Headlines about 2012’s World Energy Outlook (WEO) from the International Energy Agency (IEA), released mid-November, would lead you to think we are literally swimming in oil.
The report forecasts that the United States will outstrip Saudi Arabia as the world's largest oil producer by 2017, becoming "all but self-sufficient in net terms" in energy production—a notion reported almost verbatim by media agencies worldwide, from BBC News to Bloomberg. Going even further, Damien Carrington, Head of Environment at the Guardian, titled his blog: "IEA report reminds us peak oil idea has gone up in flames."
But there are further reasons for concern. For how reliable is the IEA's data? In a series of investigations for the Guardian and Le Monde, Lionel Badal exposed in 2009 how key data was deliberately fudged at the IEA under U.S. pressure to artificially inflate official reserve figures. Not only that, but Badal later discovered that as early as 1998, extensive IEA data exploding assumptions of "sustained economic growth and low unemployment" had been systematically suppressed for political reasons according to several whistleblowers.
With the IEA's research under such intense U.S. political scrutiny and interference for 12 years, its findings should perhaps not always be taken at face value.
Indeed, Business Insider reports that far from being profitable, the shale gas industry is facing huge financial hurdles. "The economics of fracking are horrid," observes U.S. financial journalist Wolf Richter. "Production falls off a cliff from day one and continues for a year or so until it levels out at about 10 percent of initial production." The result is that "drilling is destroying capital at an astonishing rate, and drillers are left with a mountain of debt just when decline rates are starting to wreak their havoc. To keep the decline rates from mucking up income statements, companies had to drill more and more, with new wells making up for the declining production of old wells. Alas, the scheme hit a wall, namely reality."
The oil industry has actively and deliberately attempted to obscure the challenges facing shale gas production. A seminal New York Times investigation in 2011 found that despite a public stance of extreme optimism, the U.S. oil industry is "privately skeptical of shale gas." According to the Times, "the gas may not be as easy and cheap to extract from shale formations deep underground as the companies are saying, according to hundreds of industry e-mails and internal documents and an analysis of data from thousands of wells." The emails revealed industry executives, lawyers, state geologists and market analysts voicing "skepticism about lofty forecasts" and questioning "whether companies are intentionally, and even illegally, overstating the productivity of their wells and the size of their reserves." Though corroborated by independent studies, such revelations have been largely ignored by journalists and policymakers.
But we ignore them at our peril. Arthur Berman, a 32-year veteran petroleum geologist who worked with Amoco (prior to its merger with BP), on the same day as the release of the IEA's 2012 annual report, told OilPrice that "the decline rates shale reservoirs experience... are incredibly high." Citing the Eagleford shale—the "mother of all shale oil plays"—he pointed out that the "annual decline rate is higher than 42 percent." Just to keep production flat, oil companies will have to drill "almost 1000 wells in the Eagleford shale, every year... Just for one play, we're talking about $10 or $12 billion a year just to replace supply. I add all these things up and it starts to approach the amount of money needed to bail out the banking industry. Where is that money going to come from?"
So when is crunch time? According to a recent report from the New Economics Foundation, the arrival of “economic peak oil”—when the cost of supply "exceeds the price economies can pay without significantly disrupting economic activity"—will be around 2014 or 2015.
fpif.
