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IEA Says Fading Oil Production Threatens Supply


NOVEMBER 13, 2008


Production at the world’s oil fields will decline faster in coming years, putting more pressure on future oil supplies, the International Energy Agency said on Wednesday.

As current fields fade with age and the industry moves offshore and into smaller fields, decline rates will accelerate, the agency found, and more investment will be required to make up the shortfall.

The Paris-based watchdog, which represents the interests of energy-consuming nations, made its prediction in a detailed analysis of 800 of the world’s oil fields — the first report of its kind.

[IEA oil production]

Its conclusions are likely to deepen the pessimism about long-term oil supply that is taking root among some oil executives, economists and market analysts.

The study, part of the IEA’s annual World Energy Outlook, shows the investment needed to increase overall oil production — along with offsetting the declines of today’s aging fields — may be higher than previously estimated.

The world will have to invest $26.3 trillion by 2030, or more than $1 trillion a year, to ensure adequate energy supplies, the IEA said. That is $4 trillion more than its year-earlier estimate.

The report comes amid a global financial crisis that has reduced the appetite of energy companies to invest, setting the scene for a supply squeeze that could choke economic recovery. Oil and gas firms are putting off major projects and curbing capital spending amid plunging crude prices and a slowdown that has slashed demand for oil. U.S. benchmark crude closed down $3.17, or 5.34%, on Wednesday on the New York Mercantile Exchange at $56.16 a barrel — its lowest close since Jan. 29, 2007.

Opportunities to invest are more constrained than in the past. International oil majors such as Exxon Mobil Corp. and Royal Dutch Shell PLC are being squeezed out of the world’s main oil-producing areas by national oil companies. It’s uncertain whether these state-run behemoths are willing — or able — to make the kind of investments the world needs.

The American Petroleum Institute said the IEA’s report underlined the need for the U.S. to develop its own oil and gas resources.

Despite the short-term effects of the global slowdown, the IEA said energy demand would continue to grow 1.6% a year on average from 2006 to 2030 — a total increase of 45%. Demand for oil is expected to rise to 106 million barrels a day in 2030 — 10 million barrels a day below what the agency predicted last year — from about 85 million barrels a day now.

The IEA’s analysis, which included fields accounting for more than two-thirds of the crude produced globally in 2007, found that rates of decline would rise to 8.6% in 2030 from an average of 6.7% today.

“Even if oil demand was to remain flat to 2030, 45 million barrels per day of gross capacity — roughly four times the current capacity of Saudi Arabia — would need to be built by 2030 just to offset the effect of oil-field decline,” said IEA Executive Director Nobuo Tanaka.

The IEA stressed that decline rates vary markedly by region, with the lowest in the Middle East and the highest in the North Sea.

Write to Guy Chazan at [email protected]

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