IEA's 2013 World Energy Outlook Summary

The IEA has published their 2013 World Energy Outlook and in it they raise some interesting issues going forward. Unfortunately, I don't have access to the full report (paywalled here). However, the Executive Summary does sketch out the main points.

All in all, the message is pretty similar to the world view encapsulated in the definition of the Peak Oil Dynamic (as I've described it) where the supply side (and falling demand in the developed world) faces significant challenges to maintain pace with the developing world's growing appetite for oil.

The centre of gravity of energy demand is switching decisively to the emerging economies, particularly China, India and the Middle East, which drive global energy use one-third higher.

A popular topic on this blog is the huge gap in energy consumption (for this blog, the focus is on oil) between the developing world and the developed world. Based on the summary, the developing economy growth coupled with the extremely low current per capita consumption patterns and the huge number of people involved requires significant product to offset some level of catch up.

In addition, this catch up and shift in consumption exacerbates regional discrepancies in resource endowments.

Energy price variations are set to affect industrial competitiveness, influencing investment decisions and company strategies.

While we here in Alberta are sensitive to oil price differentials, the global market is largely homogenous. However, for other production inputs price divergences are material. The summary urges greater integration of markets to satisfy needs. A prime example of this would be the proposed LNG terminal in Kitimat that would see Canadian natural gas reaching global markets, particularly Asian markets.

Developing countries will use whatever energy they can to fuel their growth. If we're serious about GHG emissions and fighting global warming we need to offer as many alternatives to coal as possible.

Perhaps the most interesting portion of the summary, and the portion of the report I most want to read, is the discussion on the new sources of supply coming on line, particularly 'light tight oil':

The capacity of technologies to unlock new types of resources, such as light tight oil (LTO) and ultra-deepwater fields, and to improve recovery rates in existing fields is pushing up estimates of the amount of oil that remains to be produced. But this does not mean that the world is on the cusp of a new era of oil abundance.

Which is followed shortly by:

The need to compensate for declining output from existing oil fields is the major driver for upstream oil investment to 2035. Our analysis of more than 1600 fields confirms that, once production has peaked, an average conventional field can expect to see annual declines in output of around 6% per year... 

Most unconventional plays are heavily dependent on continuous drilling to prevent rapid field-level declines. Of the 790 billion barrels of total production required to meet our projections for demand to 2035, more than half is needed just to offset declining production.

This is a point I was trying to make here. New sources of oil, do not have the same productive life cycle as the more conventional plays that we have been exploiting.

The summary describes conventional decline rates at about 6% once fields are post plateau/post peak. As more and more of the large conventional fields pass into decline new finds and new production must be brought on line to offset this lost production from the previous year.

As described by Rune Likvern in his on-going, "run with the red queen series" where this phenomenon is explored in the Bakken play; increased drilling (or globally, more expensive oil) is a requirement to push production rates up. Rune asks, at what point will this this game run it's course? What happens when initial production rates (IP) and ultimate-recovery rates start dropping due to the choice locations being drilled up first?

While, the diversified global production portfolio is obviously different from a single play like the Bakken, the key points hold. In a more recent post Rune asks what will come after these short cycled sources are exhausted? Is there another exploitable petroleum source out there?

The IEA summary also focuses on Brazil's potential, as the owner of huge recently discovered sub-salt formations in the ultra deep waters in the Atlantic. The IEA praises it's low carbon intensive energy sector and forecasts production to reach 6mb/d by 2035. But as described above this oil is not easy:

The increase in oil and gas production is dependent on highly complex and capital-intensive deepwater developments, requiring levels of upstream investment beyond those of either the Middle East or Russia.

And finally the summary outlines the changing composition of the refinery market. As I've hinted at (in this post), and should explore more, is the potential impact of Chinese capacity build out and the refinery JV/capacity build out in crude export markets.

This section also hints at the export land model developed by Jeffery Brown which places the emphasis on the quantity available for export rather then the total production. As exporting countries consume more of their own oil production the impact on the global market acts like a decrease in aggregate supply.

Over the period to 2035, we estimate that nearly 10 mb/d of global refinery
capacity is at risk, with refineries in OECD countries, and Europe in particular, among the
most vulnerable.

New export-oriented refinery capacity in the Middle East raises the possibility that oil products, rather than crude, take a larger share of global trade, but much of this new capacity eventually serves to cater to increasing demand from within the region itself. 

All in all, the report certainly seems to address the key points of the POD as I've described it. The supply side will be challenged by the declining production of legacy fields. The demand side will be pushed by the shrinking disparity between developed and developing world consumption levels. Markets will tighten as the export land model and the challenging high production and short life cycle nature of LTO and Ultra-Deepwater fields.

The potential for Brazil to reach the 6 mb/d seems pretty aggressive. This is something I'll have to look into more, as I have no real opinion on the matter yet.

I look forward to finding a full copy of this report at a later date. For now, this will have to do.