Needed: $26 trillion. Cash required to avert energy supply shock
Shaun Polczer
Calgary Herald
Thursday, November 13, 2008
CREDIT: Shaun Curry, Getty Images
International Energy Agency head Nobuo Tanaka warns of a looming oil supply crisis.
Falling oil prices will lead to future supply shocks, and in turn even higher prices, the International Energy Agency said in its global energy outlook Wednesday.
But the prospect of energy shortages in the not-too-distant future did nothing to ease the upheaval on world oil markets. OilpricescontinuedtofallinNew York, closing at $56.16 US a barrel, down$3.17 on the day. Crude prices are now down almost two-thirds from their summer peak of about $147.
That sent stock markets lower, with the Toronto Stock Exchange's main index losing 501 points to finish at 8922.57. The TSX capped energy index sector shed 17 points to fall to 212.67. The energy grouping has lost 28 points, or 12 per cent, since Monday.
However, the Paris-based IEA warned that current supply and consumptiontrendsare"patently unsustainable" and that prices couldsurgebackabove$200without major spending increases to develop new reserves.
The report suggests $26 trillion is needed to develop new energy sources, but said deteriorating economic conditions could delay needed investments that would in turn reduce energy supplies and choke a future recovery.
"Wecannotletthefinancialand economic crisis delay the policy action that is urgently needed to ensure secure energy supplies," said Nobuo Tanaka, the group's executive director.
Accelerating declines of existing oilfields are adding to the uncertainties. More than half of the world's oil currently comes from mature fields almost half a century old.
Tanaka said decline rates are actually a far more pressing issue, making it increasingly difficult to meet world demand growth of 1.6 per cent per year.
"Even if oil demand was to re-main flat . . . roughly four times the current capacity of Saudi Arabia wouldneedtobe built by 2030 just to offset the effect of oilfield decline," Tanaka added.
If the world runs out of oil, it won't be for lack of resources. The IEA estimates that 1.3 trillion barrels of proven reserves are enough to keep the planet going for 40 or more years at current consumptionrates. Remainingrecoverable conventional reserves add another three trillion barrels to the total.
"But there can be no guarantee that those resources will be exploited quickly enough," the report said.
Peter Tertzakian, ARC Financial's chief economist and bestselling author of A Thousand Barrels A Second, said consumers could be lulled into a false sense of security as gasoline prices, in particular, fall from a peak of about $1.36 a litre last summer to a little over 80 cents as of Wednesday.
"Yes, I think consumers are getting into a false sense of comfort on gasoline prices,"he said. "But it's not the only thing they have to worry about," given the state of the economy.
Tertzakian agreed current oil prices aren't enough to spur higher capital spending, especially in the oilsands, where oil prices are well below the level needed to support new projects. Meanwhile, companies such as Suncor Energy and Canadian Natural Resources have slashed billions from capital budgets.
Tertzakian said the combination of lower commodity prices and tighter credit isadoublewhammyforcompanies facing 50 per cent lower cash flows.
"The current situation is not going to facilitate the spending required to put the infrastructure in place to meet the demand increases you're likely to see in the next two or three years when the economy recovers."
Although conventional oil production has likely peaked and will remain flat, the IEA sees a growing proportion of unconventional production from sources such as Alberta's oilsands. The report estimates as much as two trillion barrels of extra heavy oil and bitumen may be technically recoverable, mostly from Canada and Venezuela.
Totalupstreamspendinghasmorethan tripled since the start of the decade, to $390 billion, but the IEA said most of that amount went to meet higher costs as opposed to increasing production.
Despite slowing economies, China and India are still expected to account for more than half of the world's incremental energy demand to 2030.Developing countries will account for 87 per cent of the increase.
Global consumption is projected to rise to 106 million barrels per day in 2030 from 85 million bpd in 2007,which is about 10 million barrels fewer than last year's projection.
The report noted that an ever increasing amount of oil production is concentrated in a handful of (mostly) OPEC countries. OPEC will account for more than half of the world's output by 2030, up from 44 per cent last year.
