food for all and high profits for a few - which I think will backfire soon enough.