The world faces mounting uncertainty and escalating costs on the energy front in the years ahead, as companies scramble to find new pockets of oil and squeeze more production from aging fields, the International Energy Agency says in a largely gloomy annual report.
More investment will be needed in oil exploration, production and power generation, the IEA says in a report released on Thursday. Above: Alberta, Canada, has large oil-sands reserves.
The agency says the recent slump in oil prices won't last and "current global trends in energy supply and consumption are patently unsustainable."
The report comes as the global economic downturn continues to shove down oil prices, which hit a high of $147 in July. On Thursday on the New York Mercantile Exchange, U.S. benchmark crude closed down $4.53, or 6.9%, at $60.77 -- its lowest close since March 2007.
In its report, the Paris-based agency looks beyond the current economic slump to predict that oil supplies will grow tight again as soon as world energy demand picks back up. Oil prices could top $200 a barrel by 2030, the agency concludes. The IEA represents the interests of consuming nations and often paints a relatively bearish picture of supply.
To keep abreast of rising energy demand and decrepit infrastructure, companies will have to invest over $26 trillion between now and 2030, with over half of that going to increased power generation and distribution. Most of the rest of the investment will go to exploring and developing new sources of oil, which will remain the world's primary energy source for decades.
Rising demand and production declines in existing fields will require oil companies to add 64 million barrels a day in capacity over the next 22 years, more than six times Saudi Arabia's current production. Nearly half of that will be needed in the next eight years, the report warns.
The agency notes signs of chronic and widespread underinvestment in the oil sector. To keep abreast of natural declines and to bring on new supplies, companies will have to spend $350 billion a year on new oil and gas projects through 2030. By comparison, the industry spent a total of $390 billion from 2000 to 2007, the report says.
The current economic environment, meanwhile, is leading to delays or outright cancellations of investments meant to add significant new supplies of oil as well as refined products.
The agency on Thursday released a 15-page summary of its hefty annual study, the rest of which will come out next week. The study focuses on a detailed analysis of production rates and reserves within 800 oil fields around the world.
The world's oil challenge is compounded by the fact that so many of the principal oil fields are getting older and less productive, particularly in nations outside the Organization of Petroleum Exporting Countries, such as Mexico, Norway and Russia. Output from most non-OPEC nations has either topped out already or will do so over the next two decades, the agency said.
The rate at which production from existing oil fields is falling is accelerating as they age, the agency said. Although decline rates vary according to the size and age of the field, the average annual decline rate world-wide is 6.7% for fields past peak production, a figure that could rise to 8.6% by 2030. That means companies must spend more just to keep production from falling.
Falling output in countries outside OPEC means the big producers such as Saudi Arabia, Iran and Iraq will assume an ever-larger portion of world supply.
The agency strikes a more optimistic note on the renewable-energy front, saying electricity powered by sources such as wind, solar and geothermal will grow by over 7% a year. Renewable electricity generation, beyond hydropower, will amount to just 4% of the world total by 2030, up from 1% in 2006. Energy experts say the U.S., Europe and Japan will likely never use more oil than they did last year. All projected increases in oil demand will come from the developing world, mainly China, India and the Middle East.