IEA expects oil crunch worldwide
The International Energy Agency (IEA) released on Monday a study on the middle term market for oil. According to the Financial Times and Les Echos, the oil prices aren’t due to decrease between 2007 and 2012.
According to the FT : “In its starkest warning yet on the world’s fuel outlook, the International Energy Agency said “oil looks extremely tight in five years time”.
This can be explained by several facts we will review here.
Firstly, the OPEC countries can’t produce a lot more than they are currently extracting and non-OPEC countries are due to increase their production by a percent every year when the global demand of oil is due to increase by 2.2 percent annually.
So, if non-OPEC countries can’t produce more, OPEC should produce more, but it seems quite difficult. Indeed, Les Echos noted that OPEC members are nearing top production capacities.
The IEA said that supply was falling faster than expected in mature areas, such as the North Sea or Mexico, while projects in new provinces such as the Russian Far East, faced long delays. Meanwhile consumption is accelerating on strong economic growth in emerging countries.
The rising oil demand will be mainly due to countries like China. This worrying situation will lead to higher prices and the Financial Times mention an “oil crunch“. The oil prices are at their highest levels of the year, nearing the records of August 2006.
Furthermore, in the above mentioned article :
Lawrence Eagles, head of the IEA’s oil market division, told the Financial Times: “If we get to the point were there is insufficient supply, the only way to balance the market will be through higher prices and a drop in demand.”
Meanwhile, peak oil is foreseen to take place around 2015, which will lead to even higher prices than the ones we have nowadays. (See this previous article about Peak oil occurring in 2015 ) Hence the idea of decreasing now nationwide and then worldwide the oil demand in order to avoid a massive oil shock.
According to the International Energy Agency, biofuels would help in keeping oil prices at a reasonable level.
But, should cereals and other plants become a way of supplying energy ? Or should they solely be used for food ? To many sources, the increase of biofuels already lead to an increase of prices, thus making it more difficult for companies and people to buy food.
I will soon write an article on biofuels. It will show that this solution is not really the panacea some people think it is, it will more certainly be a part of the solution, but not the single option.