IEA predicts oil demand at 121 million barrels in 2030 using 1.6% growth

Published on Sunday, November 21, 2004 by The Desert Sun

New study analyzes global energy resources
By Morris Bechloss

In a long awaited analysis of global energy resources, the Paris-based International Energy Agency attempted to calm fears of severe world energy shortages anytime soon. Since the IEA is recognized as the pre-eminent global source for predicting long-term energy supply and demand balance, this periodic projection is eagerly anticipated, especially this year.

Above everything else, the report stressed the need for oil producing countries and international oil consortiums to become more aggressive in locating and pumping available reserves to make this happen. At this juncture, very little money is being invested in new exploration as producers wait to see whether the present shortages and high prices extend into next year.

Although claiming that there are sufficient reserves to meet demand for the next 25 years, the IEA assumption has been based on conservative demand increases and an assumption that oil producers will invest the capital necessary to keep up with increasing demand.

However, some analysts have criticized the International Energy Agency, accusing them of underestimating demand increases and taking for granted that necessary expenditures will be manifested to keep the supply/ demand equation in balance.

The IEA report projects a 50 percent demand growth to 121 million barrels at day by 2030. This amounts to an increase of only 1.6 percent a year, less than half the 3.4 percent growth over last year. This will result in 82.4 million barrels-a-day this year, which is stretching available resources to the limit.

The agency admits that it has not given enough credence to the growth of demand in China, India, and other emerging nations. This means that at the present rate of growth, the stipulated demand level would be reached in the next 10 years, as estimated by more pessimistic professional geological consultants.

And even the IEA’s moderate target production can only be reached if the producers expend $105 billion each year “from the wellhead to the consumer.” At present the mega oil corporations are loath to commit such investment funds due to a fear that present lofty prices per barrel may not hold. They are also concerned that even modest economic growth will be impacted by rising energy prices, possibly causing a worldwide recession within the next few years.

Another flaw in the IEA’s reasoning is the world’s increasing dependence on the Organization of Petroleum Exporting Countries. The Agency ascribes greater production flexibility to the oil monopoly than may exist, based on OPEC’s inflated reserves. At present these mainly Middle East nations are going at full capacity, producing 30 million barrels per day to requite the world’s 80 million barrel demand level. These nations claim an estimated 60 percent of the world’s known reserves. Even if that number is correct, global nations will be increasingly dependent upon OPEC to fulfill global needs.

But such nations as Saudi Arabia, Iran, Iraq, the United Arab Emirates , and Kuwait do not allow, or restrict, foreign investment in their indigenous oil industries.

This means that production capacity needed to provide the requisite oil generation will become increasingly harder to come by. Such celebrated oil experts as veteran driller and investor T. Boone Pickens believe that more than half of the world’s available supply has been exhausted. Pickens warns that at the present rate of depletion, which is twice the rate of new discoveries, the International Energy Agency is far too optimistic in its estimate of the longevity of reserves.

A further complication is that only one quarter of the world’s oil produced today is light sweet crude, most amenable for processing by today’s hard pressed refineries.

Much of this preferred energy substance comes from the decreasing reserves found in the deep offshore wells in the Gulf of Mexico or the depleting U.S. mainland oil fields, primarily in Alaska.

A tipoff as to whether the increasing concern with global oil shortages is realistic will be validated by the ongoing direction of world prices.

Although speculators may distort pricing in the short term, the ultimate price tag on each barrel of crude will eventually be determined by the supply/demand relationship.

This determinant will be making itself increasingly felt in the not-too-distant future. But it is highly likely that the IEA’s 25-year timetable will prove to be much too conservative.

Morris R. Beschloss of Rancho Mirage is an international economist and financial writer. He can be reached at (760) 324-8166. His column on global economic issues will appear weekly in The Desert Sun’s Business section.

~~~~~~~~~~~~~~~ Editorial Notes ~~~~~~~~~~~~~~~~~~~

For a detailed critique of the IEA methods see:
www.energybulletin.net/2544.html
-AF
Original article :
http://www.thedesertsun.com/news/stories2004/business/20041121002551.shtml
http://www.energybulletin.net/3266.html