Oil supply fears cloud IEA outlook

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HOUSTON (AP) - More than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy, the International Energy Agency said Wednesday.

The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments during one of the most severe economic downturns in a generation. The IEA stressed that it’s vital for the world’s energy companies to continue investing in new projects despite the current economic malaise. The total potential tab through 2030: $26.3 trillion.

“While the situation facing the world is critical, it is vital we keep our eye on the medium- to long-term target of a sustainable energy future,” IEA executive director Nobuo Tanaka told reporters at the release of its annual World Energy Outlook report in London.

There are growing fears the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.

“While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,” said former Secretary of Energy Spencer Abraham. “There was not enough production even when we were in triple-digit oil markets over the summer, and there’s going to be a lot of pressure on the system when economies recover.”

Tanaka said that state-run national oil companies — like those in Venezuela and Saudi Arabia — are projected to account for about 80 percent of the increase of both oil and natural gas production to 2030.

But he acknowledged it was “far from certain” those companies would be willing to make the necessary investment themselves or to attract sufficient capital to keep up the necessary pace of investment.

Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.

That type of uncertainty already is prompting companies to withhold billions of dollars of investment in new oilfield and refining projects, even though major oil companies have posted record profits this year thanks to triple-digit crude prices.

Producers and refiners, large and small, are delaying and even canceling some work as they adjust to oil prices that have fallen more than 60 percent since peaking in July above $147.

Many companies have slashed capital spending budgets for at least the coming year. Just last week, ConocoPhillips and the state-run Saudi Arabian Oil Co. said they’ve postponed construction of a multibillion-dollar refinery in Saudi Arabia because of the uncertain economy.

Royal Dutch Shell PLC, Europe’s largest oil company, said last month it was pushing back a decision on expanding an oil sands project in Canada.

Another huge obstacle for the multinational oil giants like Shell and Exxon Mobil Corp. is gaining access to potential new sources of fossil fuels. State-run oil companies control about 80 percent of global oil reserves and, for now, are keeping a tight grip on their assets.

“Even (in the United States) we’re limiting access,” said Mary Novak, an energy analyst at IHS Global Insight. “The $20 trillion figure sounds good, but who’s going to spend it and where are they going to spend it is the biggest problem.”

The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 — 10 million barrels per day less than projected last year.

The IEA is a policy adviser to 28 member countries, mostly industrialized oil consumers.

China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand center.

The agency said that these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit conditions could delay spending.

Last year, Platts, the energy information arm of McGraw-Hill Cos., said companies that produce, refine and transport oil and natural gas will need as much as $21.4 trillion in capital expenditures through 2030 to meet the world’s energy demands.

However, Platts also noted the industry already was falling behind the spending curve, in part from limited access to new potential reserves for the major multinational oil companies.

The Organization of the Petroleum Exporting Countries, which pumps around 40 percent of the world’s oil, cut output by 1.5 million barrels per day from Nov. 1 to counter a recent fall in the price of crude from a high of $147 in July to under $59 on Wednesday.

OPEC has also warned that crucial downstream investment — in refining and distribution — will be curtailed if the oil price is not maintained at a reasonable level.

Those curtailments are already happening. In addition to the postponement by ConocoPhillips and Saudi Aramco, North American refining giant Valero Energy Corp. has said it will curtail capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. said its delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

The IEA has nearly doubled its forecast for the price of oil over the next twenty years, because of rising demand in the developing world as well as surging costs of production as oil needs to be sourced from more expensive offshore fields and state-run companies.

It hiked its forecast for the price of a barrel of oil in 2030 to just over $200 in nominal terms, compared to its forecast last year of $108 a barrel. Measured in constant dollars, it pegs oil at $120 a barrel in 2030, up from last year’s forecast of $62.

Over 2008 to 2015, it predicts the price to average $100.

The report also highlighted the expected rapid growth of renewable energy resources. It predicts that world renewables-based electricity generation — mostly hydro and wind power — will overtake gas to become the second-largest source of electricity, behind coal, before 2015.

____

Return of triple-digit oil prices seen

November 9th 2008 

The global economic slump that has curbed energy demand and pushed oil prices down in recent months may provide only a short-lived respite for consumers, according to the world’s top energy forecaster.

The International Energy Agency, which advises industrialized nations on energy policy, warned Thursday that the supply shortfalls that pushed oil prices into triple-digit territory this year are far from resolved, and could lead to a new period of high prices.

Oil has plummeted from its summer peak in recent weeks as the financial and economic slowdown reduced consumption. But many analysts believe oil could bounce back quickly once economic growth resumes. On Thursday, oil futures in New York settled at $60.77 a barrel, down $4.53, their lowest level in 19 months. Prices are now 58 percent below their peak of $145.29 a barrel in July.

As a result of higher prices and lower growth, the energy agency slashed its forecast for global oil demand by more than 10 million barrels a day over the next two decades. It now expects oil consumption to reach 106 million barrels a day in 2030, up from 86 million barrels a day this year.

But even with the lowered demand forecast, the agency warned that the period of lower prices may not last as producers fail to increase oil supplies to meet the developing world’s rising needs. It expects prices to average more than $100 a barrel through 2015, and possibly rise to $200 a barrel by 2030.

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The findings are part of the agency’s annual World Energy Outlook, which is scheduled to be released next week in full. An 18-page executive summary was made public on Thursday.

Much of the growth in oil supplies will come from the Organization of the Petroleum Exporting Countries, whose members hold the bulk of the world’s oil reserves.

The agency said that big new investments would be required in coming decades to meet growing energy needs. Oil and gas investments of $8.4 trillion will be required through 2030, or about $350 billion a year on average.

“Globally, oil resources are plentiful, but there can be no guarantee that they will be exploited quickly enough” to meet the expected consumption growth, the agency said.

Falling prices are causing some producers to pare investments and delay projects.

Saudi Arabia’s national oil company, Saudi Aramco, and ConocoPhillips said on Thursday that they would delay a major expansion at a refinery in Yanbu, on the kingdom’s Red Sea coast, for at least six months.

The two companies said they halted the bidding process for the 400,000-barrel-a-day refinery because of “uncertainties in the financial and contracting markets.” Both companies said they were still committed to the project but wanted to take advantage of better contracting terms as prices fall.

The energy agency’s experts have become increasingly alarmed in recent years at the slow pace of development of oil resources. The agency’s report includes an extensive analysis of the world’s 800 biggest oil fields. It found that producers would face a steep path just to keep production from declining.

Part of the problem, the report found, was that decline rates at existing fields were accelerating, meaning that more oil needs to be found and produced to keep global production from falling.

According to the report, in order to offset both natural field declines and meet the projected growth in demand by 2030, the world would need to increase production by 64 million barrels a day, or the equivalent of six times the current production of Saudi Arabia.

The global agency also stressed that urgent action was required to curb carbon emissions, which are expected to double by the end of the century. That would push global temperatures up by as much as 6 degree Celsius (11 degrees Fahrenheit), leading to catastrophic global warming, the agency said.

“Current global trends in energy supply and consumption are patently unsustainable — environmentally, economically, and socially,” the energy agency said. “But that can — and must — be altered.”

The agency said that reductions in the carbon dioxide output of the United States and China, the world’s top two emitters, would be critical to stabilizing global emissions. Carbon emissions from the use of fossil fuels are expected to rise by 45 percent by 2030. Even modest reductions will be difficult to achieve, and will be costly.

“The future of human prosperity depends on how successfully we tackle the two central energy challenges facing us today: securing the supply of reliable and affordable energy; and effecting a rapid transformation to a low-carbon, efficient and environmentally benign system of energy supply,” the report said.

China, India feeling impact of

One World follow the Sun

global crisis

‘This will have a huge impact,’

Chinese banking executive says

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updated 12:02 p.m. MT, Sat., Nov. 1, 2008

LONDON - Two powerhouse emerging market countries in Asia felt the sting of the global financial crisis on Saturday as India cut its main short-term lending rate and China said it was bracing for a slowdown.

In Europe, Britain’s Prime Minister Gordon Brown, who has played a big role in combating the crisis, appealed to oil-rich Gulf states to pour money into stabilizing the world financial system and helping afflicted countries.

Other countries took steps to shore up their own economies. Russia moved 170 billion rubles ($6.4 billion) from a national fund to a state bank on Saturday as part of Moscow’s $200 billion markets and economy rescue plan.

And German Chancellor Angela Merkel urged German banks to tap a 500 billion euro ($638.9 billion) government rescue package. She and Brown will meet in London Thursday.

The developments in the worst financial crisis in eight decades followed signs in the past week that world markets were stabilizing, with interbank rates falling and U.S. stocks posting their best week in 34 years.

But in Shanghai, a senior Bank of China executive told a financial conference the impact of the crisis on China has started to appear.

China has seen a sharp slowdown in industrial profit growth and fiscal income, Executive Vice President Zhu Min told a financial conference. The global economy will likely enter recession next year with the United States, Europe and Japan posting negative growth, he said.

“That will have a huge impact on China,” he said.

Zhu also said currency volatility was expected to add further pressure on China’s banks, which have enjoyed robust profits for years as the country boomed. Earnings growth is now slowing as the economy cools from the impact of the crisis.

“The uncertainties in the world’s currency markets have exposed the Chinese banking sector to higher foreign asset risk,” Zhu said.

In India — like China, a magnet for foreign investment in recent years as their economies roared — the central bank cut its main lending rate for the second time in as many weeks to ease a cash squeeze and spur economic growth.

Analysts said the surprise move showed Indian concern that strains on its economy were quickly becoming more severe.

“These actions were necessary (and had) to be taken on the liquidity front…the situation was getting worse,” said Vikas Agarwal, strategist at JP Morgan.

The central bank cut its main short-term lending rate by 50 basis points to 7.5 percent and banks’ cash reserve requirements by 100 basis points to 5.5 percent.

“The global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability,” the bank said.

Policymakers around the world have slashed interest rates in recent weeks and injected huge amounts into their banking systems to try to combat the spillover effects of the global crisis, which is causing credit markets to freeze up and threatens to plunge the world economy into recession.

Britain’s Brown, speaking as he set out to visit the Gulf, said Saudi Arabia and other oil-producing Gulf states, could contribute funds to the International Monetary Fund or other entities to ease the crisis.

“Their interest is in a stable energy price, not in the massive volatility we have seen where oil prices have shot up and then come down again. Their interest too is in a well-functioning global economy,” Brown told Sky News.

His tour precedes a global summit in Washington on Nov. 15 which will seek to reform the international financial system.

The business outlook weakened in the United States, where the question of whether Republican candidate John McCain or Democrat Barack Obama would handle the economic crisis best has dominated debate before Tuesday’s presidential election.

A Commerce Department report on Friday showed consumers cut monthly spending for the first time in two years in September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.

As another week ended in the crisis, the Bank of Japan slashed interest rates and British banking giant Barclays said it was raising $12 billion in capital.

But there were signs that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.

U.S. stocks closed higher on Friday as investors picked up bargains following recent heavy losses. European shares reversed losses and followed Wall Street higher.

The Bank of Japan rate slash followed a cut by the Federal Reserve Wednesday. The European Central Bank and the Bank of England are expected to do the same next week.

WHO’S DRIVING THIS TRAIN?

China, India feeling impact of global crisis

‘This will have a huge impact,’

Chinese banking executive says

One World follow the Sun

updated 2 hours, 9 minutes ago

LONDON - Two powerhouse emerging market countries in Asia felt the sting of the global financial crisis on Saturday as India cut its main short-term lending rate and China said it was bracing for a slowdown.

In Europe, Britain’s Prime Minister Gordon Brown, who has played a big role in combating the crisis, appealed to oil-rich Gulf states to pour money into stabilizing the world financial system and helping afflicted countries.

Other countries took steps to shore up their own economies. Russia moved 170 billion rubles ($6.4 billion) from a national fund to a state bank on Saturday as part of Moscow’s $200 billion markets and economy rescue plan.

And German Chancellor Angela Merkel urged German banks to tap a 500 billion euro ($638.9 billion) government rescue package. She and Brown will meet in London Thursday.

The developments in the worst financial crisis in eight decades followed signs in the past week that world markets were stabilizing, with interbank rates falling and U.S. stocks posting their best week in 34 years.

But in Shanghai, a senior Bank of China executive told a financial conference the impact of the crisis on China has started to appear.

China has seen a sharp slowdown in industrial profit growth and fiscal income, Executive Vice President Zhu Min told a financial conference. The global economy will likely enter recession next year with the United States, Europe and Japan posting negative growth, he said.

“That will have a huge impact on China,” he said.

Zhu also said currency volatility was expected to add further pressure on China’s banks, which have enjoyed robust profits for years as the country boomed. Earnings growth is now slowing as the economy cools from the impact of the crisis.

“The uncertainties in the world’s currency markets have exposed the Chinese banking sector to higher foreign asset risk,” Zhu said.

In India — like China, a magnet for foreign investment in recent years as their economies roared — the central bank cut its main lending rate for the second time in as many weeks to ease a cash squeeze and spur economic growth.

Analysts said the surprise move showed Indian concern that strains on its economy were quickly becoming more severe.

“These actions were necessary (and had) to be taken on the liquidity front…the situation was getting worse,” said Vikas Agarwal, strategist at JP Morgan.

The central bank cut its main short-term lending rate by 50 basis points to 7.5 percent and banks’ cash reserve requirements by 100 basis points to 5.5 percent.

“The global financial turmoil has had knock-on effects on our financial markets; this has reinforced the importance of focusing on preserving financial stability,” the bank said.

Policymakers around the world have slashed interest rates in recent weeks and injected huge amounts into their banking systems to try to combat the spillover effects of the global crisis, which is causing credit markets to freeze up and threatens to plunge the world economy into recession.

Britain’s Brown, speaking as he set out to visit the Gulf, said Saudi Arabia and other oil-producing Gulf states, could contribute funds to the International Monetary Fund or other entities to ease the crisis.

“Their interest is in a stable energy price, not in the massive volatility we have seen where oil prices have shot up and then come down again. Their interest too is in a well-functioning global economy,” Brown told Sky News.

His tour precedes a global summit in Washington on Nov. 15 which will seek to reform the international financial system.

The business outlook weakened in the United States, where the question of whether Republican candidate John McCain or Democrat Barack Obama would handle the economic crisis best has dominated debate before Tuesday’s presidential election.

A Commerce Department report on Friday showed consumers cut monthly spending for the first time in two years in September, evidently bracing for hard times as jobs continue to disappear and credit conditions tighten.

As another week ended in the crisis, the Bank of Japan slashed interest rates and British banking giant Barclays said it was raising $12 billion in capital.

But there were signs that the moves taken by central banks and others to remove blockages in the credit system were working to some extent.

U.S. stocks closed higher on Friday as investors picked up bargains following recent heavy losses. European shares reversed losses and followed Wall Street higher.

The Bank of Japan rate slash followed a cut by the Federal Reserve Wednesday. The European Central Bank and the Bank of England are expected to do the same next week.