IEA raises 25-year energy investment requirement by $3 trillion

IEA raises 25-year energy investment requirement by $3 trillion

London (Platts)--7Nov2006

The International Energy Agency has raised by $3 trillion its forecast of
the cumulative investment needed to meet growing world demand over the next 25
years.
In its 2006 World Energy Outlook, released Tuesday, the West's energy
watchdog is now forecasting that more than $20 trillion will be required
between 2005 and 2030, $3 trillion more than last year's forecast thanks
mainly to recent sharp increases in unit capital costs, especially in the oil
and gas industry.
More than half of this investment will be needed in developing countries,
and China alone will need to invest some $3.7 billion or 18% of the total.
But the IEA warned that there was no guarantee that all of the needed
investment would materialize, citing government policies, geopolitics,
unexpected changes in unit costs and prices and new technologies as potential
obstacles.
"The investment decisions of the major oil- and gas-producing countries
are of crucial importance, as they will increasingly affect the volume and
cost of imports in the consuming countries," the IEA said. "There are doubts,
for example, about whether investment in Russia's gas industry will be
sufficient even to maintain current export levels to Europe and to start
exporting to Asia."
It was not clear whether the IEA had taken into account Gazprom's October
26 announcement that it would boost its 2007 investment by 43%.
The IEA said planned upstream investment to 2010 was expected to boost
global spare crude production capacity "slightly," but it warned that capacity
additions could turn out to be smaller because of skilled personnel and
equipment shortages, regulatory delays, cost inflation, higher decline rates
at existing fields and geopolitics.
Increased capital spending on refining, however, is expected to raise
capacity by nearly 8 million b/d by 2010, the agency added.
If the needed investment is deferred, however, lower crude production
from OPEC could push oil prices up by a third and trim global oil demand by 7
million b/d or 6% in 2030.
The IEA said market fundamentals pointed to "a modest easing of prices"
alongside new capacity and slowing demand. But, it warned, "new geopolitical
tensions or, worse, a major supply disruption could drive prices even higher.
"We assume the average IEA crude oil import price falls back to
$47/barrel in real terms in the early part of the next decade and then rises
steadily through to 2030," it said.
The IEA predicted that natural gas prices would "broadly" follow the
trend in oil prices because long-term gas contracts continue to be linked to
oil prices. It saw coal prices following the direction of oil and gas prices
but changing proportionately less over time.
Climate change, along with the need to boost energy investment, was a key
theme of the IEA's report.
"The world is facing twin energy-related threats," the IEA said, "that of
not having adequate and secure supplies of energy at affordable prices and
that of environmental harm caused by consuming too much of it."
The need to curb growing demand for fossil fuels, boost energy supply
diversity and "mitigate" harmful emissions was "more urgent than ever," the
West's energy watchdog said.
The latest outlook sees global energy-related carbon dioxide emissions
increasing by 55% between 2004 and 2030, or 1.7% a year, reaching 40
gigatonnes in 2030. Power generation will contribute half of the increase,
while developing countries will account for more than three quarters of the
increase, overtaking the OECD as the biggest emitter by soon after 2010.
The IEA said nuclear power could help reduce dependence on imported gas
and curb carbon dioxide emissions.
--Margaret McQuaile, Jacinta Moran, newsdesk@platts.com

For similar stories, take a trial to Platts Oilgram News at
http://www.platts.com/Request%20More%20Information/

Please visit: www.platts.com

Their coverage of energy matters is extensive!!.