I’ve said it before, but it needs to be said again: The US is not overtaking Saudi Arabia as the world’s largest producer of oil. Here’s what everyone needs to know:
• This is a trick of numbers: We cannot compare total combined liquid hydrocarbons produced by the US with Saudi Arabia’s strictly crude oil production.
• The International Energy Agency (IEA)—from whence these numbers originate--is by no means an independent energy body: It has motive and agenda, and it deals mostly in PR
In October, we were regaled with a brilliant story, “scooped” by The Associated Press, about how the US could overtake Saudi Arabia as the world’s largest “hydrocarbon” producer (which everyone immediately translates into crude oil).
This week, we are enjoying the second phase in this public relations gimmick: Not only is this possible now, it’s a definite reality.
In the mainstream media, it’s hard to find an informative article on this subject.
While the Financial Times article on the issue is probably one of the more informative of the mainstream offerings, it still falls short of reality and buries the dubious mathematics of the IEA.
What is also missing from these mainstream media articles is an examination of the numbers the IEA is using to make this claim, and an examination of what the IEA really is and how it operates.
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Remember that the IEA was founded by then-Secretary of State Henry Kissinger in 1974 when—as aptly expressed by a Naked Capitalism forum --“most of America’s elite were rudely schooled on the importance of oil—that is cheap oil—to the American and burgeoning corporate global economy.”
The IEA is using unsubstantiated oil industry analysis that’s been trumpeted over the past six months and extrapolating them into the future. This is dangerous, and similar to what happened to the market when Americans lost their homes a few years back.
So let’s look more closely at the numbers the IEA is using.
The IEA claims that “production will rise from 6.3m b/d this year to 6.8m b/d in 2013 - its highest level since 1993. The EIA predicts it to be as high as 7.8m b/d in 2035. Combined with biofuels and natural gas liquids such as ethane and butane, that will mean the US will soon be producing more than Saudi Arabia, which has been pumping just under 10m b/d in recent months, and Russia, which produces about the same amount."
This recognizes that the US production forecast of 6.8m b/d for 2013 is “combined with biofuels and natural gas liquids”. But then it goes on to compare this with Saudi Arabia, which is pumping just under 10 m b/d. At the risk of stating the obvious, the US figures are for crude oil and all non-crude liquid hydrocarbons together, while the Saudis are pumping much more valuable crude. This is grossly and blatantly misleading.
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Furthermore, as I pointed out in a previous article, the Saudis can produce crude more easily and cheaply.
We believe the numbers are skewed even without considering the wrongful comparison with Saudi Arabian production.
In a recent interview with Oilprice.com, energy expert and geological consultant Arthur Berman, warned that the next bubble to pop will be shale, since shale gas has been a commercial failure. “Shale gas has lost hundreds of billions of dollars and investors will not keep on pumping money into something that doesn’t generate a return.”
He also points out that shale reservoirs have a high decline rate. The biggest of these, the Eagleford shale, has an annual decline rate of more than 42%.
Where, he wonders, does this data figure in to the IEA’s future forecasts?
The broader message here is: Be careful what you read. Oil numbers are very difficult to come up with on a level of accuracy, especially future prediction.
By. Charles Kennedy of Oilprice.com