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Ambrose Evans-Pritchard, The Telegraph
June 23, 2010
So there is plenty of oil and gas after all. Prices will bumble along gently until well into the next decade. We are becoming more efficient in our use of energy, with 3pc extra savings annually. That is a faster pace than the rising real cost of fuel. Mankind will not run out of fuel for a very long time.
That at least is the story today from the International Energy Agency. Their medium-term outlook for fossil fuel markets is a dazzling contrast with last year’s warnings that a combination of break-neck industrialisation in China and lack of investment in new oil fields (thanks to the credit freeze) would exhaust global spare capacity by 2013.
The IEA said then that we would need “four new Saudi Arabias” within a generation to cope with the rise of China, and there were no such Saudi Arabias in sight. Such are the perils of forecasting the volatile variables of supply and demand for oil.
What has changed — apart from human emotions? For starters, the global gas market has been undergoing a revolution as a result of a) liquefied natural gas, a technology that is only just coming into its own and allows countries such as Qatar to ship their once useless reserves of gas on frozen hulls across the world; LNG output will increase by 50pc from 2008 to 2013. Actually, this is not that new, but never mind.
b) advances in US gas extraction from rock, which have turned the US into the world’s biggest producer of gas. Europe is jumping on the bandwagon. “The development of unconventional gas in North America is of global significance,” said the agency. Indeed it is. The knock-on effects run right through the energy complex.
The IEA now expects spare capacity of oil to remain at a comfortable 3.5m barrels a day (bpd) in 2015, with consumption edging up by an extra 1m bpd each year to around 90m bpd (or 92m if global growth is stronger). All this is quite manageable. It talked of a “gentle nominal price escalation through mid-decade, with prices rising from $77 to $86ÃƒÂ¢Ã¢â€šÂ¬Ã‚Â³.
The alarmist stories we heard last year from certain City banks about collapsing supply (I will spare the names) were wildly wrong. The IEA’s upward revisions from 2009 come from the US, Russia, Colombia, Canada, Mexico, Norway, Egypt, and even the UK (+80,000).