EIA’s first Peak Oil statement in 2000 – how was their vision a decade ago?

Back in 2000, the EIA developed their first power-point presentation covering the topic of peak oil
(http://tonto.eia.doe.gov/FTPROOT/presentations/long_term_supply/index.htm). A version of it was
presented by EIA Administrator Jay Hakes to the American Association of Petroleum Geologists.

What was the EIA’s rationale at the time? How has their view held up a decade later? To help
evaluate their view and answer these two questions, here are a few of their verbatim statements:

–“High oil price case: $28.04/barrel in 2020. Low oil price case: $14.90/barrel in 2020. Reference oil price case: $22.04/barrel in 2020.”

–“Based on recent USGS estimates of the global oil resource base, worldwide oil production is likely
to continue increasing for more than three decades” [up through 2030 and probably later].

–“A key assumption in estimating the peak production year is the shape of the production curve after
the peak is reached (determined by the decline rate). The graph [fig #1 below] shows what happens
if production both grows and declines at a rate of 2 percent per year until the 3,003 billion barrel
mean resource estimate is recovered. In this instance, production is projected to peak in 2016.”
–“EIA postulated 12 scenarios based on three current USGS world conventional oil resource base
estimates (2248, 3003 and 3896 billion barrels—corresponding to high, mean and low probabilities
of occurrence) and four world oil production annual growth rates (0, 1, 2 and 3 percent).”
How have they done so far? First, EIA’s price forecasts have proven to be what the realists
expected back in 2000: beyond incredulous on the low side. Half way to their target date, EIA has
already admitted that oil’s price will likely be at least five times higher than their decade-old forecast.
Second, a growing list of oil industry CEOs (Christophe de Margerie, John Hess, James Mulva, Ray
Leonard, etc.) have spoken out on world oil production limits; each says it is unlikely world oil
production will exceed 95 million barrels/day. By comparison, a decade closer to EIA’s simplistic
“likely case”—well over 120 million barrels a day by 2030—appears to be truly off the charts today.
Third, a significant number of recent technical reports (from the UK, USA, Sweden, even Kuwait) on
the future of world oil production forecast a peak during this decade, most likely by 2015. EIA’s
“accidental” reference case—a peak in 2016—looks fairly reasonable; their more firmly held opinion
of a world oil peak after 2030 will likely miss the mark by decades and will mislead hundreds of key
public-sector decision-makers in the process.
Finally, it seems as crazy today as when EIA did it a decade ago…to assume that world oil
production won’t peak until roughly three-fourths of the recoverable oil—per EIA’s fore has been
produced. One of the most common phrases used to describe world oil supply is that “the cheap
and easy oil is gone.” To assume, as EIA did, that industry can continue ramping up conventional
production for another two decades, during an era of increasing costs and risks, was a bad bet in
2000 and is a rotten bet today.
Figure #1 (slide #14): Think of this as EIA’s original reference case. Back in 2000, it looked
optimistic—roughly 96 million barrels/day—but at least it appeared to be within the realm of
possibility. However, EIA apparently didn’t like the answer—a peak in 2016—so they conveniently
saw this as a remote possibility: “EIA felt that a different decline rate methodology is called for, and
the next page illustrates the decline rate that was used in the EIA scenarios.” (see Fig. 2)
Figure 2 (slide #15). Presto! Peak oil production climbs to 146 million barrels/day, peak oil gets
delayed 21 years, based on this scenario and rationale from EIA: “World production is assumed to
begin to decline in a way that maintains a constant R/P [reserves-to-production] of 10… The reason
for setting R/P equal to 10 is based on the United States experience….Therefore, a world R/P of 10
seems a reasonable assumption to reflect a mature state of world oil production, as it does for the
United States…[W]orldwide oil production is likely to continue increasing for more than three
decades.” So think of this as their most likely pair of scenarios, based on this comment and others.
Since 2000, EIA’s nearly continuous optimism remains in place today. (An EIA source told Peak Oil
Review that the April 2010 story in Le Monde about EIA becoming more pessimistic was taken out of
context.) By comparison, Peak Oil Review expects future production to fit the view of Total’s CEO
Christophe de Margerie (2/09): “World oil production may plateau below 90 million barrels a day.”

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