IEA warns of global oil shortage

IEA warns of global oil shortage
By Javier Blas, Commodities Correspondent
Copyright The Financial Times Limited 2007
Published: July 9 2007 13:25 | Last updated: July 9 2007 13:25



The world economy faces a tight oil market in the next five years because of a combination of accelerating consumption and output falls in mature areas, such as the North Sea, and long delays in new production projects.

The warning on Monday by the International Energy Agency, the energy watchdog, comes as oil prices surge above $76 a barrel, to $2.50 a barrel below last summer’s all-time high of $78.65.

The IEA said in its Medium Term Oil Market Repot that ”oil looks extremely tight in five years time” and there are ”prospects of even tighter natural gas markets at the turn of the decade”.

The IEA forecast that demand will grow at an annual rate of 1.9 per cent during the next five years, to reach 95.8m barrels a day in 2012. China and other emerging countries will lead the increase in consumption.

The new forecast sees oil production growth in the next five years outside the Organisation of the Petroleum Exporting Countries at 1 per cent, roughly half the rate of demand growth projections.

The widening gap between demand and non-Opec supply will force Opec, the oil cartel which controls about 40 per cent of global oil output, sharply to increase its production between 2007 and 2012.

The IEA estimates Opec would have to supply about 36.2m b/d in five years, from today’s 31.3m b/d. That would reduce the cartel’s spare capacity to 1.6 per cent of global demand, down from 2.0 per cent in 2007.

”Despite four years of high oil prices, this report sees increasing market tightness beyond 2010, with Opec’s spare capacity declining to minimal levels by 2012,” the IEA said.

Non-Opec cumulative growth in the next five years would add 2.6m b/d of new net production capacity, down from the 4.6m b/d cumulative increase in the period 2000-07.

The IEA said the smaller increase was due to falling production in mature areas – especially in the North Sea – and long delays in new production projects in other areas.

UK production is set to decline from today’s 1.7m b/d to just 1m b/d in 2012. That is below the official UK governmen forecast range of 1.1m-1.6m b/d for 2012. Norway’s oil production will fall to 2m b/d in 2012 from today’s 2.5m b/d.

International and national oil companies were not investing enough to compensate for those declines, the watchdog added.

”Substantially higher cash returns to shareholders stand in curious contrast to growing upstream supply tightness and essentially unchanged exploration and production effort,” the report said.

Biofuels would contribute to ease the supply crunch, although would still represent a small percentage of global supply. The IEA forecasts global biofuels output to double in five years to reach 1.75m b/d in 2012.