There's still lots of oil -- at a price: IEA
Agency warns West that costs include environmental woe, surrendering power to the Middle East
By Patrick Brethour
In a stark admonition to the industrialized West, the International Energy Agency is warning that the world's consumption of crude will soar over the next quarter decade, leaving Western economies increasingly dependent on oil from an unstable Middle East -- and swimming in a soup of greenhouse gases.
Within that gloomy outlook, there is a bright spot. The IEA says there is ample oil to quench the growing thirst for oil for decades, dismissing the view of peak-oil advocates who contend the world is on the brink of a catastrophic drop in crude production.
Nicola Pochettino, senior energy analyst at the IEA, said the agency does not believe that physical supplies of oil will peak in the next quarter century, but that there is a question as to whether the world's energy producers will invest enough. The agency says the world will need to spend $17-trillion (U.S.) by 2030 on a broad range of energy needs, including conventional oil and gas, an estimate that has risen $1-trillion from last year.
"Money can find oil. The problem is for the oil to find the money," said Mr. Pochettino, noting that the IEA study examined 200 major oil fields, including those in Saudi Arabia that the peak-oil believers contend are on the verge of collapse.
In its World Energy Outlook issued yesterday, the IEA outlines a future of rampant energy growth, where demand soars by more than 50 per cent, and the world is using the equivalent of 16.3 billion tonnes of oil. The vast majority of those new demands would be met by increased consumption of fossil fuels -- and much of that would come from North Africa and the Middle East. Production from Canada's oil sands and other similar non-conventional sources would quintuple, but conventional crude from the Persian Gulf would still dominate.
Under that scenario, oil prices would ease slightly by the end of the decade, but rise by 2030, to more than $40 a barrel in constant 2004 dollars, or above $70 a barrel in nominal terms, which does not strip out the effect of inflation. But the IEA said its central concerns are less about petro-economics than the political and environmental consequences. Such a rise in oil consumption would inflate the importance of production from North Africa and the Middle East -- largely overlapping the membership of the Organization of Petroleum Exporting Countries. That area would account for 44 per cent of world supply, up from 35 per cent last year. At the same time, emissions of greenhouse gases would soar, "calling into question the long-term sustainability of the global energy system," the IEA warned.
"We must change these outcomes and get the planet onto a sustainable energy path," said Claude Mandil, executive director of the IEA, which was formed in the aftermath of the 1973 OPEC oil embargo and advises Western industrialized nations on energy policy.
The IEA report examines just such a path, which it dubs the "world alternative policy." In that scenario, governments have pursued conservation measures that trim energy demand by 10 per cent, driving down emissions of greenhouse gas by 16 per cent from where they would have otherwise been. Oil prices are lower, but the expense of conservation technologies mean that the overall cost of energy is higher.
A third scenario, called "deferred investment," looks at the fallout from crude-producing countries in North Africa and the Middle East falling short of needed capital spending on oil fields. In that world, oil consumption is muted, not because of decreased demand but due to shortfalls in supply. Prices, again in nominal terms, would spike to more than $90 a barrel by 2030, but that forces the region's share of world production down slightly to 33 per cent.
Vincent Lauerman, global energy analyst with the Canadian Energy Research Institute in Calgary, said a greater dependence on OPEC oil is not necessarily a problem since the cartel has come to realize that moderate prices benefit both consumers and producers.
The growing global thirst for crude in the next quarter century will increase the West's already heavy dependence on Middle Eastern oil, the International Energy Agency warns in its latest energy outlook -- heightening concerns about the vulnerability of shipments from the Persian Gulf and the risk that OPEC will use its dominance to ratchet up prices.