Wednesday, November 12, 2008

Cost of crude rising to $200 by 2030

The International Energy Agency on Wednesday predicted world energy demand will rise 1.6% per year on average between 2006 and 2030 and called for massive investment in energy infrastructure, warning of a supply squeeze.

The IEA's base scenario for energy demand has slowed due to the global economic slowdown and higher oil prices, but the agency stressed that a delay in spending on new projects due to the credit crisis could mean a "supply crunch that could choke economic recovery."

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. China and India continue to be the main drivers of the industry, accounting for more than half of incremental energy demand to 2030, while the Middle East, a longtime supplier, emerges as a major new demand center.

The agency said that these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit could delay spending.

"Current trends in energy supply and consumption are patently unsustainable -- environmentally, economically and socially -- they can and must be altered," said Nobuo Tanaka, the agency's executive director, at the release of its annual World Energy Outlook report in London.

The Organization of the Petroleum Exporting Countries, which pumps around 40% of the world's oil, cut output by 1.5 million barrels per day from Nov. 1 to counter a recent fall in the price of crude from a high of $147 in July to under $59 on Wednesday.

OPEC has also warned that crucial downstream investment -- in refining and distribution -- in the industry will be curtailed if the oil price is not maintained at a reasonable level. The IEA said last week that it expects the price of oil, below $59 per barrel on Wednesday, to rebound above $100 and eventually reach $200 by 2030.

In a pre-released summary of Wednesday's report, it predicted the price to average $100 from 2008 to 2015. Tanaka said that "while market imbalances will feed instability, the era of cheap oil is over."

He added that a fundamental change was underway in the upstream oil and gas industry -- exploration and extraction -- with international oil companies facing dwindling opportunities to increase their reserves and production.

In contrast, national oil companies are expected to account for 80% of the increase in both oil and gas production to 2030. However, Tanaka said 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."

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