The International Energy Agency (IEA) is the energy advisor to the 28 nation Organization for Economic Co-operation and Development, the world’s most advanced economies. The Agency publishes a number of reports and frequently comments on developments in global markets. However, it’s most strategically significant, and often controversial, publication is its annual “World Energy Outlook”. In a recent article in “Oil Voice”, author Robert Perkins looks back to the 1998 issue of the Agency’s flagship report, and discusses its accuracy as well as the implications of the most recent version.
Eighteen years ago, based on oil reserves models used at the time, the IEA predicted that conventional oil output would peak before 2020. The Agency concluded that the world would have to compensate by increasingly relying on unconventional sources of oil. These included shale oil (also known as tight oil), tar sands, coal, and gas-to-liquid (conversion of natural gas to diesel) projects. While shale oil was only given cursory mention, the report was nonetheless prophetic. Global conventional oil production peaked in 2006, and two years later, the shale revolution had started.
Now the IEA contends that more unconventional oil is needed to prevent a global shortfall, but this time for different reasons. The Agency fears that the collapse of industry spending on new projects will result in a supply shortage of 16 million barrels per day (bopd) by 2025. To avert this, U. S. tight oil production must be higher for longer than originally anticipated. The hope is that shale operators will be able to continue to become more efficient, and consequently, resistant to low prices. Otherwise, we can expect a spike in oil prices worldwide.
Globally the IEA predicts shale oil production will increase from its 2015 level of 4.6 million bopd to 7.5 by 2035. Some operators, such as BP, are even more bullish, but much depends on the ability to thrive in a low price world. Unfortunately, efficiency improvements cannot go on forever, and current shale sweet spots will deplete.
What is the world to do? One possible solution would be for the shale revolution to spread worldwide. Another would be for the oil industry to start investing globally again. Otherwise, the IEA foresees a “boom/bust” cycle of volatile prices. A major downside is the natural decline of oil reservoirs. Conventional fields are expected to decline by 23.7 million bopd over the next decade. To put this in perspective, that would be equivalent to losing the entire output of Iraq every two years.
However, the IEA thinks that the prolific output from recently discovered gas fields will contribute additional natural gas liquids, and gas condensates. Increased shale production will also help offset natural depletion. In fact, the report concludes that while conventional oil production might decrease slightly, it will ultimately rise to over 85 million bopd by 2040. This, in conjunction with enhanced shale output, should help the world meet the future demand for energy.
To read the article in its entirety, please go to https://www.oilvoice.com/Opinion/857/Has-tight-oil-put-peak-oil-to-rest-Not-so-fast-Fuel-for-Thought .
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