More nervous predictions by the IEA

Oil demand growth is accelerating, non-OPEC supply growth will recede in a couple of years' time, and OPEC spare capacity will be "minimal." In other words, the world faces an oil suppply crunch by 2012, according to the International Energy Agency's 2007 Medium-Term Oil Market Report which was released today.

"It is possible that the supply crunch could be deferred -- but not by much," the Agency says, noting that its demand forecast, which is derived from OECD and International Monetary Fund projections, assumes average annual global economic growth of 4.5%, and allowing for the possibility that this could be lower.

But even if global growth does turn out to be lower than forecast, the IEA said, this will not dramatically alter the projections. The IEA now sees global oil demand growing at an average annual rate of 2.2% between 2007 and 2012, accelerating beyond the 2% annual growth rate for the 2006-2011 period projected in February this year. World oil demand is forecast to grow by 9.69 million b/d between 2007, when global demand is forecast at 86.13 million b/d, and 2012, when global demand is forecast to average 95.82 million b/d.

Non-OPEC supply, including biofuels production and OPEC natural gas liquids, is forecast to grow strongly in 2007, 2008 and 2009, but recede after 2009. Average annual growth over the five years is projected at just 1% -- 0.4% below the growth seen in the past seven years and roughly half the rate of projected demand growth.

Supply from non-OPEC producers is seen rising by 4.81 million b/d over the next five years, but 3.1 million b/d of that is achieved between 2007, when total non-OPEC supply is estimated at 54.83 million b/d, and 2009, when non-OPEC supply is seen averaging 57.93 million b/d. Between 2009 and 2012, when non-OPEC supply is forecast at 59.64 million b/d, the increase is seen at just 1.71 million b/d.

Which brings us to OPEC, the marginal supplier. The IEA sees demand for OPEC crude plus movements into and out of stocks rising by 4.88 million b/d over the next five years, from 31.3 million b/d in 2007 to 36.18 million b/d in 2012. At that point, the IEA reckons OPEC's crude production capacity will be 38.4 million b/d, which would put the group's surplus capacity above 2 million b/d. Not a particularly comfortable level. But, taking into account the possibility that a sizeable chunk of this capacity might not be easily brought into use, the IEA warns that effective spare capacity within OPEC might be rather a lot less, and as low as 1.55 million b/d.

Nevertheless, the IEA says, while recent history has tended to justify a "conservative approach" when calculating OPEC's "usable" spare capacity, "there is the potential that over time some of the constraints on this inaccessible portion could change lifting the available reserve."

Reducing hydrocarbon demand is the main solution, according to the IEA. If world economic growth proves lower than expected, there could be a breathing space. But, the IEA warns, "it is abundantly clear that if the path of demand does not change on its own, it may well be driven to change by higher prices."

Posted by Margaret McQuaile on July 9, 2007