International Energy Agency Confronts "Peak Oil": Part II

PARIS () -- Resource Investor has already featured the new International Energy Agency (IEA) report "Resources to Reserves." The report took a long look at the ideas surrounding "peak oil" and concluded that "none of this is a cause for concern."

But the report has drawn a stinging response the head of the Association for the Study of Peak Oil (ASPO) Colin Campbell, a former executive vice president of Total when talking exclusively to Resource Investor.

"It is an absolute masterpiece," he stated. " A masterpiece of telling the truth in such a selective manner so as to get the juxtapositions quite right. All in order to mislead and confuse the situation. After all the best way to lie is to tell the truth, just in a manner that creates a wholly false impression of what is actually going on."

Campbell said the IEA's report was really a way to protect its member governments.

"It's basic thrust is to give the OECD countries governments a curtain behind which they can hide themselves," he said.

Technological advances, a highlight of the 124-page tome, were something Campbell was keen to highlight.

"The way that the IEA present technological advances gives the impression that no one is taking them into account. Of course no one is denying that not only have there been technological advances but there will be more to come in the future," said Campbell.

According to the IEA, technological advances yet to be made, plus new ones coming onstream now, will mean that crude oil reserves will actually grow. In other words recoverable oil will increase. They pointed to previous fields where reserves have grown over time. In other words the first stated size of the field has turned out to be smaller than the final amount of oil extracted. They said this is due to technology; Campbell disputed this.

"The growth of reserves in the past were due to the initial under reporting of those particular fields. If you think about it for a moment it makes a lot of sense. Firstly international oil companies listed on the various world stock markets have to report their findings very carefully. They cannot rush in and make big claims about new finds. They had to deal with stock exchange rules, it has nothing to do with technology," said Campbell.

If an oil major were to overstate the size of a field, it could lead to serious questions being asked. Campbell went on to point out the path that oil companies take in avoiding this happening.

"Explorers look for oil, they drill a test well. Say one in ten or twenty are successful. From there the engineers take over, it's completely responsible of the oil companies to do this. So they go to the largest and most easily extractable parts of these fields. It makes economic sense for them to take things slowly, to maintain production over a period of time," he added.

As a field is pumped the engineers and geologists will be testing as to whether other parts of it are also viable.

"The biggest well will be the first, it makes complete sense for a company to do this. It is cheaper for a start. Then as they go along other wells are drilled in other parts of the field that then come online. This gives the impression that the reserves have grown due to technology, but in reality the rocks can only give up so much oil," he said.

The question of increased investment raised by the IEA also attracted Campbell's attention.

"There is no lack of investment when the extraction cost per barrel is $5 in the Middle East or even $20 from harder fields. The profits are being made on the back of scarcity, not a lack of investment. Even if an increase in the amount of drilling will obviously find more fields. Injecting steam and playing around with new ways of pulling out a few remaining barrels cold extend the 'tail' of the decline, but that is all."

Another current issue, that of refinery capacity, is in stark relief after the double hurricane impact in the south of the U.S.

"This really obscures the issue. It does appear that light crude has already peaked. So what the Saudi's are saying by releasing all this awful heavy stuff onto the market just scares the existing refining industry," Campbell claimed.

"And you can see that the oil companies are not so stupid as to start building a lot of new refineries themselves. However countries in OPEC building refineries does make more sense. When shortages occur it is much better to refine your own products than have to import it. A case in point is Indonesia, their output is falling and they are going to build a new refinery to refine what they have left. For themselves."

Campbell's critiques of the IEA report are often masked beneath a veneer of humour. As dry as a redundant oil field.

"The report is an absolute confession of 'peak oil'," he said. "But at the same time the text goes out of its way to deny it. Really, it's a brilliant document. It takes immense skill and a marvellous command of language that allows governments and oil companies to hide like this."

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