As production from mature oil fields declines and the OPEC supply cut agreement continues at the same time global crude demand is increasing, the head of the International Energy Agency raises concerns about the global supply of crude. IEA photo via flickr.
Growth in US production not enough for future demand: Birol
The head of the International Energy Agency says with global crude demand on the rise at the same time OPEC is cutting its supply and production at mature oil fields is falling, he is concerned that global crude supply could fall short, leading to a spike in oil prices.
The warning comes despite a significant increase in oil output by producers in the United States and other non-OPEC countries.
The “growth in the United States alone is not enough to make me feel comfortable that there will be enough production in the future because of two reasons,” Reuters reports Birol said on the sidelines of the International Energy Forum in New Delhi this week.
Birol says global crude consumption is steadily growing, and is up 1.5 million barrels per day (b/d) this year. The growth in demand is driven by petrochemical, industrial and aviation demand.
One of the reason global supply is waning is the decline in production from aging oil fields.
“Every year we’re losing (the equivalent of) North Sea production, which is 3 million barrels per day,” he said.
Since 2014, low oil prices have resulted in significantly lower investments in oil and gas exploration, despite a recent bump in oil prices which are now at end-of-2014 levels.
“Our expectation for 2018 investment is only 40 per cent of what we’ve seen in 2014 before prices collapsed,” Birol said. Players in the global oil industry are leery of boosting their exploration budgets due to rising US shale production which has limited gains in oil prices.
Birol says he is also concerned about the demise of the Venezuelan oil industry which began when President Hugo Chavez took over the office in 1999.
“We are very worried about Venezuela. As of today, Venezuela’s crude production is half of that when Mr Chavez took office at the end of 1999,” said Birol.
While the decline in Venezuelan production is the largest in the “history of oil”, according to Birol, he says production in the embattled South American country is expected to fall even more. Birol says it is difficult to say how much further output will decline.
Following comments from the Indian Energy Minister Dharmendra Pradhan calling for “reasonable” oil prices, Birol said “It’s important for the global economy that we don’t see a price spike”. He added “Last year we have seen a very strong, spectacular growth in the gas markets, but this is mainly a result of gas prices being on the low side.”
Birol said spikes in oil and gas prices could ultimately hurt oil producers if customers are forced to find alternatives, including coal and renewables.