IEA warns of energy oil supply crunch

IEA warns of energy oil supply crunch
PARIS: An oil supply crunch is looming large over the world with oil prices going up at unprecedented rates over the next five years, the International Energy Agency warned in its medium-term Oil Market Report Monday.

The organization said the global demand for oil is expected to rise by 2.2 per cent a year during the period 2007-2012 from an earlier prediction of 2 per cent as the world economy expands at 4.5 per cent a year. This will leave the demand for oil growing by 1.9 million barrels a day to 95.8 million barrels a day by 2012, the Paris-based energy advisor said.

The prediction comes in the backdrop of a major jump in oil prices.

The report said the higher demand will be spurred by the fast-growing Asian economies where consumers could be able to afford to buy energy-consuming products like automobiles and white goods as the per capita income in several regions there is expected to go beyond the $3000 level.

The agency said there is increasing market tightness beyond 2010 in spite of the higher oil prices and a supply crunch may be deferred "but not by much."

The agency said the oil refining capacity in the next five years will be well behind expectations and increasing costs and shortage of manpower could hamper production. It said even when there could be substantial increase in the output of biofuels, it may not have much impact as demand for fuel will exceed supply.

The report assumes that there would be no net expansion in capacity from Iran, Iraq and Venezuela and production of Nigerian oil, which has been shut for more than a year now, may not resume in the next five years. Ten OPEC countries have cut their production capacity in 2006 to arrest the falling price of oil. The lower supply from non-OPEC countries will lead to increasing demand for OPEC oil to 34.7 million barrels per day in 2011, the report said.

Growth in oil production outside OPEC, mostly by Russia and Brazil, will be countered by a decline in production in Europe, it said.

The agency said higher investment in coal and nuclear power may ease the pressure on oil production beyond 2015.

Oil prices rose to an 11-month high above $76 a barrel Monday. The all-time record for oil prices stands at $78.65, in August, 2006.

Lawrence Eagles, head of oil industry and markets of the agency, said, "The results of our analysis are quite strong. Something needs to happen. Either we need to have more supplies coming on stream, or we need to have lower demand growth."