World Will Struggle to
Meet Oil Demand

Output from the world's oilfields is declining faster than previously thought

CAROLA HOYOS & JAVIER BLAS / Financial Times (UK) 29oct2008

Output from the world's oilfields is declining faster than previously thought, the first authoritative public study of the biggest fields shows.

Without extra investment to raise production, the natural annual rate of output decline is 9.1 per cent, the International Energy Agency says in its annual report, the World Energy Outlook 2008, a draft of which has been obtained by the Financial Times.

The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as those in the North Sea, Russia and Alaska, and meet long-term demand. The effort will become even more acute as prices fall and investment decisions are delayed.

The IEA, the oil watchdog, forecasts that China, India and other developing countries' demand will require investments of $360bn (£230bn) each year until 2030. The agency says even with investment, the annual rate of output decline is 6.4 per cent.

The decline will not necessarily be felt in the next few years because demand is slowing down, but with the expected slowdown in investment the eventual effect will be magnified, oil executives say.

"The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand," the IEA says.

The watchdog warned that the world needed to make a "significant increase in future investments just to maintain the current level of production".

The battle to replace mature oilfields' output could even offset the decline in demand growth, which has given the industry - already struggling to find enough supply to meet needs, especially from China - a reprieve in the past few months.

The IEA predicted in its draft report, due to be published next month, that demand would be damped, "reflecting the impact of much higher oil prices and slightly slower economic growth".

It expects oil consumption in 2030 to reach 106.4m barrels a day, down from last year's forecast of 116.3m b/d.

The projections could yet be revised lower because the draft report was written a month ago, before the global financial crisis deepened after the collapse of Lehman Brothers.

All the increase in oil demand until 2030 comes from emerging countries, while consumption in developed countries declines.

As a result, the share of rich countries in global demand will drop from last year's 59 per cent to less than half of the total in 2030.

This is the clearest indication yet that the focus of the industry on the demand - not just the supply - side is moving away from the US, Europe and Japan, towards emerging nations.

source: 1nov2008

Falling Oil Production 'Is Greater Threat to Britain Than Terrorism'
As World Struggles To Meet Demand

Daily Mail (UK) 29oct2008

The risk to the UK from falling oil production in coming years is greater than the threat posed by terrorism, according to a new report released today.

Industry taskforce Peak Oil group warned that Britain will begin to feel the effects of a shortage of oil within the next five years, as the major oil-producing nations slow down production.

The warning comes after a new study said that the world is struggling to meet the demand for oil and will have to invest hugely in production just to maintain the current output rate.

The draft report from the International Energy Agency shows that output from the world's oilfields is declining faster than previously thought, and that without more investment the rate of annual decline is 9.1 per cent.

The IEA warned that the issue would become even more acute as prices fall and investment decisions are delayed.

Jeremy Leggett, chairman of the Peak Oil Group, said: "Society has become oil-dependent to its rivets.

"What we are warning of is a peak in production beyond which will be a fall, potentially a rapid fall, and that will mean a global energy crisis if the analysis is correct."

Speaking on BBC's Today programme, Mr Leggett said: 'What we are arguing is that the oil industry and oil institutions have been irrationally exuberant about their ability to meet demand going forward, in much the same way that the financial institutions have been irrationally exuberant about their ability to manage complex financial instruments.'

He added: "When they fail to meet demand, many countries will experience this as an energy crisis. Some will experience it as an energy famine, as producers start to withhold exports," he said.

The International Energy Agency (IEA) acts as policy adviser to 28 member countries, including the United States, Japan, Canada and leading European nations.

The IEA forecast China, India and other developing countries' demand would require investments of $360 billion each year until 2030, according to the FT.

"The future rate of decline in output from producing oilfields as they mature is the single most important determinant of the amount of new capacity that will need to be built globally to meet demand," the IEA said.

The watchdog said the world needed to make a "significant increase in future investments just to maintain the current level of production." The battle to replace mature oilfields' output could even offset the decline in demand growth, which had given the industry a reprieve in the past few months, it said.

The IEA expected oil consumption in 2030 to reach 106.4 million barrels a day, down from last year's forecast of 116.3 million.

It said the projections could yet be revised lower because the draft report was written a month ago, before the global financial crisis deepened after the collapse of Lehman Brothers.

source: 1nov2008