Mon 9 Jul 2007
By Javier Blas, Financial Times, Published: July 9 2007
The world is facing an oil supply “crunch” within five years that will force up prices to record levels and increase the west’s dependence on oil cartel Opec, the industrialised countries’ energy watchdog has warned.In its starkest warning yet on the world’s fuel outlook, the International Energy Agency said “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 problem is exacerbated by the fact that supply from non-members of the Organisation of the Petroleum Exporting Countries will increase at an annual pace of 1 per cent, or less than half the rate of the demand rise.
The widening gap between rising consumption and lagging non-Opec supply will force Opec to sharply increase its production in the next five years.
Lawrence Eagles, head of the IEA’s oil market division, told the Financial Times: “If we get to the point were there is insufficient supply, the only way to balance the market will be through higher prices and a drop in demand.”
The IEA Medium Term Oil Market Report came as oil is approaching last year’s record high. Brent crude oil on Monday rose 72 cents to a 11-month high of $76.34 a barrel.
Refineries are already paying record high prices as producing countries have cut the discount at which they sell their oil relative to Brent, according to an analysis by the FT. Most of the discounts had been reduced to levels not seen since 2004 and some even to six-years lows.
Oil demand will grow at an annual rate of 2.2 per cent during the next five years, up from a previous estimate of 2 per cent, to reach 95.8m barrels a day in 2012. China, the Middle East and other emerging countries will lead the increase.
Rex Tillerson, the chairman and chief executive of ExxonMobil, said recently that he thought non-Opec oil production was close to levelling off. He told the FT: “We still see capacity for a little more growth, but pretty modest, and then in our own energy outlook it begins to plateau. And that results then in this call on Opec.”
UK oil production is set to suffer a dramatic decline from today’s 1.7m barrels a day to just 1.0m b/d in 2012, according to the IEA.
The IEA estimates Opec would have to supply about 36.2m b/d in 2012, up from today’s 31.3m b/d. That would reduce the oil cartel’s spare capacity to a “minimal level” of 1.6 per cent of global demand, down from 2.9 per cent in 2007.
Additional reporting by Ed Crooks in London
Copyright The Financial Times Limited 2007
3 Responses to “World will face oil crunch ‘in five years’”
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July 9th, 2007 at 4:09 pm
Five years, that’s all we’ve got. We’ve got five years, my brain hurts a lot.
July 10th, 2007 at 6:31 am
[…] Financial Times: World will face oil crunch ‘in five years’ The Financial Times is one of the world’s most respected newspapers, more or less the Wall Street Journal for the UK if you will. So when they run a story with a title like this, you’d hope people would sit up and notice. The story is behind a paywall, but you can find the whole article here. […]
July 16th, 2007 at 4:50 pm
John Kingston, Platts’ Director of Oil, writing on Platts oil blog suggests the June IEA report confirms oil peaked in 2005:
“Some peak oil theorists say world crude production peaked in May 2005. And you can read parts of the report as confirming that. In the second quarter of 2005, total non-OPEC supply — that’s everything, crude, NGL, biofuels, etc. — was 50.6 million b/d. OPEC crude output was 29.7 million b/d, for total supply of 80.3, a figure that does not include OPEC NGLs. In the second quarter of this year, even with a growth in biofuels of 300,000 b/d, non-OPEC supply is projected to be 50 million b/d, a drop of 600,000 b/d in two years, which reveals a significant drop in non-OPEC crude output given the rise in biofuels. If OPEC crude supply in the second quarter holds at its first quarter figure of 30.2 million b/d, that’s total world supply, without OPEC NGLs, of 80.2 million b/d, less than the figure of the second quarter of 2005. And it’s that quarter that includes May, which the peak oil theorists point to as a high-water mark.”
http://www.platts.com/weblog/oilblog/2007/06/no_bears_at_the_iea.html