It’s perhaps with this in mind that the IEA’s chief economist Fatih Birol (pictured, above) has been repeating the phrase the era of cheap oil is over at numerous interviews recently. He told German TV on August 10 that:
“The era of cheap oil is over. Each barrel oil that will come to market in the future will be much more difficult to produce and therefore more expensive. We all - governments, industry and consumers - should carefully choose the type of car we want to buy in the future and should be prepared for oil prices being much higher than several years ago.”Three months previously Birol told the annual forum of the Organization for Economic Co-operation and Development in Paris that this is indeed the end of an era:
Birol said that oil production in non-Organization of Petroleum Exporting Countries is reaching a peak and the bulk of oil predication growth will have to come from a few countries in the Middle East.Back in August 2009, he told the Independent newspaper:
If there is a lack of investment in production and a stronger-than-expected economic recovery in such oil demand centers as China, India and the Middle East, prices will rise significantly, Birol said.
"If these two marry in two years' time--strong real demand growth and lack of investment in production--in 2013, 2014 we may well see higher prices than we have seen in the recent past," he said.
“The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about 40 per cent share of the oil market and this will increase much more strongly in the future," he said.The interview, Warning: Oil supplies are running out fast, reports that the world’s biggest oil fields have already peaked and are declining faster than previously thought, as has non-Opec oil. In addition, the indusry as a whole suffers from under-investment, which will lead to an “oil crunch” in five years’ time that. The item states:
"If we see a tightness of the markets, people in the street will see it in terms of higher prices, much higher than we see now. It will have an impact on the economy, definitely, especially if we see this tightness in the markets in the next few years," Dr Birol said.
In its first-ever assessment of the world's major oil fields, the IEA concluded that the global energy system was at a crossroads and that consumption of oil was “patently unsustainable,” with expected demand far outstripping supply.It’s interesting to note that the above is contradicted by Opec, which published its global oil demand forecast on August 13. This, the Monthly Oil Market Report, August 2010, states that coming “oil demand growth will remain moderate” because of uncertainties about the pace of recovery. Demand will be driven by China, India, the Middle East and Latin America.
Oil production has already peaked in non-Opec countries and the era of cheap oil has come to an end, it warned.
In most fields, oil production has now peaked, which means that other sources of supply have to be found to meet existing demand.
Even if demand remained steady, the world would have to find the equivalent of four Saudi Arabias to maintain production, and six Saudi Arabias if it is to keep up with the expected increase in demand between now and 2030, Dr Birol said.
Opec states global demand for oil works out at 85.5 million barrels a day throughout 2010 (from 85.01 in the first quarter to 86.62 million barrels a day at year’s end). This will rise to 86.56 million barrels a day in 2011 (dipping in the first half of the year to 85.49, then rising in the second half to 87.71 in the final quarter).
Not only is Opec’s estimate for 2011 oil consumption around one million barrels a day lower than that of the IEA (86.56 versus 87.9 million barrels per day, respectively), but the Monthly Oil Market Report also sees increased output from Non-Opec countries:
Non-OPEC supply in 2010 is expected to increase by 0.8 mb/d, following an upward revision mainly due to higher-than-expected supply from the US, Russia and China as well as some historical adjustments. In 2011, non-OPEC oil supply is forecast to grow by 0.3 mb/d, supported by projected increases in Brazil, Canada, Azerbaijan, Colombia, and Kazakhstan.To contrast, the IEA is stating that just the delays on deepwater projects following BP’s Gulf of Mexico disaster will dampen non-Opec output. According to the Daily Mail:
Fatih Birol, Chief Economist of the International Energy Agency, said 90% of non-OPEC oil production growth was expected to come from offshore drilling over the next decade, but this growth is now under threat in the four leading basins: the Gulf, the North Sea, Brazil and Africa.Clearly, the era of cheap oil is gone – although market volatility may well bring episodic price collapses. It seems safe to assume that demand for oil will continue to grow all the time the world can stave off ecomonic collapse; and that the output of Non-opec countries cannot itself be increased fast enough to meet this rising demand (it may even have peaked and be set to diminish, as the IEA suggest). Deepwater and oil sands cannot be relied on to pick up the slack, despite the media hoopla. Either way, Opec is becoming more and more central to our way of life. More to the point, Opec’s spare capacity is of prime importance. If this begins to dwindle by 2013, as the IEA suggests – which Opec denies – then expect a period of extreme market volatility, soaring prices and, most likely, a marked downturn in the rather fragile global economic recovery.
The IEA says global oil output may suffer a 500,000-barrels-a-day hit by 2015 because of the White House ban alone.
If things continue to move in the wrong direction, the world will become increasingly reliant on state-owned oil companies from the Middle East and Russia, he argued. ‘That will have implications for the oil industry, oil markets, and oil prices.’