To correct for earlier over-optimistic forecasts, the International Energy Agency (IEA) has reduced its estimates for non-OPEC oil production by 410 kb/d from second quarter 2007 onwards. This change has been little noticed in the press.
According to the July 13 issue of the IEA's Oil Market Report, the original non-OPEC forecasts for 2005 and 2006 proved over-optimistic to the tune of 1.0 mb/d. This discrepancy is mostly due to decreasing OECD production. Moreover, OECD supply has consistently come in below initial forecasts for the past ten years.
This has forced the IEA to introduce what is called a "reliability adjustment", reducing their total non-OPEC forecasts with 410 kb/d, applied from second quarter 2007 onwards.
IEA relies on national forecasts, so who are the culprits? The country-by-country adjustments are as follows (sorted by amount):
Norway -162 kb/d
USA -125 kb/d
UK -125 kb/d
Canada -97 kb/d
Brazil -34 kb/d
Malaysia -34 kb/d
Other OECD Europe -24 kb/d
Egypt -24 kb/d
Colombia +20 kb/d
Australia +22 kb/d
Kazakhstan +25 kb/d
Azerbaijan +26 kb/d
Mexico +27 kb/d
China +97 kb/d
This adjustment is certainly not a good reference for the Norwegian authorities. Norway alone is responsible for 162 kb/d or nearly 40 percent of the total. If this adjustment is applied to the latest Norwegian forecasts of 2.6 mb/d from January this year, it means that the IEA is reducing the estimate by more than 6 percent. This cut brings the figure close to the estimates of the Norwegian peak oil site oljekrisa.no. Nonetheless, we still find the figure over-optimistic.
The UK and the US estimates come in second with adjustments of minus 125 kb/d apiece. Canada is number 4 on the list with minus 97 kb/d.
So, who are the reliable guys, delivering solid forecasts and not overestimating their resources and possibilities, earning them an upward adjustment from IEA?
Here, too, is a surprise. In this group we find countries like Azerbaijan (+26 kb/d), Kazakhstan (+25) and Colombia (+20 kb/d)!
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Original text from the July 13 issue of the IEA's Oil Market Report (page 16):
While the OMR [Oil Market Report] in 2001-2003 tended to understate non-OPEC supply, 2004-2006 has seen the opposite trend. Original non-OPEC forecasts for 2005 and 2006 proved over-optimistic to the tune of 1.0 mb/d-plus, or around 2%. Moreover, OECD supply has consistently come in below initial forecasts for the past ten years. In part, this derives from a prevailing â€˜business as usual' methodology, with normal operating conditions and on-schedule project completions assumed until contrary evidence arises. And while the past twelve months have seen non-OPEC annual growth recover again to around +1.0 mb/d, large risks remain for the 2007-2012 outlook.
FIGURE: Reasons for Divergence from Non-OPEC Forecast
To reflect this, a â€˜reliability' adjustment is henceforward applied to the non-OPEC forecast on a country-specific basis. ... Henceforward an allowance of -410 kb/d for non-OPEC supply is included, allocated by main country and region (but not by field). The new adjustment is calculated from an observed five-year average divergence from initial forecast. The adjustments show up as aggregated miscellaneous-to-balance line items by country in the field-by-field database. Adjustments have been calculated as follows: