x Abu Dhabi, UAESaturday 22 July 2017

Credit crisis throttles oil sector

Slowing investment could choke economic recovery, the world's leading energy watchdog warns.

Nobuo Tanaka, the executive director of the International Energy Agency, warns that falling investment in energy production could lead to a supply shortage down the line.
Nobuo Tanaka, the executive director of the International Energy Agency, warns that falling investment in energy production could lead to a supply shortage down the line.

The global credit squeeze could delay needed energy investment, causing a supply crunch that could choke economic recovery, the International Energy Agency (IEA) warned yesterday. The agency, which represents the interests of 28 industrialised oil importing nations, is worried that the recent slump in oil prices will drain investment from the energy sector, leading to shortages and high prices. "We see and hear about energy investments being delayed," said Fatih Birol, the chief economist of the IEA, based in Paris. "This is a major worry and could lead to a supply crunch and much higher oil prices than we have seen before." Oil prices hit a record US$147 a barrel in July, but have since fallen back below $58. Unveiling its latest World Energy Report, the IEA said the world would need to invest $26.3 trillion (Dh96.5 trillion) by 2030, or more than $1 trillion a year, to keep itself adequately supplied with energy. "We cannot let the financial and economic crisis delay the policy action that is urgently needed to ensure energy supplies," said Nobuo Tanaka, the executive director of the IEA. With oil set to remain the world's main source of energy for many years to come, expanding output from countries with the lowest production costs - most of them Opec members - would be central to meeting the world's energy needs, the IEA said. But the agency said it was "far from certain" that the national oil companies in exporting nations would be willing to make the needed investment or attract external capital. "Rising imports of oil and gas... together with the growing concentration of production in a small number of countries would increase our susceptibility to supply disruptions and sharp price hikes," Mr Tanaka said. The prospect of accelerating production declines at individual oilfields is adding to those uncertainties. A field-by-field analysis of 800 oilfields indicates that decline rates are likely to rise "significantly" by 2030, to 8.6 per cent from 6.7 per cent now, the IEA reported. "Despite all the attention that is given to demand growth, decline rates are actually a far more important determinant of investment needs," Mr Tanaka said. Importing nations are traditionally more concerned with risks to energy supply, while exporters are more focused on threats to demand from the global economic slowdown. The world's top exporter, Saudi Arabia, has recently delayed investments in new oil production because of weakening demand. Mr Tanaka estimated that 45 million barrels per day (bpd) of extra production capacity - roughly four times Saudi Arabia's current capacity to pump crude - would be needed by 2030 just to offset declines, without any new demand. Factoring in projected demand growth, the IEA said the world would need to add 64 million bpd of oil production by 2030. Just to find more oil and gas, Mr Birol said $450 billion a year of investment was needed between now and 2015 to keep up with demand, but the industry was falling well below that. Last year was "exceptional" for oil and gas investment, he added, yet total exploration spending reached just $390bn. The IEA trimmed its long-term forecast for global oil demand by 10 million bpd from last year's projection, predicting it would rise to 106 million bpd - from 85 million bpd this year - by 2030. It said demand for coal would rise more than for any other fuel over the forecast period, accounting for more than one third of the increase in global energy use. As a result, rising carbon emissions remain a huge concern for the IEA. It predicted that if current trends continued, energy-related carbon dioxide emissions would increase by 45 per cent between 2006 and 2030, reaching an annual 41 billion tonnes. Three quarters of the increase would come from China, India and the Middle East. "Current trends in energy supply and consumption are patently unsustainable - environmentally, economically and socially," Mr Tanaka said. "They can and must be altered." The IEA's warnings came as oil prices slid below $58 a barrel on the New York Mercantile Exchange, revisiting levels not seen for nearly two years. Oil prices have now plunged more than 60 per cent since peaking in July. The steep descent has been driven by falling oil demand in the US and Europe and fears of a global recession. Mr Birol said he expected world oil demand to start recovering by 2010. tcarlisle@thenational.ae