The EIA’s International Energy Outlook 2014

Last year I posted a lot of data published in the EIA’s Annual Energy Outlook 2014 published in May of last year, and the next one is due out Tuesday April 14. We are looking forward to that. But the EIA’s International Energy Outlook 2014, published last September, completely slipped by me. How did I miss that? But I looked at their predictions for world Crude plus Condensate production I found it very interesting.

In the below, though the data was posted in September, I have assumed the 2014 data was complete. Though it may be a little off it is close enough for, as the saying goes, “government work”‘. The data is in million barrels per day with the last data point 2040.

The EIA is expecting World C+C to reach just over 99 million barrels per day in 2040. That will be up 21.25 million bpd from 2014.

This chart shows just which countries, they believe, will be responsible for that 21.25 million bpd increase. That is except for OPEC. They do not break out OPEC production by country.

As you can see the EIA expects OPEC, in 2015, to produce even less than they did in 2005. Yet they expect the lions share of production increase in the future to come from OPEC. They expect OPEC C+C production to increase production by 14 million bpd by 2040.

The EIA expects Non-OPEC to continue increasing production right through 2040.

 

But the EIA is not expecting great things from the USA. This EIA expects the USA to plateau in 2016 then start to decline in 2020.

The EIA has World C+C production in 2015, less USA production, almost the exact amount it was in 2005. So all the production increase in one decade was due to increase in USA production, primarily shale oil production. Yet they expect none of the production increase in the next 26 years to come from the USA. They say that USA production is headed down while most all of the rest of the world’s oil production is headed higher.

This is the EIA’s projection for Mexico and Chile. Mexico produces about 2,400,000 bpd and Chile produces about 7,000 bpd. So Chile’s contribution to this can be totally discounted. This is what they expect Mexico to to do in the next 26 years.

The EIA expects Canada to continue to increase tar sands production until total Canadian production nears 6 million bpd.

The EIA expects Russia to peak in 2016, decline slightly then head back up in 2026 then really take off in 2030.

The EIA expects Kazakhstan’s Kashagan field to come on line soon and to be producing over 1 million barrels per day by 2025 but to still to keep increasing production until 2040.

Needles to say I think the EIA’s long term projections to be almost absurd. World production has been basically flat for 10 years except for US production. But just when they expect US production to plateau and start to decline they expect almost every other oil producing nation to take off like gangbusters.  This is simply not going to happen.

However it is the EIA’s methodology which I find extremely interesting. They just appear to pulling numbers out of the air, especially in the case of OPEC. But the USA is the one place they they could not just make up numbers. Well not numbers that were too big anyway.

In other news:

Contango in the oil market is responsible for the huge inventory build

The 12 month future price has stayed much higher than the one month futures price. This allows speculators to buy oil at the one month price (currently $51.7/bbl), immediately contract to sell it at the higher 12 month price ($58.20/bbl), and collect a profit.

The profitability of the storage trade is necessary to soak up the excess production which continues to outstrip near-term demand by a considerable margin.

The chart below illustrates the close relationship between the WTI futures curve and storage levels. A rising line indicates an upward-sloping futures curve – contango – that makes the storage trade profitable. Steeper contango is usually followed by higher inventory levels as speculation increases.

Contango is now declining, making the storage trade less profitable. On Feb. 27, a buyer could acquire oil at $49.80 per barrel, sell it at $64.50 per barrel for delivery in February 2016. The profits would have been $10.25 minus storage costs for the 12 months before delivery.

Notice that the inventory build did not start until the futures market was well into contango. So it makes perfect sense that this is, or was, what was driving the huge inventory build and not an not an increase in production. There was an increase in imports however.

From this article we get he Understatement of the year.

Kemp: US Oil Production Is Probably Peaking Right Now

The EIA includes estimates for U.S. production in its weekly and monthly publications. However, these are based on extrapolating from limited data and subject to estimating errors, which are likely to be especially large when the production trend is changing.

peak oil barrel