What you missed in London this week: Kapsarc


This blog is part one of a two-part series highlighting the most important things we heard during a busy week in London.

We were in town for one of the biggest events of the year on the energy calendar: International Petroleum Week 2019. The conference draws about 1,500 people over four days of panels, speeches and (of course) parties.

A day before IP Week kicked off Tuesday, we attended a roundtable organized by the King Abdullah Petroleum Studies and Research Center (Kapsarc), a Riyadh-based think tank.

The topic discussed was OPEC production levels and data accuracy. What are the current methods for estimating output? Is there a better way? (The related Kapsarc paper is here)


As far as anyone was aware, this was the first time an event like this has happened. That’s shocking when you consider the importance of OPEC production estimates to the oil market.

The current methods are far from ideal, attendees said. The use of new technologies, namely radar satellite, can complement or even replace existing techniques.

For decades, OPEC has used third parties to provide independent estimates of OPEC production by member state.

The OPEC Secretariat publishes average monthly production for each member state in its monthly oil market report. The last report was published February 12 covering January.

There are two numbers for each country. One comes directly from the member state government. The other is the average of estimates by third parties (aka “secondary sources).”

Six outlets make up the list of secondary sources: S&P Global Platts, Argus Media, Energy Intelligence Group, IHS-Markit, the US Energy Information Administration and the International Energy Agency.

What’s important to realize is the basis for these estimates is not actual production. Data isn’t generally available at the wellhead.

Instead, these estimates reflect an implied measurement. The starting point is crude exports, which can be derived using ship-tracking software and loading schedules.

Then you account for refinery throughput and (in the case of Saudi Arabia) direct burn at power plants during the summer.


IP Week begins in London

There’s a lot missing there or things that can be improved upon. Here’s a taste of what people said:

“All the secondary sources start with exports and calculate domestic consumption based on historical trends, but inventories are a black hole.

“The missing link is still stocks.”

“Secondary sources are good on Iraq, West Africa, but weak on ‘unexciting countries’ – small producers with stable production. No two months should show flat production. Yet that’s what we often see from secondary sources for Qatar and to a lesser extent UAE and Kuwait.”

“Most secondary sources are guesstimating Iran.”

“Should we even be talking about production if markets really want to know more about exports.”

The main problem with JODI is inventories. Stock data is treated as a balancing item.

“The estimates by third party sources are converging. Now there is a risk of convergence. Is this a good thing? Is there more agreement because they can see each other’s work, discouraging outliers?

There is no benchmark for the truth.”

“JODI politics yields why it takes two months to release. They don’t want to release it sooner.”

“Are there ways to increase transparency?

“Russia and OPEC are actively managing inventories to impact price.”

“We (secondary sources) come under pressure to get in line with official production numbers.”

“In Saudi Arabia, exports cannot be a proxy for production because of refinery intake and direct burn. You’re missing these dynamic sectors.”

“If refinery activity can also be measured using satellites then human sources could become redundant.”

“I don’t think exports alone give a full picture.”

Satellites are potential game changers.”

That last quote should come to mind if you are wondering about timing. Why did this roundtable occur now if the same problems have been around for a long time?

Well, likely because potential solutions exist that didn’t before. Nothing else is different.

In the next installment, we’ll cover what you may have missed for the rest of IP Week.




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