The report itself is a 100-odd page document that the IEA sells for no less than $600 (400 euros). But the agency indulges us with summary snippets. They go like this:
- Supply: Several new oil fields are due to begin production in the coming two years, namely Saudi Arabia (which expects to increase production by 500,000 barrels per day), Brazil and, if it gets its environmental issues resolved, Canada (which is struggling to extract oil from its oil sands cleanly). Couple that with a weakening economy in the United States and the rest of the world, and what you get is the potential for oversupplies. The IEA predicts up to 4 million barrels a day of extra production capacity.
Imagine if Americans, who consume a quarter of the world's oil, also decide to conserve energy (that word so dreaded by Dick Cheney, who infamously derided conservation as "a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy"). Should that happen the world could be in for something it experienced in the late 1990s and mid-1980s: oil prices crashing from an oil glut.
The IEA doesn't go that far, and I doubt oil prices will, either. The present decade has something the 1980s and didn't, and that the 1990s only began experiencing: India and China devouring new energy resources. That's not about to end. To the contrary. Those two giants are being joined by other new energy hogs in emerging economies, most notably in the Middle East. If there is a period of oil-price declines, it won't last. Which gets us to...
- Demand: The IEA predicts that because of steadily rising demand, the world needs to add new oil production at a rate of 3.5 million barrels each year, on top of today's production level of 89.9 million barrels a day. By 2013, the world is expected to consume 94.1 million barrels per day. That's an average consumption growth of 1.6 percent a year. The agency predicts that "developing countries will drive demand growth, their total consumption equaling that of mature economies by 2015.” Asia, the Middle East and Latin America will account for nearly 90% of demand growth over the five-year forecast period, the IEA projects.
- Biofuels: Neither magic bullet nor major factor in coming years. The IEA projects an increase in biofuels production from 1.35 mb/d in 2008 to 1.95 mb/d by 2013. The biofuels industry is suffering from two backlashes: Feedstock is declining, and food prices are rising fast, in part because of the arable land once used for food production that's now being used to grow crops for fuel.
- Refining: That's one of the general public's less-well understood part of the oil industry, but the refining end of things has a lot to do with gas prices. The capacity to refine crude oil into products like gasoline and jet fuel is just as important as the capacity to produce crude oil to begin with if prices are to keep from shooting for the stratosphere. And in recent years, refining capacity has been at the breaking point.
As far back as 2001 the Wall Street Journal was warning that while demand for refined products grew 11% between 1995 and 2001, refinery capacity had grown by just 8%, with refineries operating at 96 percent of capacity (the average for all industries was 82%). Making matters worse (from refiners perspective, but not from environmentalists' perspective) is new anti-pollution regulations that require refiners to make low-sulfur gasoline. The Bush administration tried hard to gut those regulations.
In the end, predicting future energy prices is more similar to astrology than science. The sector is too volatile to yield anything more than guess-work analysis. General trends can be picked out and deductions attempted; that's pretty much what the IEA is submitting for our consumption.
Those trends and deductions suggest a slight easing of price pressures, but cannot get away from the one conclusion that any fifth grader with a rudimentary knowledge of oil supplies and demand can make: The planet's oil reserves are finite, and they're becoming more so by the barrel.
