« The “Black Eagle” and the Price of Oil. | Main | 2010 - Predictable and Inevitable Surprises »

Done Dithering?

By chutay | 11/19/2009 | 2:13 PM

There was "Big" news on the Peak Oil front last week. The UK Guardian published an article to coincide with the release International Energy Agency's (IEA) Annual World Energy Outlook (WEO). The article, "Key oil figures were distorted by US pressure, says whistleblower", quotes two unnamed senior officials – one a present employee and the other retired - who challenge the accuracy and integrity of the IEA's oil supply assumptions and forecasts.

I have discussed the IEA in a previous blog. But by way of review, the Paris based IEA is an intergovernmental organization which acts as energy policy adviser and "watchdog" to 28 member countries, including the United States, to help guide their energy and climate change policies.

This "Big" news will come as no surprise to anyone who has seriously followed the Peak Oil story and recent IEA forecast.One of the unmanned officials says:

"We have [already] entered the 'peak oil' zone. I think that the situation is really bad."

The other says that the IEA:

"...has been deliberately underplaying a looming [oil] shortage for fear of triggering panic buying."

In 2005, Claude Mandil, IEA's then Executive Director, called those who warned of Peak Oil "doom-sayers" and predicted oil supplies could rise as high as 120 million barrels a day (mbpd) by 2030. About that number, the Guardian source says;

 "The 120 mbpd figure always was nonsense but even today's number is much higher than can be justified and the IEA knows this ... Many inside the organization believe that maintaining oil supplies at even 90m to 95m barrels a day would be impossible."

In 2006 and 2007, the 2030 projection was reduced to 116 mbpd and the decline rate in output from the world's existing oilfields was put at 3.7% a year.

The  2008 Outlook (previous blog) was radically different. The 2008 report decreased the 2030 projection to 105 mbpd and increased the projected rate of existing field decline from the 3.7% to 6.7%. They adjusted the decline rate because in 2008 they finally actually studied the behavior of over 800 of the world's largest oil fields and I gave them credit.

The 2009 report released Nov. 10, 2009 retains the 2008 projection of 105 mbpd of oil production by 2030, but advocates for a fossil-fuel demand peak by 2020 because;

"...containing climate change is possible but will require a profound transformation of the energy sector."

So while the 105 mbpd by 2030 remains the named peak for world oil production, the real number is much closer to that 90 mbpd - 95 mbpd mentioned above coming in at 97 mbpd no later than 2020 because of climate concerns. So surreptitiously, the IEA continues to take the peak number down. See below.


Even this 97 mbpd by 2020 is filled with unrealistic assumptions. See Dave Cohen's, "The Oil Situation Is Really Bad.". But as Dave points out in an another good article this week, "Staking Out the Middle Ground.";

"The further forward in time a forecast goes, the more worthless that forecast becomes."

I agree, but let's review the IEA's long term forecast nonetheless because, at least directionally, an organization whose main job is forecasting should have some credibility. Since 2005 the world's energy "watchdog" has officially reduced the 2030 projected daily world oil production from 120 mbpd to 105 mbpd, increased the depletion rate of current fields from 3.7% per year to 6.7% per year and now says that the peak should really be 97 mbpd in 2020 because of climate change concerns. Realistically, how can anyone trust the IEA? Their credibility is falling faster than their estimates of when world oil production will peak.

Dr.Colin Campbell, a father of the modern Peak Oil movement who co-authored of the famous 1998 Scientific American article, "The End of Cheap Oil", drafted a reply to the Guardian and expressed his gratitude for their work. He hopes there will be a "certain awakening" among governments and the media which will, "allow the IEA to come forward with more realistic assessments of the true situation."

I applaud Dr. Campbell for his optimism, but I seriously doubt there will be any awaking by governments or the media. Tragically, the IEA story is just another confirmation that we can no longer trust the authorities and institutions we usually turn to for information and advice e.g. Governments, Central Banks, Wall Street, the Media, IEA, etc.

As an example, our top economic leaders, Hank Paulson and Ben Bernanke, assured us in March 2007 that "subprime is contained." The New York Times continues to give press to Michael Lynch and Daniel Yergin, the Paulson and Bernanke of oil supply, while ignoring U.S. Government Reports (Hirsch Report, Army Report, GAO Report), whistleblowers, industry insiders (Campbell, Gilbert, Simmons) and careful analysts (Aleklett, Deffeyes, Koppelaar,Leonard, Skrebowski) who have been warning of the imminent decline in oil for over a decade now.

Most of these analyst are calling for a peak of oil production at around 89 - 92 mbpd sometime between 2012 - 2014. Remember when oil hit $147 a barrel in July 2008, production reached an all time high of 87 mbpd and spare capacity was estimated to be only about 1 mbpd.  It won't take much global recovery to test that 87 mbpd supply/demand number again. I think many will be in for a bad surprise.

For the present, I am sticking with the projections made on October 1st for 2010 oil prices to average $80 a barrel in a $65 to $90 range. Absent a geopolitical catastrophe, there is enough oil in the world to meet demand, at least until growth picks up in earnest and the current 3.5 - 4 million barrel per day estimated excess capacity is reduced. For the next 18 -24 months, the world will have enough oil and many will say that Peak Oil is a canard. This will lead some to think it is business as usual. Nothing could be more dangerous.

We are definitely out of the BAU (Business as Usual) Zone and somewhere between TEOTWAWKI (The End of the World as We Know It) and WTSHTF (When the Stuff Hits the Fan). The "good" news is that when the global recession comes to an end, the evidence for Peak Oil will be overwhelming and TSWHTF.

Even the most adamant deniers will be forced to acknowledge the world faces permanently constrained oil supplies and growth restricting oil prices with no cheap and easy way out of the problem. The accusations and finger pointing will begin about who missed Peak Oil amidst a liquid fuel emergency that only the most strategic and prescient will be prepared for.

While this will be painful, we will finally begin the long, difficult task of rebuilding our country and move slowly away from oil and polluting fossil fuels and toward to a cleaner energy future and healthier world. I wish and hope the transition could be easier, but I don't see it. As James Kuntsler, a noted Peak Oil avocate, says:

"Reality doesn't "spin."...Reality is an implacable force and the only question for human beings in the face of it is: what will you do? In other words, it's not really possible to manage reality, but you can certainly choose to manage your affairs within reality."

Today's reality is that most are almost completely unprepared for an inevitable liquid fuel emergency in the not to distant future and supply chains are particularity vulnerable because there are no readily available substitutes for the oil that powers 98% of all the transportation that supply chains depend on.

The key for supply chain professionals is to not be fooled and lulled into thinking all is well. Now is time to get a jump on reality. Jack Ampuga, President of Supply Chain Optimizers and a good friend, said in an interview last month that he can't see why anyone would still be dithering about going green in their supply chain.

I agree. Jack is a veteran supply chain professional and like most competent supply chain veterans he knows there is still incredible waste and improvement opportunities in most supply chains. Reducing waste and conservation will be a primary transition "fuel' and supply chains are full wells waiting to be pumped. In fact, supply chain improvements are better than new oil fields because they are easier, cheaper and cleaner to find, develop and refine.

As an example, DC Velocity Magazine recently featured Jack in an article titled: "Trimming excess packaging could bring 10% payoff." The author, Peter Bradley, introduced the subject with this statement:

"Packaging may not be the first place logistics professionals look when searching for savings opportunities. Maybe it should."

In a Peak Oil world, no one will overlook a chance for a 10% pay-off and keep their job. In fact, ever supply chain manager should set an aggressive goal today to reduce energy use by at least 5% percent a year for the foreseeable future. If we are to survive intact as a country, I have come to believe that individual actions and courage will have more to do with it than broad institutional mandates because it does seem that our political/economic system is temporarily (I hope) paralyzed and unable to cope with reality.

I will dedicate more of these blogs to identifying and showcasing constructive strategies and tactics, like Jack's, which work to help achieve that 5% goal. My intention is to support, publicize and celebrate those preparing for this very different world. We are at TEOTWAWKI, but it is not the end of the world.

TrackBack (0)

TrackBack URL for this entry:



By submitting your comments, you agree to our Terms of Service.

The opinions expressed herein are those solely of the participants, and do not necessarily represent the views of Agile Business Media, LLC., its properties or its employees.

About Chuck Taylor

Chuck Taylor

Chuck Taylor has held senior management positions with Nabisco Brands, Ryder System Inc., Burlington Northern/Santa Fe Railroad, Mercer Management Consultants, Tri Valley Growers, American National Can, ServiceCraft Logistics, and Norbridge Inc. and recently founded an organization called Awake! He founded Awake! out of concern the supply chain profession is not informed about the critical changes facing it with the end of cheap oil. One goal is to raise awareness so supply chain professionals will understand the stakes and take an active role in shaping energy policy.

Video: Chuck Taylor talks about the impact of oil prices on the supply chain.


Popular Tags

Recent Comments

Subscribe to DC Velocity

Subscribe to DC Velocity Start your FREE subscription to DC Velocity!

Subscribe to DC Velocity
Go digital