Another Oil Supply Crunch Headed Our Way?
Yesterday, Nobuo Tanaka, executive director of the International Energy Agency, spoke with Bloomberg’s Isabelle Mas about the outlook for global crude oil and natural gas demand. While the IEA cut five-year forecasts for crude demand and predicted consumption would not return to last year’s levels until 2012, Tanaka warned of the potential for an oil supply “crunch” down the road. He said:
For the mid-term, in the high-economic growth case, the demand is coming back and the market is getting tighter because we expect that because of the current market situation, the financial crisis, the investment to the capacity will slow down. So, we may have very low spare capacity. And even if economic growth is higher, the spare capacity is getting very slim. And that means that we may have the supply crunch again, just like the last year, in 2014-2015.
Some wonder if the IEA’s supply estimate may even be too rosy. From the website of UK-based energy publication Energy Risk today:
Supply-side projections in the International Energy Agency’s (IEA) Medium-Term Oil Market Report 2009 are “too optimistic” and “will be subject to substantial revisions in time,” according to a research report by Costanza Jacazio, commodities analyst at Barclays Capital.
The IEA report forecasts that net production capacity will expand by 4mb/d between 2008 and 2014 with 2.6 million barrels per day (mb/d) of new OPEC natural gas liquids (NGLs) production, 1.7mb/d of OPEC’s crude net capacity additions and a net decline of 0.4mb/d in non-OPEC production.
However Barcap says it believes that the profile for non-OPEC production will be subjected to hefty downward revisions. “Higher-than-expected decline rates at mature fields and longer-than expected lead times for the start-up of new projects has resulted in a systematic upward bias in IEA’s non-OPEC production estimates over the past few years,” the research report says.
The report cites the mid-term report of 2006, in which the IEA was projecting non-OPEC supply of 3.3mb/d between 2006 and 2009. In the latest update, that figure stands close to 1mb/d, implying a cumulative downward revision of 2.3mb/d over that three-year period. Similarly, the detailed forecast for non-OPEC supply growth in 2009, first released by the IEA in mid-2008, has already been downwardly adjusted Barcap says.
You can view the 2 minute 54 second Bloomberg segment here.
Sources:
Nobuo Tanaka Interview
Bloomberg, June 30, 2009
“IEA forecasts too optimistic says Barcap”
Energy Risk (UK), June 30, 2009
July 1st, 2009 at 1:07 am
The IEA reports are based on non-supported estimates from the OPEC countries as to the reserves they hold. Thus they are at best optimistic guesses, that will lean in favor of the desires of those OPEC nations. An oil crunch is a logical inevitability, as is the case for consuming any non-renewable resource.
July 1st, 2009 at 7:56 am
Thanks for the comment Roger. And nice website too!