by Jerome a Paris
Mon Jul 9th, 2007 at 10:01:13 AM EST
Oil has been above 70$/bl for the past 3 months, but this is no longer news as it is below the "highest ever". And yet, this comes at a time with no obvious geopolitical crisis (Iranian rumblings are in fact rather more tuned down these days), with some problems in Nigeria, but barely more than has been the norm lately...
IEA warns of global oil shortage
The world economy faces a tight oil market in the next five years on 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 prognosis is based on the expected two items I've been discussin ad nauseam in my diaries: relentless demand growth, and tightening supplies:
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.
That means close to 2mb/d more to be added each year. The production capacity of Saudi Arabia to be added in 5 years - as a net addition, i.e. the real production additions need to be higher to take into account decline in existing fields:
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 British's government forecast range of 1.1-1.6m b/d for 2012.
And, very inconveniently, production is declining in the most friendly places, those where Western oil majors have access.
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.
I have noted many times that oil companies did not invest, giving their money back to shareholders (and effectively telling them that they have better things to do with their cash than investing it in oil exploration and production - despite the current prices).
That the IEA makes the same remark today, in such explicit terms, is a pretty stark indictment. The question is, an indictment of what? Of profiteering by oil companies, or of our unsustainable addiction to a depleting resource? The fact is, the IEA would rather blame the oil companies than admit that peak oil is neigh. Coming from the industry watchdog, this, in itself, is a notable item...
Oh, just a side note:
Biofuels would contribute to ease the supply crunch, although will 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.
5 years of massive disruption to agricultural markets will provide enough fuel to cover the increase over one year. If that's not an indictment of the uselessness - and sheer folly - of the biofuels boom, I don't know what it will take.
Earlier diaries in the series:
Countdown to $100 oil (41) - oil more expensive than it appears
Countdown to $100 oil (40) - Undulating plateau
Countdown to $100 oil (39) - BigOil running out of oil
Countdown to $100 oil (38) - Who gets Champagne edition
Countdown to $100 oil (37) - OPEC says peak oil (and $100 oil) is near
Countdown to $100 oil (36) - Free game! win champagne! no risk! (eurotrib)
Countdown to $100 oil (36) - Free game! win champagne! no risk! (DailyKos)
Countdown to $100 oil (35) - peak oil: the last skeptics capitulate (CERA)
Countdown to $100 oil (34) - Oil major CEO calls for demand reduction
Countdown to $100 oil (33) - Below zero
Countdown to $100 oil (32) - peak oil is, like, so over. Not!
Countdown to $100 oil (31) - $15 oil? The cornucopians are fighting back
Countdown to $100 oil (30) - senior politico fears looming oil wars
Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)
Countdown to $100 oil (28) - New records suggest more to come
Countdown to $100 oil (27) - 'Mission Accomplished' - High oil prices are here to stay
Countdown to $100 oil (26) - Time to bet again (eurotrib)
Countdown to $100 oil (26) - Time to bet again (dKos)
Countdown to $100 oil (25) - Iran vows that oil prices will not go down
Countdown to $100 oil (24) - What markets are telling us about future energy prices
Countdown to $100 oil (23) - Running out of natural gas in North America
Countdown to 100$ oil (22) - gas shortages in the UK - 240$/boe
Countdown to $100 oil (21A) - The 4 biggest oil fields in the world are in decline *
Countdown to 100$ oil (21bis) - long term vs short term worries (dKos)
Countdown to 100$ oil (21) - 8-page extravaganza in the Independent: 'we're doomed'
Countdown to 100$ oil (20) - Meteor Blades is Da Man in 2005
Countdown to 100$ oil (19) - Your bets for 2006 (Eurotrib)
Countdown to 100$ oil (19) - Your bets for 2006 (DailyKos)
Countdown to 100$ oil (18) - OPEC happy with oil above 50$
Countdown to 100$ oil (17) - Does it matter politically? A naked appeal for your support
Countdown to 100$ oil (16) - We'll know on Monday
Countdown to 100$ oil (15) - the impact on your electricity bill
Countdown to 100$ oil (14) - Greenspan acknoweldges peak oil
Countdown to 100$ oil (13) - Katrina strikes / refinery crisis
Countdown to 100$ oil (12) - Al-Qaeda, oil and Asian financial centers
Countdown to 100$ oil (11) - it's Greenspan's fault!
Countdown to 100$ oil (10) - Simmons says 300$ soon - and more
Countdown to 100$ oil (9) - I am taking bets (eurotrib)
Countdown to 100$ oil (9) - I am taking bets (dKos)
Countdown to 100$ oil (8) - just raw data
Countdown to 100$ oil (7) - a smart solution: the bike
Countdown to 100$ oil (6) - and the loser is ... Africa
Countdown to 100$ oil (5) - OPEC inexorably raises floor price
Countdown to 100$ oil (4) - WSJ wingnuts vs China
Countdown to 100$ oil (3) - industry is beginning to suffer
Countdown to 100$ oil (2) - the views of the elites on peak oil
Countdown to 100$ oil (1) (eurotrib)
Countdown to 100$ oil (1) (dKos)
* added to the series after the fact