The IEA is getting rattled by events. For some years, the IEA, EIA and OPEC all maintained the view that oil resources are so large that they must be sufficient to maintain supply. Other leaders in government and industry uncritically accepted that position, and stopped worrying. But the IEA has now broken ranks, to accept that there is a looming problem of supply, even from the large remaining resource. Current trends in energy supply and consumption, in their own words, are patently unsustainable, as ODAC has maintained for some years.

The IEA is clearly uncomfortable with this new position. Some of their forecasts don’t look likely, and some assumptions are implausible, but these are what the IEA finds are required to maintain supplies to 2030. For example, an average oil price of $100 (in 2007 dollars) between now and 2015 might come to pass, but it’s hard to see it only rising to $120 by 2030. Total oil supplies will rise, say the IEA, by 22 million barrels/day by 2030, but only 5 million of these barrels will be conventional crude (production of which will have levelled off by then – so the global peak of conventional crude is now within the IEA’s sight, even though they don’t say so). The remaining rise will have to come from gas liquids, oil sands, synfuels and other non-conventional resources.

The IEA still leans heavily for comfort on the supposed mere existence of enormous resources as evidence for future supply. ODAC would question the details – resources are definitely not reserves for one thing (not even close in some cases), and even the USGS is now finding it hard to believe its own estimates of over 700 billion barrels of yet-to-find recoverable oil – but that is to miss the crux, which is that peak oil is going to be a supply problem, not a resource or reserve problem. So when the IEA describes a potential total resource of 9 trillion barrels of liquids from fossil fuels, or 8 times more than we have already burned, there is a completely misleading comfort in the well-padded pabulum of fat round numbers.

The harder truth from WEO 2008 is that the world needs the equivalent output of 6 more Saudi Arabias by 2030, and in ODAC’s view they probably don’t exist. The desired supply increase of 22 million b/d by 2030 would actually require 64 million b/d of new production by then, because of oil field decline. Daily production from every field peaks and then starts to fall, and this tends to happen before they have produced even half of their reserves. Decline has often been ignored altogether, or else ridiculed as nugatory by such as Cambridge Energy Research Associates, who in January dismissively calculated a global decline rate of 4.5% p.a. from the world’s producing fields. The IEA’s analysis is rather different, and probably the main trigger for their change of stance. They find decline to be 6.7% for post-peak fields (which is most of them), or 50% higher than CERA found. Worse, this rate of decline could increase to 8.6% p.a. by 2030. And worse again, that’s the decline rate when it’s mitigated by active investment to maintain production.

Under the IEA’s scenario, the investment required is $350 billion annually. That’s actually less than we currently invest. The catch is, most of the cash needs to be invested in OPEC, and specifically in the Middle East. Will OPEC invest so much, or allow anyone else to invest it? What would be in it for them, if they were to plunder their own national endowment in a few decades, for money that wouldn’t buy much in a devastated world economy and a devastated world? The IEA makes a rather ineffectual pitch for partnerships between the oil majors and OPEC states, but the mutual benefits suggested are far from compelling. The oil majors may indeed have the necessary skills, technologies and staff that OPEC lacks – but why would OPEC want them? Nowhere does the IEA make a compelling case for OPEC falling into line with the wishes of the OECD.

It’s good to see the IEA taking a firmer line on their modelling, which over several years has increasingly analysed what is possible from the bottom up, rather than simply measuring top down from the expected demand and calculating how much oil would therefore be supplied. It’s also understandable that this change is going to be a journey for the IEA. And ODAC feels that market and industry developments are very probably going to make an uncomfortable truth very apparent within the next few years.

Dr. Richard Miller is an Independent Consultant, and former geochemist for the BP Exploration Department