Happy New Year from The North Sea. Or, Secrecy By Complexity

The dramatic fall of Mexican oil production, and its largest field Cantarell, is often cited as a signature example of the problems facing Non-OPEC supply. Since the production highs of 2004-2005, Mexican production has lost over 800 kbpd (thousand barrels per day) which is fairly dramatic for a country that was producing around 3.4 mbpd as recently as 5-6 years ago. But as accelerated as these declines have been in Mexico, another oil producing region has seen even quicker declines. The North Sea, which comprises “United Kingdom Offshore, Norway, Denmark, Netherlands Offshore, and Germany Offshore” has just lost 25% of its production in less than 24 months, falling over a million barrels a day. | see: North Sea Crude Oil Production in mbpd 2008-2010.

I mention this because as 2010 comes to a close, it appears that for the fifth year in a row the peak production year of 2005–in which the world produced oil at a rate of 73.718 mbpd–will once again not be exceeded. This is truly an astonishing result given that the new pricing era for oil began in 2004. For over five years national oil companies and publicly traded oil companies have been free to sell oil into an ever-rising price environment. What’s more intriguing is that OPEC–which currently accounts for about 42% of global supply– has been roughly steady in producing 30-31 mbpd while Non-OPEC, accounting for the majority of world supply at 58% has struggled with decline.

Another region in Non-OPEC that has disappointed is Canada. While Canadian oil production soared coming into the last decade, its production halted starting in 2006 and since then has oscillated around 2.6 mbpd. There is much hope for future increases from Canada and there is even a kind of mini-myth taking place in the US right now that Canada will be a strong source of future supply to the US. However, what has happened in Canada the past decade is that cheap conventional barrels of oil have been replaced with expensive tar sands barrels of oil. The result? Running in place in terms of supply, but at a much higher cost structure.

One of the methods EIA Washington and IEA Paris have increasingly relied on in recent years to obscure the very serious and now very real problem of oil depletion is to include biofuels and natural gas liquids in the accounting of global oil production. The technique that both agencies use to conduct this obfuscation is a familiar one, in which the key information is aggregated (buried) into a much larger barrage of data and presentations. For a scholarly look at the methods governments use to work around their obligations to inform the public, do watch the one hour lecture that Jay Rosen gave to the World Bank earlier this year. Rosen’s deconstructions of the media have been very helpful to me, over the past two years. See his blog here: PressThink.org. Rosen describes the use of opacity as a kind of hiding in plain sight, or secrecy by complexity.

In order to rebut this Secrecy by Complexity it’s the obligation of responsible energy analysts to explain the falsehood of adding biofuels and natural gas liquids to measures of oil production. The reason is simple: natural gas liquids are not oil, and they contain only 65% of the BTU of oil. Worse, biofuels are barely an energy source themselves and are the product of a conversion process of other energy inputs. Accordingly, the world is not producing 84, or 85, or 86 million barrels of oil per day. Nor will the depletion of oil be solved by the production of biofuels in the future.

When the EIA in Washington falsely composes such forecasts, aggregating future natural gas liquids and ethanol into a supply picture for “oil” as they do each year in The Annual Energy Outlook, this disables the public’s ability to accurately understand the true outlook for global oil supply. It’s not surprising that the government uses opacity and secrecy by complexity to handle this extremely important issue. The loss of cheap energy, the loss of the cheap BTU that oil has provided to OECD nations for the past 70 years, is a crucial factor in the dilemma the West now faces: a newly chronic economic restraint that refuses to go away.

-Gregor

Further Reading on EIA Secrecy by Complexity: The Ascent of Middle East Food and Energy Demand

  • http://www.chinavortex.com pdenlinger

    There is plenty of oil; so much that the oil companies are putting exploratory oil rigs in Antarctica. I’m just waiting for BP to announce that they are looking for oil in the Marianas trench. All this attests to how much oil we have.

    Of course, the biggest joke is that Saudi Arabia has had the same oil reserves for the past 40 years. Do you think that has something to do with the Kingdom losing influence in the region if it updated its reserve amounts?

    Best wishes for 2011. We have a lot of bubbles. There’s the US debt bubble. The US property bubble. The US muni bond bubble. The China property bubble. The China excess production capacity bubble. The China urban employment bubble. The north China water shortage. The euro hidden debt bubble. The German pension fund bubble. Then there’s global warming.

    What fun!

  • http://twitter.com/karlwaldman karlwaldman

    Thanks for the article – I had just noticed the discrepancy between the 73 mbpd in your charts and the 85 mbpd and was going to ask you. Gotta love our elected officials positioning vs solving problems.

  • Richard

    The US and world economy recovered after post-WWII recessions with the help of falling oil and commodity prices.
    As you have pointed out through various articles, this time its different. Recovery on cheap oil wasn’t possible for the last or current recession and therefore increasing parts of these ‘economies’ are simply huge holding bays for unneeded persons where the paradigms learned from school of jobs, careers, progress, and even democracy await new definitions. The shared narrative, the social contract, is shattered. That, and the connected collapse of credit and banking confidence, has the political and monetary systems of all nations stuck in ruts across the world.
    These systems will be re-set into new directions by events whose initial explanations won’t directly invoke the oil supply. Such events might include limited wars to re-militarize whole nations to prepare for a later all-out fight for their oil access, especially in Asia. Another re-set event would the bankruptcy of entities in the West who cant import oil or gas next winter. Though we are past peak, this part of the oil downslope is not catastrophic enough yet to require overt political recognition in the West, both because of foolishness and because almost useless alternatives are wasting our attention. We seem unable politically to reduce oil use and waste. Thus all there remains are overlapping agendas and perspectives on this in the background – banking, military, geo-political etc. They too cannot reach a consensus and must await others’ actions. Nonetheless, the employed and property owners will soon be shown the arrival of vast besieging armies of new and alien persuasions, and will be taxed to defend the walls from within and without.
    I believe this is the reason that these plain facts must be kept ‘secret’.

  • Ponzi II The Great

    73 mbpd is conventional. You can add heavy, deepwater and polar. Peak is certainly 2008. But irrelevant for the big picture. Like Gregor said, North Sea decline tells the story about Non-Opec steep decline underway which consequently can’t be offset by OPEC production. “Economic growth/recovery” is unsustainable. All that survives is Ponzi, the emperor with no clothes

  • googler

    We run into all the time when analyzing the financial statements from oil companies. The
    companies that report production in terms of BOE (barrels of oil equivalent) do not break
    out what component is oil and what component is NG and NGL. They try to hide it.

    I avoid investing in all companies that report production as BOE. If the company has lots
    of oil, it would break out the oil production by itself. No need to hide.

  • Christopher Dobbie

    Noticed a little quirk in Jay Rosen’s lecture, he places international economists level in authority with those of aeronautical engineers. I for one wouldn’t care to fly in any airlines he recommends under this logic.

  • gregor.us

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  • gregor.us

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  • gregor.us

    Retrieving lost comments which did not post to DISQUS:
    ______________________________________________

    Christopher Dobbie

    2011/01/03 at 6:55 AM

    Noticed a little quirk in Jay Rosen’s lecture, he places international economists level in authority with those of aeronautical engineers. I for one wouldn’t care to fly in any airlines he recommends under this logic.

    ______________________________________________