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IEA Sees Oil Supply Crunch After 2010

Medium-term growth in supply and demand. Click to enlarge. Source: IEA

In its just released Medium-Term Oil Market Report, the International Energy Agency (IEA) anticipates “increasing market tightness” beyond 2010, due to stronger demand and OPEC spare capacity declining to minimal levels by 2012.

The IEA forecasts that global oil product demand will expand by 1.9 mb/d or 2.2% per year on average, reaching 95.8 mb/d by 2012. Growth will be driven by the stronger oil demand growth in non-OECD countries, particularly in Asia and the Middle East, where demand will grow more than three times faster than that of the OECD economies. Transportation fuels will account for the bulk of demand growth in both OECD and non-OECD countries.

These countries [in Asia and the Middle East] are moving towards the threshold level of income (around $3,000 per capita) where their consumers buy cars and energy-consuming white goods.

The IEA projects that biofuels will expand significantly over the forecast period, but will remain marginal in terms of total oil demand.

We anticipate that ethanol (about 78% of total biofuels on average) and biodiesel will displace altogether 1.1 mb/d of oil product demand in 2007, rising to almost 1.8 mb/d in 2012. Ethanol is expected to displace roughly 27% of incremental gasoline demand; by contrast, biodiesel will only displace about 5% of incremental gasoil demand. Despite its rapid growth, however, ethanol consumption will only account for about 6% of global gasoline demand by the end of the forecast period, while biodiesel use will represent even less (slightly more than 1%) as a proportion of global gasoil consumption. Overall, biofuels demand will be concentrated in OECD countries.

On the supply side, the IEA expects net oilfield decline rates to average 4.6% annually for non-OPEC and 3.2% per year for OPEC crude.

Aggregate levels mask much sharper declines in a 15-20% per annum range for mature producing areas and for many recent deepwater developments. All told, the forecast suggests the industry needs to generate 3.0 mb/d of new supply each year just to offset decline.

Nevertheless, IEA projects total non-OPEC supply (including biofuels and OPEC NGL) to reach 52.6 mb/d in 2012 from 50.0 mb/d in 2007. OPEC crude capacity is seen rising to 38.4 mb/d in 2012 from a 2007 average of 34.4 mb/d.

Some 70% of the increase comes from Saudi Arabia (+1.8 mb/d), the UAE and Angola (+0.5 mb/d each). Lesser increments come from Kuwait, Nigeria, Algeria and Libya. Forecast capacity is below OPEC’s own estimates of near 40 mb/d for 2010, largely due to this report’s caution on Iraqi, Venezuelan and Niger Delta capacity, where security and investment risks predominate.

Peak oil? The IEA report notes that “The concept of peak oil production and its timing are emotive subjects which raise intense debate.

Much rests on the definition of which segment of global oil production is deemed to be at or approaching peak. Certainly our forecast suggests that the non-OPEC, conventional crude component of global production appears, for now, to have reached an effective plateau, rather than a peak.

Having attained 40 mb/d back in 2003, conventional crude supply has remained unchanged since and could do so through 2012. While significant increases are expected from the FSU, Brazil and sub-Saharan Africa, these are only sufficient to offset declines in crude supply elsewhere. Put another way, all of the growth in non-OPEC supply over 2007-2012 comes from gas liquids, extra heavy oil, biofuels (and, by 2012, 145 kb/d of coal-to-liquids from China). As overall non-OPEC liquids capacity increases, this plateau reduces the share of non-OPEC conventional crude supply from 77% in 2000, to 74% in 2006 and 67% in 2012.

While there might be a temptation to extrapolate this trend, citing a peak in conventional oil output, a degree of caution is in order. Firstly, the concept of ‘conventional’ oil changes with time, technology and economics. In the early 1970s, much offshore production was deemed unconventional, but this portion of global supply has since grown to account for 30% of the total. Evolving economies of scale and infrastructure development could do the same for GTL, oil sands and ultra-deepwater reserves in the future, shifting today’s unconventional resource into tomorrow’s conventional supply category.

Moreover, rapidly-growing condensate and NGL supply is scarcely ‘non-conventional’ in a technical sense now. We also note that for certain regions, notably the FSU and West Africa, the turn of the current decade is likely to mark a hiatus in crude supply growth. Strong growth is expected to resume here towards the middle of the next decade. Whether this will be sufficient to offset the declines expected for mature OECD crude supply, preventing overall decline for non-OPEC, is less easy to predict.

Finally, we note that focussing on non-OPEC crude alone is a rather selective way of considering the sustainability of global oil production. Peak or plateau production is frequently taken as shorthand for impending resource exhaustion. While hydrocarbon resources are finite, nonetheless issues of access to reserves, prevailing investment regime and availability of upstream infrastructure and capital seem greater barriers to medium-term growth than limits to the resource base itself.

Refineries. The IEA forecasts global crude distillation capacity to rise by 10.6 mb/d between 2007-2012. New investments add 9.1 mb/d of crude distillation capacity and existing refineries in North America, Europe and the Pacific are assumed to add a further 1.5 mb/d through capacity creep. The Middle East and Asia will account for 6.7 mb/d of new crude distillation.

This exceeds expected regional demand growth as India and Saudi Arabia develop significant export-orientated refining capacity. Consequently, the Middle East will arguably supply the marginal barrel of product to importing regions as well as the marginal barrel of crude.

Along those lines, Iranian President Mahmoud Ahmadinejad said his country will transition from being an importer of gasoline to an exporter of 150 million liters (943,000 barrels) of gasoline per day in five years. Iran, currently undergoing gasoline rationing, is trying to shift its transportation fleet to compressed natural gas fuel. (Earlier post.)

In the US, energy banker Matthew Simmons said in an interview with that there is a “real risk” that gas stations in the United States will run dry this summer.

Simmons said that US refineries simply aren’t capable of running at a sufficiently high capacity to produce enough gasoline to meet demand.



John Baldwin

The Germans are sensibly diversifying their road transport by building 1000 CNG filling stations and bringing out lots of new CNG cars and vans.

100% reliance on diesel-petrol with only bio-fuels to reduce demand is a very risky strategy. By 2020, non Opec liquids will be in fairly steep decline which leaves all eggs in one Opec basket - not a good place to be...

Bud Johns

Soothing words from the president of Iran. I feel so much better now.....

Lou Grinzo

See for the latest surprise refinery problems.

Am I the only one who finds it exceedingly "convenient" that as we tip-toe closer to the peak we're having all these refinery problems, week after week? It restrains gasoline supply, pushes up prices, helps spur the transition away from oil (at least a little), and gives The Powers That Be something to blame.

Just a coincidence, I'm sure.


Planned or not, there's nothing like a good gas lineup to get people thinking about alternatives. The good news is that at least one of the alternatives, electricity, is potentially cheaper and cleaner.

Max Reid

Last year, Oil consumption grew only 0.7 % while the production grew 0.4 %.

How come the production will grow to 95 million bpd and where will that Oil come from when countries like Mexico, Britain & Indonesia have production declines.


We'll NEVER get to 95 million bpd.


I find it troubling that they are going to lump coal into "oil reserves", by calling it coal to liquids (145 kb/d from China), they than lump that as "non-OPEC liquids capacity". Now they can say supply will platuea, not peak!


Their scenario does not even mention the >possibility< that much of the Middle East is run over by Al Qaeda style Sunnies in some countries and equally fanatic Iranian priest style Shias in other countries that will then start to fight each other along some new borders. This cocktail of religious fanatics and war lovers will drive out Asian and western foreigners as well as most of the educated locals. Result: the oil production will collapse and that again will trigger more war and local fights over resources. Now see what will happen when the US withdraw from Iraq. We don’t really know for sure but my bet is 40% that nothing important really happens and 60% that the Middle East descends into chaos and that the oil price therefore increases importantly. Fortunately, at least this war scenario will be very good for the fight against global warming. As long as crude oil stays below $120 per barrel the world economy will do just fine. Maybe slow down a little but not much. And it would definitely help to speed up the transition of our energy system to one that is sustainable and based on renewable energy. In fact this could turn out to be far more important for the long term survival of mankind than securing a stable flow of oil from the Middle East.


quote>>The Germans are sensibly diversifying their road transport by building 1000 CNG filling stations and bringing out lots of new CNG cars and vans.>>

...and Germany depends more and more on russian gas. Its no good idea. I think freedom of fuel (switching) comes only with plugin hybrids that allows driving 90% of our daily routes electric.
The rest (biofuel) using the ice is no problem.

Herm Perez

well, do you really want to invest billions building new refineries as the oil supply dwindles out and electric cars are becoming widely available? the investors would get nervous


I would much rather steady price increases than sudden queues and rationing. This "green" transport revolution had better speed up a little.....


You would think that the French, who get 80%+ of their electricity from nuclear, would be wild for electric cars. Has anybody heard if the French are priming for an exceptionally big BEV push anytime soon? Compressed air doesn't count.


AFAIK the French post office is still working on becoming the biggest users of BEVs anywhere.

Max Reid

I think IEA is trying to confuse everyone by clubbing GTL & CTL into Oil.

The largest GTL project in Qatar has been scrapped and the country is planning more LNG terminals & tankers.
Also China wants to go slow on CTL for the fear of pollution.

That leaves Oil alone and its all set to go down while the alternatives like Hybrids, Bio-fuels, CNG are going up.

Iran has planned to convert all of their vehicles to Bi-fueled while in USA, Hybrids are growing despite fall in non-hybrids.

French will definitely go Nuclear - Plugin hybrid route.


Make horses ready...


A snow storm hit Buenos Aires today. The first since 1918. Damn global warming!

anti gravity

would the powers that be ever come out and say peak oil is now, i dont think so. Its prob better to say "increasing market tightness"
we have hit the peak and are now in the plateau. all the data points to this
life is going to get very interesting when bush pulls out of iraq and saudi falls

Rafael Seidl

The graphic suggests that OPEC will be bringing substantial new production capacity onstream in 2010, squeezing biofuels in that year. That scenario could come to pass - the oil business is prone to booms and busts - but only if capacity expansion leads to (temporarily) lower energy prices. As long as world economy is growing at its present rate, that does not seem likely. If Iraq collapses or there's a sharp slowdown/recession in any one of the major consumer geographies - US, EU, Japan, China - all short-term bets are off anyhow.

Long-term, we're likely to become more dependent on fewer supplier countries of oil & gas than ever before - unless we succeed in fairly massive conservation/efficiency efforts and/or manage to switch to alternate primary energy sources.

@ Black Sun -

"640KB should be enough for anyone." - Bill Gates. 'Nuff said.


Bolloré, the maker of the BlueCar BEV is a friend of French president Sarkosy.


I like that little blue car! (there are some guys in Vegas who should buy one). It would be cool if they started building them.

Max Reid

OPEC production is not going to squeeze biofuels. It will just compensate for falling production in Mexico, Britain, Indonesia ...

Chinese bought in
2005 - 6.0 million vehicles
2006 - 7.2 million vehicles
2007 - may be 8.4 million or more
and OPEC can never supply to China + other growing economies.

Infact Saudi Oil production declined 2 % last year while their consumption grew 6 %.

Better to go Hybrids, Biofuels, CNG route.

Pastor Todeji idowu

i will like to be one of your supplier of crude oil,kindly mail me if you'ra interested.

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