THE International Energy Agency (IEA) Thread pt 2 (merged) A

[ROCKMAN]

Thanks jd. Few know a lot about everything. But most of us know a lot about a very narrow range of experience. That's one reason I like hanging out here. We have a diverse crowd that can usually plug all the holes in my limited knowledge base.

[jdmartin]

Thanks jd. Few know a lot about everything. But most of us know a lot about a very narrow range of experience. That's one reason I like hanging out here. We have a diverse crowd that can usually plug all the holes in my limited knowledge base.

+1. If you can get past a few of the hysterical people, and a few hopeless cornucopians, you can get some real good insight. I looked like a damn genius when I told people months before it happened that Fannie/Freddie were going to go down, or that Lehman Brothers was going to bite the dust, and the only way I knew about it was to glean information from people here and combine it with a little research to confirm the facts, dispel the rumors, and come up with a reasoned position - all thanks to the information trove of this board.

[dohboi]

Perhaps they are considering all the CO2 in the atmosphere from past burning of oil to be potentially convertible back into the black slimy stuff?

[vaseline2008]

It seems that the Saudis are already in the lead with increasing their production outputs. They are also investing on more profitable ways to sell their oil. Here's the Forbes article:

The Octopus

But why, with prices dropping and a steep worldwide recession looming, would Aramco go all out on the most ambitious expansion plan in its 75-year history? Over the next five years it will invest $129 billion to boost its oil production capacity to 12 million barrels a day, build new refineries and petrochemical plants and pursue a high-tech exploration and production program. Executives promise that within 20 years this will increase the kingdom's proved recoverable reserves from today's 260 billion barrels to 450 billion barrels or more.

That confidence springs from cash, mountains of it, and know-how. The 100% state-owned Aramco manages all its own projects and invests in the latest technology. It's easily the most profitable company on the planet: This year, after amortization of capital expenses, it should net upwards of $250 billion on $300 billion in revenue. With government budgets set for $45 oil, Saudi Arabia will likely end 2008 with a $150 billion surplus. It has $400 billion in foreign assets. That puts it squarely in fat city--at a time when oil-tethered economies in Venezuela, Iran and Russia are in precarious shape.

[TonyPrep]

Okay, in partial answer to my own question, I found the EIA's "short term energy outlook" but I did not see their estimates of oil demand/production for the last two months.

Go here.

[sjn]

It seems that the Saudis are already in the lead with increasing their production outputs. They are also investing on more profitable ways to sell their oil. Here's the Forbes article:

The Octopus

But why, with prices dropping and a steep worldwide recession looming, would Aramco go all out on the most ambitious expansion plan in its 75-year history? Over the next five years it will invest $129 billion to boost its oil production capacity to 12 million barrels a day, build new refineries and petrochemical plants and pursue a high-tech exploration and production program. Executives promise that within 20 years this will increase the kingdom's proved recoverable reserves from today's 260 billion barrels to 450 billion barrels or more.

That confidence springs from cash, mountains of it, and know-how. The 100% state-owned Aramco manages all its own projects and invests in the latest technology. It's easily the most profitable company on the planet: This year, after amortization of capital expenses, it should net upwards of $250 billion on $300 billion in revenue. With government budgets set for $45 oil, Saudi Arabia will likely end 2008 with a $150 billion surplus. It has $400 billion in foreign assets. That puts it squarely in fat city--at a time when oil-tethered economies in Venezuela, Iran and Russia are in precarious shape.

Don't believe everything you read in Forbes...

[yesplease]

this latest price drop is NOT TOTALLY ABOUT DEMAND.

True. The latest STEO estimates consumption has exceeded production for the last two months (Sept and Oct).

And this, probably the results of OPEC's ~500kbpd production cuts, has only served to limit the drop in oil prices. During the previous four months, world production exceeded world consumption, which is probably why we saw prices drop. If it wasn't for OPEC's production cuts we would've seen production outpace consumption for the past two months as well, and that trend does not appear to be slowing in light of a possible world recession. The big questions seem to be how much will world demand drop and how much oil will OPEC cut to keep prices up?

[ROCKMAN]

Given a long term (20 to 30 years) I can understand the KSA making such investments. First, they know how many other OPEC producers are at or close to their own PO. And no one has a better idea of how close the KSA is to their PO. But if we are to believe their budget forecasts that might be the best proof available that the KSA production rate from EXISTING fields may be getting close to the rapid decline rate phase that all oil fields eventually reach.

Not only may the KSA be anticipating a serious need to replace their own failing production but I also suspect they would like to keep the political/military climate as calm as possible. They did, after all, have a front row seat at the Iraq escapade.

[bl00k]

But ROCKMAN, if this raport is full of holes that are relatively easy to find, does that mean the IEA has some political agenda? If there are such large uncertainties, how can any sane organization publish a raport like this?

Perhaps im a little naive...

[ROCKMAN]

I really don't think so Bl00k. I think their work has been widely misrepresented by many. You have to dig it out but they do say that their reserve estimates are based on unverifiable numbers from the producing nations. They accept these numbers as correct but don't offer any proof. They simple assume the numbers are correct. But they have no other choice: the data needed to verify those numbers are not avalable. Neither the IEA or any other group has the data necessary to answer the simple question: how much proven oil is in the ground today.

If their are political agendas being thrown about it's being done by all those who REPRESENT that the IEA is offering proof that they really aren't.

The bottom line: the IEA is saying that the producers reported a certain amount of proved reserves. They then make gross assumption on how much it will cost and how long it will take to develop those "proved" reserves as well as other unknown discoveries out there. They DO NOT SAY the producers numbers are correct. They just accept them. Thus the IEA isn't really offering any proof of future oil reserves or production rates. They are simple saying if their assumtions are correct then their projections are correct.

[AirlinePilot]

The big questions seem to be how much will world demand drop and how much oil will OPEC cut to keep prices up?

I'm starting to form the thought that if prices crater low enough and long enough, something else will solve the price problem for them (producers/exporters). If the price stays down long enough and they cannot control it with cuts, then the possible political or social problems brought on by the lower prices in these places will cause unforseen events which push prices right back up.

Longer term these lower prices will impact production and we'll move back towards balance at some point. Hopefully we can do it without a minor nuclear conflagaration or some terrorist group sinking a few tankers in the straights of Hormuz.

[seahorse2]

Even if the IEA reserve figures are right, it doesn't matter. The opinion that we have enough reserves to get us to 2030 rest on one big ASSUMPTION which is, the world will make the investments to get at the new oil reserves. The problem with this ASSUMPTION is we know in fact, its not true, bc when oil was at $140 a barrel the necessary investment wasn't being made and already, with the price of oil crashing, there are numerous reports that projects are being delayed and or canceled.

Saudi may cancel plans due to financial crisis:

http://malaysia.news.yahoo.com/rtrs/20081108/tbs-aramco-refineries-total-7318940.html]Saudi

Oilsands delay due to financial crisis:

http://royaldutchshellplc.com/category/oil-sands/]Oilsands delay

Financial crisis hits oil investment"

http://www.forbes.com/afxnewslimited/feeds/afx/2008/11/06/afx5659317.html

[Twilight]

Lack of resources, lack of investment and lack of access by investment amount to the same thing in the end. Pick your poison, the effects are literally no different. So claiming that there is no shortage of supply given adequate future investment penetrating hitherto closed markets is just going round in a circle.

[VMarcHart]

...the possible political or social problems brought on by the lower [oil] prices in these places will cause unforseen events which push prices right back up.

Like where and what type of events, please? Thanks.

[smiley]

Neither the IEA or any other group has the data necessary to answer the simple question: how much proven oil is in the ground today.

That is not necessarely true. They don't have the exact numbers, but they should realise that there are huge downward uncertainties in the reporting of some of the "proven"reserves. And if they are honest they should adress those fears in their outlook.

US congress for instance order Mexico a few years back to reasses one of their basins (I believe it was Chicontepec) because they simply did not believe the numbers that Mexico were putting out. As a result the reserve numbers were significantly lowered.

If US congress can figure these things out so can the IEA.

I also cannot see how they are politically bound, because none of the OPEC countries are members of the IEA. So in principle there is nothing holding them back unless the member OECD countries are warning them not to go headbutting with the middle-east.

[sjn]

...the possible political or social problems brought on by the lower [oil] prices in these places will cause unforseen events which push prices right back up.

Like where and what type of events, please? Thanks.

Martial law in Russia? Civil war in Nigeria? Revolution in Saudi Arabia?

[Twilight]

The IEA has a soft political colour, its origin lies in the 1973 oil shock and the need to mitigate further disruptions of that sort, and it is basically an OECD club.

However, it is no different to any other official organisation in that it does not have the luxury of staking its reputation on unprovable assertions. Since it cannot prove that ME Gulf reserves were inflated in the 80s, or by how much, it is not going to go out on a limb and publicly use the possibility in its planning assumptions. Not without a smoking gun in the form of documents and names or a further sea change in sentiment.

I see a similar phenomenon in the LCPD, no-one in utilities would openly voice the belief that the government will repudiate an EU directive, so it lives on in projections as one of those absurdities that screws up the figures and periodically generates dumb headlines. Circumstance compels scepticism, but you cannot run with it.

The problem with putting yourself in that position is if you are wrong about just one part of it, you lose a lot of face and step on the toes of people who probably have more pull than you. Maybe there is a rabbit in the hat, probably not what we really need, but enough to cause severe embarrassment if someone tries to call the bluff. And that is why you cannot expect investigative journalism to come out of official bodies. All we can do is what we already do, which is question the validity of the underlying assumptions. The authors are not at liberty.

[seahorse]

CFR sees lack of oil investment due to price drop, which, if the IEA is right, means we will not be stemming the decline in existing fields.

CFR

[AirlinePilot]

As SJN pointed out there are a host of problems just boiling below the surface right now in many of the producer nations. Nigeria, Saudi Arabia, Mexico, etc. All have very precarious balancing acts going on right now and I would expect that with large economic downturns in any of those places you could see some serious issues which may directly affect production.

Simple speculation but the trends will not go in the right direction with the global situation and lowering oil prices IMHO.

[TheDude]

Neither the IEA or any other group has the data necessary to answer the simple question: how much proven oil is in the ground today.

They claim to have production figures for all supergiant fields, though, apparently using IHS data. How can this be if KSA etc. data is under wraps? I keep asking this but no one has an answer.