IEA Warn the Era of Cheap Oil is Over

The era of cheap oil is over, the International Energy Agency warned yesterday as it predicted crude values would soon rebound to above $100 a barrel and double again by 2030 as fields in the North Sea and elsewhere in the world declined faster than expected.

More than $26tn (£16tn) of new investment would be needed over the next 20 years to ensure the world had enough energy, according to the IEA, which was founded during the oil crisis of 1973-74 and acts as energy policy adviser to 28 member countries including Britain.

"While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over," the organisation stated.

The developed world's energy watchdog has doubled its long-term price expectation from last year's $108 a barrel for 2030. It assumes oil prices will rebound from today's $60-$70 a barrel to trade, in real terms adjusted by inflation, at an average of more than $100 from 2008 to 2015.

The summary, published yesterday, to the IEA's annual World Energy Outlook says the rise in oil prices is largely because companies will struggle to pump enough new oil to offset the production declines of the world's older fields. But the organisation refuses to accept that what is known as "peak oil" has yet been reached.

"The world is not running short of oil or gas just yet," it said. "The immediate risk to supply is not one of a lack of global resources, but rather a lack of investment where it is needed."

Total world oil production is not expected to peak before 2030, but the more easily accessible sources of crude, or conventional oil, are expected to plateau towards the end of that period. That will make the world more reliant on non-conventional sources, such as oil sands, which are hard to process, while conventional oil production will rise by only 5m barrels a day by 2030, the IEA forecasts.

The IEA has consistently said that energy resources have become concentrated in fewer hands as any increase in production is largely confined to Opec, the producers' cartel. Non-Opec conventional oil production has already reached a plateau and is projected to be in decline by around the middle of the next decade.

Author: Jo Amey