Saturday, April 11, 2009

the next oil crisis is coming

EnergyBulletin | A shortage of oil could trigger another global recession around 2013 – says the IEA. By 2010 the price will reach new highs.

The IEA in Paris is warning of a new, much more severe global economic crisis around 2013. The reason is that investments in oil from new projects are being cancelled by large oil companies. If demand starts increasing in 2010, the oil price could explode, fire up inflation and put global growth at risk.

"We are concerned, that oil companies are reducing their investment levels. When demand returns a supply shortage could appear. We are even predicting that this shortage could occur in 2013." Said Nobuo Tanaka, head of the IEA in an interview with Sueddeutsche Zeitung.

Oil reserves declining markedly
He is alarmed, because he has data that shows that the global oil supply capacity is declining and that oil reserves will likely be markedly reduced by 2013. The stronger oil demand will be in a recovery starting in 2010, especially in the US, China and India, the sooner the shortage will appear and strangle global growth.

According to the IEA, the oil price could then exceed the records achieved in the summer of 2008 and reach $200 per barrel. "We could be steering into a new crisis which could be greater than the current crisis", said Mr. Tanaka. "That is why we are warning oil companies to invest", said Mr. Tanaka. Despite billions in profits in the prior year, oil companies are cancelling their investments because at the current price of $40, they are barely profitable.

The investment levels are already down 25% from a year ago. The OPEC countries are reducing production, because they do not see sufficient demand. Of 130 large oil projects, 35 have been frozen by February, said OPEC general secretary Abdullah al-Badri.

The investments however, are necessary to meet demand when it starts picking up again. This is not a matter of oil running out, but IEA studies prove that the oil produced from 580 of the largest 800 fields is declining.

The CEO of the French oil company Total, Christophe de Margerie, is even predicting that global production will never exceed 89 million barrels per day, because the peak has passed and oil can only be extracted with ever increasing technical inputs.