Oil Cast #17: Parsing the Disparity Between IEA and EIA Predictions...and Some Other Stuff Too...

Oil Cast #17: "The IEA have shocked the oil markets with predictions that have left some analysts reeling. What did they say? Whose figures are we to believe? Is this the most important piece of oil data this year? We take a good look at the figures.
Plus the damage from Dennis, the arrival of Emily, and a report from Platts on OPEC that makes even more interesting reading now the IEA have confounded the forecasters..."

In light of all that confusing and uncertain data, Matt Simmons has put out his latest brief here (.pdf). (hat tip: peakoil.com)
-4th quarter 2005 oil demand ought to be 86 to 87 mbpd.
-This would outpace probable supply by 2 to 4 mbpd.
-Balancing the market would require 180 to 360 million barrel stock draw.
and Simmons suggests
-Implement data reform ASAP!
-Create access to all realistic supplies.
-Attack capacity bottlenecks on all fronts.
-Adopt genuine energy conservation fast.
-Energy R&D needs to "explode."
-Existing energy infrastructure needs rebuilding.
-If done immediately, the Energy War can be won!
All I could do was yell "Amen" and "Hallelujah" and "That sure sounds familiar!" when I finished reading the presentation. Very much worth the read.
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Very good presentation as usual, I don't understand why he said:
Extremely high energy prices can be “good news”:
- Recycling “petro-dollars” can
bolster global economy.

An astonishing presentation by Simmons. I'm not sure why no one has commented here. Peak in the 4th quarter this year.

Let's look at the demand side. Simmons says:

Demand Has Become A Run Away Train

High prices do not stop runaway trains.
Appetite for oil, gas and electricity is ravenous:
– China’s March car sales
– Hanoi’s Harley Davidson motorcycles
– India’s billionth personcelebration
– America’s 15-18 million cars per year
– America’s 10-12 million housing starts
Demand driven by “Two P’s”
– Prosperity
– Poverty

I'm sure somebody would want to weigh in here. Economists? Jack? Lou?

The only war this administration can fight (and they're not winning) is Iraq. Good luck on energy.

Following up on the demand side, the IEA's prediction of a demand slowdown figures underscore the wide disagreement at this point of what demand growth really is although the IEA seems to be standing on a limb all by itself. Listen to that OilCast broadcast. Here's a quote from the Reuters article on the supply side:

The IEA said oil supply from non-OPEC nations was set to accelerate next year, and combined with growth in OPEC gas liquids output, would match world oil demand growth.

We'll see, won't we? Even ExxonMobil says non-OPEC production is peaking by 2010, but as I've been told -- and I've been pretty much told off -- blue-sky speculation of this kind is at the heart of energy economics. Naturally, I must defer to those wiser than myself at this point....

I just finished listening to today's episode of the Diane Rehm show with Campbell, Lynch, and West from PFC. Talk about predictions all over the place...Simmons, Campbell, and Deffeyes say it's practically here, PFC says 2015 - 2020, and our friend Lynch says sometime after 2050.

No matter how much I read about PO, such widely divergent projections sometimes make me question my own certainty about the proximity of peak oil.

Or, to borrow an old commercial jingle: "sometimes you feel like a nut, sometimes you don't."

JLA: "sometimes you feel like a nut, sometimes you don't."

Exactly right. I feel that uncertainty much of the time. A lot of the confusion is not with the peak oil people, its in the reports and data they're looking at. With great uncertainty and anxiety, there is chaos. Prices are high, demand is growing, demand and supply are tight. Supply sources are depleting. Geopolitical power is shifting. The US is in a guerilla war in Iraq and lots of people are dying -- this is not acknowledged enough. Terrorism is a constant threat to civilians and markets. There don't seem to be convincing arguments that oil prices will go down much ever again and many energy market watchers tell us to expect high prices indefinitely.

None of us really knows what's going to happen; it makes us nervous. Simmons says this fall/winter for the shortfall in oil supplies vis-a-vis demand. Do I believe him? Not necessarily, but maybe he's right. What would happen to prices if he's right?

It's frightening. I have no trust whatsoever in human belief systems or rationality. How can I trust anyone on Peak Oil? I go with what my gut tells me. How can I possibly sustain any kind of trust in a world in which human violence and wars are commonplace, my "elected" government can lie to me anytime they want and get away with it, genocides are relatively frequent, environmental damage is severe and ongoing, rare animals are considered as tradeable commodities, childiren are used as cheap labor to make tennis shoes to prop up economic systems that the rich profit from, women are kidnapped and used as sex slaves, etc.

Yeah, sometimes I feel like a nut and sometimes I don't.

I updated the weekly demand growth chart I keep and also in that linked document is a revised comparison of demand growth vs EIA projections for 2005. I used to compare 2004 and 2005 data now just comparing from Jan onward.

So far with more than 1/2 the year completed gasoline 6.48% above projections (1.7 vs 1.6%), Distillates 56.92% above (2.98 vs 1.90) and jet fuel 39.68% above (3.91% increase vs 2.80).

Based on US and Canada economic performance so far this year, and what appears to be the stirrings of better performance in some corners of Europe, its reasonable to expect that demand will at least remain constant for this year but not unreasonable to believe demand will continue to rise beyond expectations. Under-estimation of demand growth by EIA and IEA (now potentially radical under-estimation) seems relatively constant therefore the unscientific method I'm employing is to assume they will come in light again, at least for a while longer...

Re: " not unreasonable to believe demand will continue to rise beyond expectations" and "potentially radical under-estimation [of demand growth]"

Thanks for the update, Mike. Do you have personal take on Simmons' statement that "High prices do not stop runaway [demand] trains"?

Drudge Report has the strange post on it:

Sudden, mysterious drop in China's oil consumption... Developing...

Anyone have any idea what he is going to link to?

... Drudge, ever the sensationalist. All the reports out of China seem to indicate a moderating of growth but not reduction per se. Clearly if they were about to dip into recession they would wait before buying Unocal, knowing what a drop in their demand would do. And still they can't keep all the lights on all the time... the demand is there but they choose not to fill the demand, all the time.

Dave, re Simmons comment - "high" is in the eye of the beholder. Back in the days when a high wage was 7$ an hour, paying 50$ to fill up the pickup would have been a non starter. Now, its less of a burden but means the pickup driver might buy a case or two less beer during tight times of his or her fiscal calendar.

Clearly prices are not "high" yet or demand would be slacking. The only area where demand may be slowing is, potentially, the airlines. But maybe fuel surcharges will be sucked up by the consumer anyway.

Sometimes I feel like and economist and sometimes I don't. I think Simmons and Pickens are on to something in predicting a near term inability to meet demand. I see growth figures going up in demand for both crude and refined products and doubt there is any way to bring new supply on line. My guess is either this summer or next.

As far as the future, I just think it is uncertain, but my guess is the near side of the PFC forecast noted above. I do believe that there will be clues from industry players and futures markets ahead of the peak. I think the ramp up to current price levels is permanent and does reflect the end game, but I don't think the world will drop below 85 mbd production for the next five years. But don't ask me for evidence. i don't have any. As I have mentioned here before, this presentation below was one of the first things that led to my peak oil conversion.


Japan overnight: Kyoei Tanker Co. Ltd. jumps 10 percent to 429 yen after the Nihon Keizai newspaper reported that oil tanker freight charges from the Middle East to Japan have been soaring due to strong demand for oil in Asia.

Taiheiyo Kaiun Co. (9123.T: Quote, Profile, Research), a tanker and specialised carrier operator, leaps 13.7 percent to 197 yen.

What if Simmons turns out to be wrong about this $80 oil by the end of the year? What if it's lower than today, maybe $50 or even in the 40s? Does he lose credibility?

There's an old saying among financial analysts, either give a price target or a time target, but never give both. The reason is obvious, because you'll be wrong. Simmons seems to be going out on a limb here by talking a hard figure in such a short time frame. The markets aren't buying it, they're still predicting about $60-65 by year end.

Of course the Peak Oil community is notoriously forgiving; look at Colin Campbell, still respected even with false prediction after false prediction. I'm sure the faithful will still worship at the Simmons shrine. But what about the rest of the world? Is he in danger of squandering his reputation capital by going public with his prediction?

Halfin -

Does it matter? Whatever he says will be voided or quashed with 2-3 alternate POV's by the MSM talking heads from the think tanks. Government wants him visible to poke holes - it's in their best interest to make sure Peak Oil is a fringe phenom. Peak Oil is not wanted as a MSM news item, so Simmons needs to be discredited. I agree his predictions play into this.

But if oil drops, then it doesn't affect anything without awareness of PO as an issue. If it is an issue, then people can respond. Unfortunately, their response would be to curtail spending and hunker down, which would absolutely kill the manipulated economy we are living in courtesy of Greenspan, account 990N and all the rest. The only thing driving what is left of our economy is consumption, massive consumption. Too many interests want that to continue, so PO will have to be nipped in the bud, discredited and driven off the public radar.

None of this changes the reality of Peak Oil - it is real, and it will/is happening. Timing may be the problem as supply and demand spike up and down, masking the longer term trend to the general populace.

I know - you disagree and I'm a nutjob *grin*

While I'm very friendly to the idea of peak oil, I hedge my bets, for timing is and always will be the issue. As an individual I can do that; for government not to be concerned at this time - even if the "peak" is two decades out - is wholly irresponsible.

The current political environment seems to be supporting peak oil being nearer than farther but its possible this too has been amplified simply due to price escalation. Still, I doubt it. We ought not to be hearing such fiery rhetoric over the Unocal bid by the Chinese if peak oil or "tight oil" was a complete illusion.

Fact is, global growth, provided there is the energy to finance it, means we'll see increasing geopolitical tension not less. There is, already, a trend upwards supporting this.

Just as the price of the commodity itself has been trending higher for 3 years.

Peak oil? Peaking oil? Or just really tight oil? Doesn't matter, all three are serious global risks.

The IEA in my opinion has been notoriously lax in their critique of the data that they analyze. I feel like they are a completely political body whose sole goal is to help stabilize the markets in a time of uncertainty.

They say that demand will decline in the 4th quarter. But that doesn't make sense. Anyway, to say that demand exceeds supply is a silly statement in some ways, since demand can only ever get what supply has available. Certainly rising prices are an indication that demand wishes supply were greater.

I think the IEA is lying. I think that while they are saying that demand will decrease, I expect that supply is what will really decrease, and we are now on that slippery slope on the back side of peak oil.