The IEA and the Role of Crude Oil Forecasts

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"In appraising recoverable reserves, it would be foolhardy to count on yet-to-be-discovered technologies. . ."

A recent report about undue U.S. pressure on the IEA to distort crude oil projection figures is rather unsettling. The report, citing an IEA whistleblower, indicated that the U.S. influenced the agency to underplay data, which indicated imminent, crude oil supply shortages while overplaying prospects of new discoveries. A U.S. motive for this, however, has not really been articulated. While the report has been denied and described as groundless by IEA executive director, Nobuo Tanaka, it does raise some issues about IEA's forecasts in particular and crude oil forecasts in general.

First is the issue of credibility. If the claim of such undue influence was true, how often has that occurred in the past? Because IEA data are often employed in official planning, what harm might have been done to member-nations' development plans by such underplay of forecast figures?

Secondly, there is the issue of underlying criteria employed in forecasting. Different models employ different criteria, which often lead to different forecast figures. Some of these criteria however, may be unrealistic. For example, in IEA's 2008 production forecast to the year 2030, more than half of projected supply by that year derives from oilfields yet to be found or developed. This, and the production sequencing of these oilfields, may therefore lend credence to the charge of distortion of forecast figures leveled against the agency.

Third, various analyses on the accuracy of forecasts (forecast versus observed figures) have also led to various interpretations, and many are not encouraging. There are far too many uncertainties to forecasting that projection figures carry no ironclad guarantees (and this has necessitated frequent revisions).

Finally, two quick points on estimates (whether of crude oil reserves, price, demand, supply, etc.):
  • First, an estimate is simply that, an estimate. Until proven, it must not be adduced as a certainty. The concept, for example, of a specified quantity of crude oil waiting to be discovered is so at variance with reason.

  • Secondly, petroleum exploration in the main is moving into geologically, financially and technologically challenging regimes. In appraising recoverable reserves, it would be foolhardy to count on yet-to-be-discovered technologies that have no indicative research.

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