World oil supplies are likely to fall faster than expected, amid booming consumption in China and the Middle East and shrivelling production capacity, resulting in further price hikes that could put a dent in the global economy, the International Energy Agency has warned.
The world will face an oil “supply crunch” within the next five years, as demand outpaces the growth in production from non-OPEC countries, the IEA has stated in its Medium-Term Oil Market Report on 9 July.
“Despite four years of high oil prices, this report sees increasing market tightness beyond 2010,” the energy policy advisor for industrialised nations said, as it raised its forecasts regarding global oil demand growth from an annual 2% average over the next five years to 2.2%.
The increase will largely be caused by faster growth in Asia and the Middle East, it stated.
At the same time, the IEA reduced its projection for non-OPEC supply, partly because of delays on major oil projects but also because it believes supplies are nearing a peak.
“Our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak,” the report said, adding that any growth in non-OPEC supply over 2007-2012 would come from gas liquids, extra heavy oil, biofuels and, by 2012, some coal-to-liquids production in China.
But the Agency predicts that this growth will be no higher than 1% per year – less than half the pace of the rise in demand – making consumers increasingly dependent on OPEC supplies.
However, its projections regarding OPEC spare capacity – the difference between what its members could produce and what they actually do produce – are also dire, with a sharp decline expected after 2009.
“Low OPEC spare capacity and slow non-OPEC production growth are of significant concern,” stressed the report, adding: “It is possible that the supply crunch could be deferred — but not by much.”
While biofuel production is expected to double over the next few years, it will still only account for 2% of global oil supplies by 2012, said the Agency. Lawrence Eagles, head of the IEA’s oil industry and markets division, said: “The results of our analysis are quite strong. Either we need to have more supplies coming on stream or we need to have lower demand growth.”
Some analysts are nevertheless calling the report “alarmist”, viewing it as an attempt to force an OPEC supply increase. They also believe that such warnings are actually partly to blame for current high oil prices, which rose to over $76 a barrel on 9 July. “The International Energy Agency has put such a fear premium in the market that crude futures remain bought no matter what,” Olivier Jakob of Petromatrix, a trade advisory and risk management company specialised in oil and commodities, told Reuters.
However, Eagles said: “We are there to project the market as we see it. The price response is due to fundamentals. We are simply pointing out the fundamentals – that’s our job.”