The Peak Oil Crisis: EIA — The greatest failure of them all?

For those of you who don’t follow such things, there exists down on Independence Avenue a semi-autonomous little organization known as the Energy Information Administration (EIA). Created by Congress back in 1977, its mission “is to provide policy-independent data, forecasts, and analyses to promote sound policy making, efficient markets, and public understanding regarding energy and its interaction with the economy and the environment." In short, they keep track of our energy supplies and make forecasts about their future.

The EIA takes pride in its independence from the policy-making parts of the federal government. A page of its website is devoted to Section 205d of Public Law 95-91 which says in no uncertain terms that the rest of the government shall keeps its hands off of EIA judgments — "nor shall the Administrator be required, prior to publication, to obtain the approval of any other officer or employee of the United States with respect to the substance of any statistical or forecasting technical reports which he has prepared in accordance with law." Around Washington, that’s about as independent as you can get and still draw a federal salary.

As we all know various parts of our federal government have had some rough times lately. Remember how the FBI reacted when an agent discovered that a suspicious Middle Eastern type was learning how to fly but not land commercial aircraft; or the Corp of Engineers’ seawalls; or FEMA’s rescue of New Orleans, or the CIA’s slam dunk; or the mother of all recent failures, the Pentagon’s efforts to democratize Baghdad. These are sure to make the history books.

Now what could a small band of government statisticians do to write themselves into infamy along with FEMA at New Orleans, the CIA estimate on WMD, Rumsfield’s Pentagon, and the neocon invasion of Iraq? Simple! They are in charge of telling America how much longer our cheap and plentiful energy supplies are going to last. If they get this wrong, the whole country is in a whole lot of trouble. Some think it might not even survive a rapid, unexpected transition to whatever follows the age of cheap energy.

Well, what has the EIA been telling us lately?

Every year the Administration publishes an "Annual Energy Outlook" that attempts to forecast our energy flows over the next 25 years. Last week the 2007 reference case was released. Now, the "reference case" admittedly is the case that by definition assumes nothing major is going to happen to our energy supplies in the next quarter of a century. Readily discernable trends are projected on out, but for the most part, the next 25 years is envisioned as looking very much like the last 25. While this formula may have worked for the last 30 years, its day has clearly come. Too much evidence is accumulating that energy supplies in the next 25 years will look nothing like those in the last.

The core judgment of the Annual Energy Outlook 2007 reference case is so absurd that publishing it is a major disservice to the American people. The supplies of oil and natural gas available to the American people are simply not going to continue growing merrily along as they have for the last century. A break point emanating from geology, geopolitics, or simply economic growth and demand is clearly in the offing.

In the new Outlook, we have the EIA projecting that petroleum and liquid fuels consumption in the US will be increasing from the current 20 million barrels per day to 27 million barrels in 2030. Price projections are even sillier: the $69 dollar per barrel average price for oil in 2006 is to drop to just under $50 per barrel in 2014 "as new supplies come on the market" and then rise slowly to an inflation adjusted $59 in 2030.

To give the EIA its due, the Administration states up front that predicting our energy future is very difficult and that much is changing— prices, weather, Asian economies, and technology to name a few. Moreover, they do make efforts to modify some of their projections to keep them in line with obviously changing conditions, but these modifications simply are not enough to cover the forces that are on the move in the real world. The EIA is busy describing the trees and seem to have no vision that the energy forest is on fire or that a conflagration is about to consume us all.

The EIA will soon release other projections of possible energy futures. If you want to think the world’s energy situation will get better and better, well, they have a case or two for that. If you want to think the end is nigh, they have a pessimistic case too. But these cases don’t get the press conferences or the wire service stories. It is the business-as-usual reference case that we hear about.

The only bright spot in all this official nonsense is that it is so out of touch with reality it can’t go on for much longer. Some day in the next few years, it will become so obvious that projecting continually increasing oil and gas production and steady to lower prices is as unrealistic as the concept of "winning" in Iraq.

In the meantime, one would hope the leadership of our "independent" Energy Information Administration will get their heads out of the sand and move beyond denial to recognize we are at the brink of a whole new age of energy scarcity. By refusing to think, write, or warn about the realities facing this country’s energy supplies, they are doing a major disservice to the nation. Future generations of Americans will suffer needless hardships because of our failure to prepare for the great energy transition that is coming whether we recognize it or not.

A completely new approach to energy forecasting is clearly needed.