The developing scandal around the International Energy Agency and peak oil

The full impact of these developments has not yet been appreciated by the world economic community. For many years (up until its 2008 report) the IEA has predicted future world oil output based on what would be required to support future predicted economic growth. This is putting the cart before the horse since it is energy availability that constrains economic activity not the other way around.

Fortunately for the IEA in the past it has always been possible to increase oil production in line with a growing economy. However, this easy relationship began to break down in 2005 when conventional oil production plateaued and now, after the financial crash of 2008, oil production has begun to fall. (In fact, it is possible to make a very strong argument (PDF 637KB) that it was the high oil prices of 2008 - due to the supply/demand imbalance - that pricked the housing debt bubble in the USA and so triggered the current financial crisis.)

The corollary of the IEA’s assumption that oil (energy) use must increase in line with economic growth is that, if energy availability is now in decline, then economic activity must decline with it - in other words, the world will never again attain the economic activity seen in 2008 and we can look forward to decades of economic contraction if we cannot find alternative energy sources to substitute for the dwindling energy from oil. This will probably be manifested as oil price spikes killing economic activity as governments try to stimulate economies out of recession - every time an economy starts to grow it will increase oil demand beyond supply which will force up prices and crush the economic “green shoots”.

If the International Energy Agency had previously been honest about the world’s energy future then we might have been able to lessen the impact of the serious energy crisis into which we are now heading. As it is we are completely unprepared for it. As Aleklett put it:

What these faulty analyses will cost the world in the future is difficult to estimate but all the crisis packages that are currently in place are presumably a smaller part of that cost.

It is tragically apparent that we can no longer trust the pronouncements of the high authorities to whom we usually turn when seeking advice on which to base decisions about our future (such as investment decisions). Whether it is the IEA, EIA, reserve banks or other purportedly politically independent bodies, it seems they are not telling us the truth but, rather, what they want us to believe in order to maintain faith in an economic system whose future is now in serious doubt.