Business Times - 14 Nov 2008
Risk of new energy crisis if investment pullback continues
(HOUSTON) It will require more than a trillion dollars in annual investments to find new fossil fuels for the next two decades to avoid an energy crisis, the International Energy Agency warned on Wednesday.
The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments during one of the most severe economic downturns in a generation.
The IEA stressed that it's vital for the world's energy companies to continue investing in new projects despite the current economic malaise. The total potential tab through 2030: US$26.3 trillion.
'While the situation facing the world is critical, it is vital we keep our eye on the medium- to long-term target of a sustainable energy future,' IEA executive director Nobuo Tanaka said at the release of its annual World Energy Outlook report in London.
There are growing fears the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.
'While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,' said former secretary of energy Spencer Abraham.
'There was not enough production even when we were in triple-digit oil markets over the summer, and there's going to be a lot of pressure on the system when economies recover.'
Mr Tanaka said that state-run national oil companies - like those in Venezuela and Saudi Arabia - are projected to account for about 80 per cent of the increase of both oil and natural gas production to 2030.
But he acknowledged it was 'far from certain' those companies would be willing to make the necessary investment themselves or to attract sufficient capital to keep up the necessary pace of investment.
Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.
That type of uncertainty already is prompting companies to withhold billions of dollars of investment in new oilfield and refining projects, even though major oil companies have posted record profits this year thanks to triple-digit crude prices.
Producers and refiners, large and small, are delaying and even cancelling some work as they adjust to oil prices that have fallen more than 60 per cent since peaking in July above US$147.
The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 - 10 million barrels per day less than projected last year. The IEA is a policy adviser to 28 member countries, mostly industrialised oil consumers.
China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand centre.
The agency said that these trends call for energy supply investment of US$26.3 trillion to 2030, or more than US$1 trillion a year, but it noted that tight credit conditions could delay spending. Opec has warned that crucial downstream investment - in refining and distribution - will be curtailed if the oil price is not maintained at a reasonable level.
The IEA has nearly doubled its forecast for the price of oil over the next 20 years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies.
It hiked its forecast for the price of a barrel of oil in 2030 to just over US$200 in nominal terms, compared to its forecast last year of US$108 a barrel. Measured in constant dollars, it pegs oil at US$120 a barrel in 2030, up from last year's forecast of US$62. Over 2008 to 2015, it predicts the price to average US$100.
The report also predicts that world renewables-based electricity generation - mostly hydro and wind power - will overtake gas to become the second-largest source of electricity, behind coal, before 2015.
Risk of new energy crisis if investment pullback continues
(HOUSTON) It will require more than a trillion dollars in annual investments to find new fossil fuels for the next two decades to avoid an energy crisis, the International Energy Agency warned on Wednesday.
The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments during one of the most severe economic downturns in a generation.
The IEA stressed that it's vital for the world's energy companies to continue investing in new projects despite the current economic malaise. The total potential tab through 2030: US$26.3 trillion.
'While the situation facing the world is critical, it is vital we keep our eye on the medium- to long-term target of a sustainable energy future,' IEA executive director Nobuo Tanaka said at the release of its annual World Energy Outlook report in London.
There are growing fears the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.
'While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,' said former secretary of energy Spencer Abraham.
'There was not enough production even when we were in triple-digit oil markets over the summer, and there's going to be a lot of pressure on the system when economies recover.'
Mr Tanaka said that state-run national oil companies - like those in Venezuela and Saudi Arabia - are projected to account for about 80 per cent of the increase of both oil and natural gas production to 2030.
But he acknowledged it was 'far from certain' those companies would be willing to make the necessary investment themselves or to attract sufficient capital to keep up the necessary pace of investment.
Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.
That type of uncertainty already is prompting companies to withhold billions of dollars of investment in new oilfield and refining projects, even though major oil companies have posted record profits this year thanks to triple-digit crude prices.
Producers and refiners, large and small, are delaying and even cancelling some work as they adjust to oil prices that have fallen more than 60 per cent since peaking in July above US$147.
The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 - 10 million barrels per day less than projected last year. The IEA is a policy adviser to 28 member countries, mostly industrialised oil consumers.
China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand centre.
The agency said that these trends call for energy supply investment of US$26.3 trillion to 2030, or more than US$1 trillion a year, but it noted that tight credit conditions could delay spending. Opec has warned that crucial downstream investment - in refining and distribution - will be curtailed if the oil price is not maintained at a reasonable level.
The IEA has nearly doubled its forecast for the price of oil over the next 20 years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies.
It hiked its forecast for the price of a barrel of oil in 2030 to just over US$200 in nominal terms, compared to its forecast last year of US$108 a barrel. Measured in constant dollars, it pegs oil at US$120 a barrel in 2030, up from last year's forecast of US$62. Over 2008 to 2015, it predicts the price to average US$100.
The report also predicts that world renewables-based electricity generation - mostly hydro and wind power - will overtake gas to become the second-largest source of electricity, behind coal, before 2015.
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