Oil watchdog reworks reserves forecasts

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Dino Mahtani, FT Syndication Service
LONDON: The industrialised countries' oil watchdog has admitted that it has been paying insufficient attention to supply bottlenecks as evidence mounts that oil is being discovered more slowly than once expected.
To make amends, the International Energy Agency has started work on a new study to be published next year that will rework its long-term projections for global oil reserves.
The new focus on security of supply comes after the agency earlier this year warned the world was at risk of an energy "crunch" before 2015 due to a lack of investment in supply amid soaring demand.
Alongside a plan to build a new set of data for the decline in production rates in the world's top 250 oilfields, the IEA is also ready to reassess its own forecasts for projected oil discoveries, which it based on estimates by the US Geological Survey.
Any downward revisions in oil discoveries or upward revisions to decline rates will in theory increase the probability that global oil reserves will be smaller than expected and that global oil supply will peak much sooner than expected.
Natural decline rates for discovered fields are a closely guarded secret in the oil industry, and the IEA is concerned that the data it currently holds is not accurate.
Doubts are also surfacing about the original estimates for new oil discoveries around the world that were calculated by the USGS in 2000. A USGS re-assessment of these statistics in 2005 showed that actual new oil discoveries averaged only 9bn barrels a year between 1996-2003, 60 per cent less than the average annual estimates for the forecast period of 1995-2025. Just a few months ago, the USGS also downgraded its estimates of future new discoveries around Greenland by 38bn barrels.
Fatih Birol, chief economist for the IEA, said the agency had been putting "a lot of emphasis on [oil] demand, which is wrong" and that supply factors should be looked at more closely in the study.
He said the bulk of expected long-term oil supply expansion would be determined by the natural decline rates of discovered fields, which he said suffered from a lack of "transparency". But he also said a revision of the USGS estimates for new discoveries could be significant.
He said: "We will look at the USGS figures very carefully. It is a very important data source. If they update their estimates we will take this into consideration."
Don Gautier, one of the authors of the 2005 USGS re-assessment, says his study shows that "one possibility is that the USGS estimates were optimistic or high". But he also argues that the poor average rate of actual new discoveries could be due to a lack of exploration taking place in the world's most prolific basins in the Middle East.
Oil industry executives believe that the debate over USGS figures has been twisted by dissenters in the industry who believe that oil will soon reach a peak and go into terminal decline.
The executives are quick to point out that actual average annual growth to reserves from work on discovered fields is currently keeping pace with initial USGS estimates of the 1995-2025 period. They also insist that the world's most prolific oil basins in the Middle East have seen very little new exploration on them in the last few years and that the high oil price will spur a new wave of exploration.
Peter Jackson, analyst at Cambridge Energy Research Associates, says his company's study of 800 fields shows an average decline rate of only 4.5 per cent, about half of what is quoted by many of those who argue that oil production will soon peak. By his estimates, oil will not peak, but plateau for "a number of decades" after 2030 before declining slowly.
But critics of the industry say this approach is naive. They say the fact that the oil industry has to resort to venturing into more difficult terrain and continue co-operating with difficult oil-rich regimes is an indication that oil reserves are tightening.
David Strahan, author of The Last Oil Shock, says: "The reason it is getting tougher above ground is a reflection of the fact that the geology is becoming a problem."