Oh Dear - The EIA Will Have Less Money to Make Bad Predictions With!

Far be it from me to laud cuts in spending on critical things like energy analysis...but I admit I can't work up a good head of steam about the cuts in the EIA budget. After all, the EIA has managed to consistently get it wrong on oil reserves. Here's what happened:

The final fiscal year (FY) 2011 budget provides $95.4 million for the U.S. Energy Information Administration (EIA), a reduction of $15.2 million, or 14 percent, from the FY 2010 level.

"The lower FY 2011 funding level will require significant cuts in EIA's data, analysis, and forecasting activities," said EIA Administrator Richard Newell. "EIA had already taken a number of decisive steps in recent years to streamline operations and enhance overall efficiency, and we will continue to do so in order to minimize the impact of these cuts at a time when both policymaker and public interest in energy issues is high," he said.

EIA must act quickly to realize the necessary spending reductions during the present fiscal year, which is already more than half over. The changes in products and services identified below reflect initial steps to reduce the cost of EIA's program. Additional actions are being evaluated and may result in further adjustments to EIA's data and analysis activities in the near future.

This is not, objectively speaking, a good thing. The US needs good energy data and analysis, and a lot of people rely on EIA information to make decisions. But it is worth remembering that the EIA has consistently made cornucopian predictions in the face of contrary evidence, even as most other analyses, most notabley the IEA, have moved towards more balanced approaches. Remember how the EIA said we aren't going to hit $100 barrel until 2017? Consider Art Berman's Oil Drum analysis from the beginning of this year:

We no longer have to worry about energy supply or prices. That is the message from the U.S. Energy Information Administration's (EIA) Annual Energy Outlook (AEO) 2011. Cheap energy will characterize the world for most of the next decade, according to the report. Oil will not reach $100 per barrel until 2017 and natural gas will remain below $5 per thousand cubic feet (mcf) until 2022 (Figure 1).

Despite four decades of oil shocks and natural gas price spikes, the future looks stable with supply and demand comfortably balanced (Figure 2). Wasn't it just two-and-a-half years ago that $147 per barrel oil helped push the world into the current global recession? The EIA forecast is as troubling for the smooth and gradual progression of oil and gas prices as it is for the improbably low values of those prices. The history of oil and gas price, supply and demand is characterized above all by volatility but the EIA projection does not reflect this characteristic. Don't worry, be happy.

The EIA has been so consistently wrong in its predictions, failing even to accurately describe the immediate future and the present, much less the long term future that one can be tempted to argue that my second grader, given some darts and a Ouija board could do as well. Given that, the question may not be "why the cuts" but why they get the other 95 million dollars.

Sharon