Financial Times: Secret and unreliable world of oil statistics: "It also does not bode well for the longer-term issue facing the industry - the extent of oil and gas reserves.": “The Royal Dutch/Shell Group debacle, where the oil producer wiped 23 per cent off its oil reserves this year, highlighted the loose interpretation of rules governing energy reserves.” (ShellNews.net) 15 Dec 04
By Kevin Morrison
Published: December 15 2004
In few industries do statisticians have to behave like spies, but those charged with collecting data on oil supplies have to rely on secret networks of informers in terminals around the world, who monitor tanker timetables and scrutinise shipping movements to report on changes in import and export volumes.
This reliance on informal and often unreliable sources about the basics of supply and demand has led to disparities between oil statisticians' estimates of production. Debates rage in the industry about the true strength of consumption growth and, for example, how much of China's rise in demand has gone into building stockpiles.
The need for accurate information has become more critical as prices have risen, playing havoc with markets and economies around the world, and calls for an overhaul of the system are growing.
Finding reliable data has become more difficult as much of the growth in demand has come from countries outside the Organisation for Economic Co-operation and Development. Non-OECD countries, led by China and India, are estimated to have accounted for 70 per cent of the rise in global oil demand in four years. "Many of these countries do not have the systems or sufficient resources to provide the timely data," says Guy Caruso, head of the Energy Information Administration, the statistical arm of the US department of energy.
The surge in non-OECD growth caught global oil markets by surprise. With demand growing this year at its fastest rate in 28 years, spare production capacity has fallen to its lowest level in 25 years, in turn creating a very tight oil market.
However, each oil crisis has caused governments to try to improve their information on the market. The Arab oil embargo of 1973 caused industrial nations to create the International Energy Agency 30 years ago this month so the developed world could react with a united front in emergencies.
Despite this, the Iranian revolution in 1979 led to a second shock, with prices tripling to about $80 a barrel at today's prices. Mr Caruso says a lot of this was due to panic buying, which led to a significant increase in global oil inventories. "The problem was that nobody knew that there was any inventory building going on because nobody at the time was keeping a check on inventories," he says.
This led to the oil monthly report by the IEA, which is the world's most comprehensive monthly oil statistical report. It includes estimates of global supply, demand and inventories. However, critics such as Matthew Simmons, chairman of Simmons & Co, an energy consulting group, say the IEA underestimates demand growth in the past four years.
The IEA says its data is only as good as that which is supplied and that countries must be more responsible for providing accurate information. However, the IEA has little power to force non-OECD countries to comply.
Critics also blame the Organisation of Petroleum Exporting Countries, the world's biggest grouping of oil exporters, for not supplying its production figures and instead relying on "secondary sources" such as trading, shipping and oil companies for its output statistics. "It is as if Opec does not trust its own figures," Mr Simmons says. Opec members say they are discussing the issue with a view to a change. But they are wary of disclosing official data to fellow members because this would be a public admission that they may have flouted the cartel's self-imposed quota system.
The IEA, together with Opec and the United Nations, are working on a separate project, the Joint Oil Data Initiative, to improve the quality and transparency of international statistics.
Since it was formed in 2000, JODI has shown little for its efforts, but this is about to change. By next May, JODI plans to start publishing up-to-date information on oil inventory levels for OECD countries, Opec members, China and India, which together represent about 80 per cent of global consumption.
Although this change is a recognition that more transparency is needed, it falls well short of having timely data on global supply and demand. It also does not bode well for the longer-term issue facing the industry - the extent of oil and gas reserves.
The Royal Dutch/Shell Group debacle, where the oil producer wiped 23 per cent off its oil reserves this year, highlighted the loose interpretation of rules governing energy reserves. This writedown, plus Mr Simmons' questioning earlier this year of Saudi Arabia's reserves, has put reserves accountability in the spotlight.
"There is a lot more attention on data and there is a greater understanding by all parties for more transparency," Mr Caruso says. "And given the price volatility we have seen this year, that provides a good indication that we need to change."
But while small changes are on the way, the spies are likely to be in business for some time to come.