IEA study heads towards view that oil supply will flag

Channel NewsAsia 22 May 08;

PARIS: Global oil supplies could fall far short of need and expectations in the next 20 years, the International Energy Agency is concluding with a vast effort of detective work on production prospects, a newspaper report said on Thursday.

The report appeared in the Wall Street Journal after a day of frantic trading on the world oil market which pushed the price up past record after record, briefly to touch 135.04 dollars a barrel.

The main point of the report was in line with remarks made by the chief economist at the IEA, Fatih Birol, to AFP at the end of February.

Birol argued that investment was flagging behind expected growth of demand and consuming countries had to take emergency action to increase energy efficiency and develop alternative energies.

The WSJ reported that a sweeping review of existing oil fields and investment in oil extraction was leading the IEA to conclude that the ageing of existing oil fields and inadequate investment meant that "future crude-oil supplies could be far tighter than previously thought".

The European edition of the newspaper said that for several years the IEA had calculated that supplies would increase steadily as demand rose, to exceed 116 million barrels per day by 2030 from about 87 million barrels per day now.

But it now estimated that "companies could struggle to break beyond 100 million barrels per day over the next two decades".

The IEA, based in Paris, was created as an offshoot of the Organisation for Economic Cooperation and Development amid the first oil shocks of the 1970s to monitor the oil market and energy strategies for advanced economies.

The newspaper report said it had put a team of 25 analysts onto the task of trying to crack some of the best-kept secrets in the oil industry, regarding the situation and prospects for long-term oilfield production.

The report quoted Birol as saying: "One of our findings will be that the oil investments required may be much higher than what people assume."

He added in the report: "This is a dangerous situation."

In an interview with AFP on February 29, Birol said that the oil price was surging because of strong demand and because production capacity was not rising enough.

The IEA had calculated that up to 2015 it was necessary to invest enough in production capacity to supply 37.5 million barrels per day to meet growth of demand and compensate for a decline of existing fields.

The IEA had identified 230 projects for which financing had been voted in countries in the Organisation of Petroleum Exporting Countries and outside it.

If all of these projects were carried out, they would generate only 25 million barrels per day up to 2015.

There was, therefore, a shortfall of 12.5 million barrels per day between commitment to investment and what the IEA considered was needed.

The gap was "very, very worrying", he said then.

Only two strategies were available to consuming countries to deal with this, he said. One was to set in place emergency and draconian measures to increase efficiency of energy usage and to invest massively in alternative energies.- AFP/so