[Peakoil] Colin Campbell's Defence of 2005 Peak

[Keith Thomas]

This article is a year old, but still relevant. It provides a useful background to the path of peak oil as a major issue.
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Colin Campbell's Defence of 2005 Peak 


http://aspoireland.org/2009/11/20/ieawhistleblowerresponse/

Colin Campbell’s Response to the Guardian IEA Reporting

November 20, 2009 by <http://aspoireland.org/author/peakoilcampbell/> Dr.
Colin Campbell

Colin Campbell, Ballydehob, Co Cork, Ireland.

Comment Editor
The Guardian
Dear Sir,

I was most impressed that you should give such prominence in your issue of
10th November to the role of the International Energy Agency in assessing
the status of oil depletion. It is one of the most important issues facing
the modern world, given the current dependence on cheap oil-based energy.

I can provide you with some more information on the topic, touching on my
own experience. I first became aware of the issue in 1969 in Chicago when I
was part of a team making a world evaluation for Amoco (now part of BP).
Later when I was managing Fina in Norway, I had the company sponsor a
research project on the subject with the Norwegian authorities. We used
public reserve data, as I had not then appreciated how unreliable they were.

The results were published as The Golden Century of Oil 1950-2050 (Kluwer
Academic). This attracted the interest of Petroconsultants, a company based
in Geneva that was used by the international oil companies to assemble a
valid database on oil activities around the world including the size of
discoveries and drilling statistics. They invited me to redo the study but
this time using their comprehensive database of virtually all the world’s
fields. I was joined in this project by Jean Laherrère, formerly Exploration
Manager of the French oil company TOTAL, who had developed various
analytical techniques. The resulting study was published at $50 000 a copy,
but was later suppressed under pressure from a major US oil company, which
had better remain nameless. However, Petroconsultants co-published a book,
The Coming Oil Crisis (Multi-Science), which I wrote summarising the
results, and also agreed that Laherrère and I should accept an invitation to
write an article for the Scientific American :The End of Cheap Oil (March
1998).

The IEA purchased this book and contacted me, sending an analyst to spend a
week going through the data. It was evident that the team within the IEA
working on the subject was fully convinced and saw its importance. They then
produced a report for the G8 Ministers, meeting in Moscow (International
Energy Agency, 1998, World Energy Prospects to 2020; Report to G8 Energy
Ministers, March 31). The text was bland enough but it contained a critical
table showing that oil demand would outpace supply by 2010, save for the
entry of an item called Unidentified Unconventional, whose supply was shown
to meet as much as 20% of the world’s needs by 2020. Having managed to get
it past the G8 Ministers, the IEA team was able to include it in the World
Energy Outlook for 1998.

In effect, the Unidentified Unconventional was a coded message for shortage.
I explained this to a journalist who contacted the element within the IEA
which was pleased that this important hidden message should get out. But
when it was published (Fleming D., 1999, The next oil shock? Prospect
April), the IEA evidently got into serious trouble with its masters in the
OECD governments, and in the next issue of the World Energy Outlook, the
Unidentified Unconventional became Conventional Non-OPEC, without comment or
explanation.

The primary function of the IEA was to supervise OECD strategic stocks,
which in turn were perceived to be a certain defence against any excessive
demands by OPEC. So the IEA came to see its role as protecting consumers’
interests, and it therefore had every reason to downplay any notion of
depletion and finite limits imposed by Nature, because indirectly such would
strengthen the hand of OPEC.

Petroconsultants was subsequently acquired by IHS in the United States, and
the special relationship with the international oil companies was lost,
affecting the quality of the data. It may also have found itself under
pressure from commercial interests and the principal OPEC countries.

It is worth commenting briefly on the reporting of reserves. There is no
particular technical difficulty in assessing the size of an oilfield early
in its life, although naturally there is a certain range in the estimates.
The reporting of the reserves has however been subject to two main
distortions.

First, the oil companies were subject to strict US Stock Exchange rules
designed to prevent fraudulent exaggeration. It made sense therefore for
them to report the minimum needed for financial purposes, and then revise
the estimates upwards over time, giving a comforting, if misleading, image
of steady growth.

Second, the OPEC countries found themselves competing for quotas in the
1980s when prices were low. Quota was based on reported reserves, which
prompted Kuwait to add 50% overnight in 1985 although nothing particular had
changed in the oilfields. It may in fact have started reporting total found,
not remaining reserves. The other OPEC countries later reacted with invalid
increases to protect their quota (see table). To imagine that new discovery
should exactly match production in Abu Dhabi to leave unchanged reserves is
clearly absurd.

Despite these difficulties, it is possible to make a reasonable assessment
of the situation starting with the sound historical data from
Petroconsultants. The following graph shows my current assessment.

http://www.theoildrum.com/files/CJCampbell2009.jpg

Briefly, Regular Conventional Oil peaked in 2005. The shortfall was made
good by expensive oil mainly from deepwater fields and Canadian tarsands,
which led to rising prices. This trend was spotted by shrewd traders who
started buying contracts on the Futures Market, while the industry
maintained high levels of storage, watching it appreciate in value at no
cost or effort. The rising prices also delivered a flood of petrodollars to
the Middle East where it still costs on average about $10 to produce a
barrel. The surplus was in turn partly returned to Western financial
institutions, contributing to their instability. The surge in price reached
extreme levels in mid 2008, approaching $150 a barrel, which prompted the
shrewd traders to start selling short on the Futures Market and for the
industry to start draining their tanks before they lost value. The high
prices in parallel triggered an economic recession which dampened demand
causing prices to fall back to 2005 levels before edging up to around $75
today.

It is more difficult to evaluate the Non-Conventional oils, comprising
tarsands and heavy oils, deepwater oil, Polar oil and Natural Gas Liquids,
but the above graph suggests that the peak of all categories was passed in
2008. A debate rages as to the precise date of overall peak but rather
misses the point when what matters is the vision of long decline on the
other side of it.

Given the central role of oil in the modern economy, the peak of production
promises to be a turning point of historical magnitude. It seems that banks
have been lending more than they had on deposit, confident that Tomorrow’s
Economic Growth was collateral for Today’s Debt, without recognising that
the expansion was fuelled by cheap oil-based energy. The Governments are now
printing yet more money under Keynesian principles in the hope of restoring
past prosperity, which may meet with a brief success. But if it does, it
would stimulate the demand for oil that would again soon breach the supply
limits, leading to another price shock and an even worse consequent economic
depression. In fact, today 28 billion barrels a year support a world
population on 6.7 billion people, but by 2050 the supply will have fallen to
a level able to support less than half that number in their present way of
life.

There is a great deal that can be done to reduce waste and bring in
renewable energies. Coal and nuclear power can also ease the transition
although they are themselves also subject to depletion. The challenges are
however great, and it is clear that governments must move urgently to
prepare for what unfolds. In parallel come the challenges of climate change
that are to a degree related to oil supply.

There may well now be a certain awakening, and the OECD governments may
begin to seek an umbrella under which to introduce new national policies.
This may in turn allow the IEA to come forward with more realistic
assessments of the true situation. The media too has an important role to
alert people at large of what unfolds. It underlines the value of the
article you have published for which you deserve every credit.

Yours sincerely,

C.J.Campbell