BY NEIL KING JR. AND PETER FRITSCH
The world's premier energy monitor is preparing a sharp downward revision of its oil-supply forecast, a shift that reflects deepening pessimism over whether oil companies can keep abreast of booming demand.
The Paris-based International Energy Agency is in the middle of a large study of the condition of world's top oil fields. Its findings won't be released until November, but the bottom line is already clear: Future crude-oil supplies could be far tighter than previously thought.
The IEA has predicted for several years that crude-oil supplies will arc gently upward to keep pace with rising demand, topping 116 million barrels a day by 2030, up from around 87 million barrels a day now. But the agency is now worried that aging oil fields and diminished investment mean that companies could struggle to break beyond 100 million barrels a day over the next two decades.
The agency's forecasts are widely tracked throughout the oil patch, so a blast of cold air from the IEA could further rattle an oil market that has already seen crude prices rocket over $130 a barrel, double what they were a year ago.
Midday on the New York Mercantile Exchange Wednesday, crude for July delivery, the new front month, was at $131.55, up $2.57, or 2%. Year-to-date, crude oil is up $35.57, or 37%
"This is very important because the IEA is treated as the world's only serious independent guardian of energy data and forecasts," said Edward Morse, chief energy economist at Lehman Brothers Holdings Inc. The study, he said, could act "as a prod" for greater transparency within an industry known for intense secrecy.
The IEA monitors energy markets for the world's 26 most-advanced economies, including the U.S., Japan and all of Europe, who also pay the agency's bills. Its role is to act as a counterweight in the market to the views of the Organization of Petroleum Exporting Countries. The IEA's endorsement of a crimped supply scenario will likely be interpreted by the cartel as yet another call to pump more oil-a call it will have a difficult time answering. At the same time, the IEA's conclusions will likely be seized on by advocates of expanded drilling in prohibited areas like the U.S. outer continental shelf or the Alaska National Wildlife Refuge.
The IEA's findings echo the gathering supply-side gloom in much of the oil patch, articulated by numerous Big Oil executives in recent months and prompting numerous upward revisions to long-term oilprice forecasts on Wall Street. Goldman Sachs Group Inc. grabbed headlines recently with a forecast saying that oil could top $140 a barrel this summer and could average $200 a barrel next year. Prices that high would put a serious strain on the world economy.
The IEA is now trying to shed light on some of the industry's bestkept secrets through a study of the world's top 400 oil fields. With behind-the-scenes assistance from major oil companies, oil-field-service companies, energy ministries and consultants, the agency hopes to assess the overall health of major fields scattered from Venezuela and Mexico to Saudi Arabia, Kuwait and Iraq. The fields supply more than twothirds of daily world production.
The study, employing the efforts of a team of 25 analysts, marks a sea change in the IEA's efforts to peer into the future. In the past, the agency focused mainly on assessing future demand and then looked at how much non-OPEC countries were likely to produce to meet that demand. Any gap, it was assumed, would then be met by big OPEC producers such as Saudi Arabia, Iran or Kuwait.
Critics charge that the U.S. Energy Department's own forecasting shop, the Energy Information Administration, still sticks to the same demand-driven methodology, assuming that supply will keep up with the world's growing hunger for oil.
The EIA has embarked on its own supply study, which it hopes to complete this summer. Its preliminary findings are also somewhat gloomy, with a forecast saying that only significant increments of nonconventional fuels like ethanol will push global fuel supplies over 100 million barrels a day by 2030.
"We are optimistic in terms of resource availability but wary about whether the investments get made in the right places and at a pace that will bring on supply to meet demand," says Guy Caruso, the EIA's chief economist.
In Paris, analysts at IEA also fret that a lack of investment in many OPEC countries, combined with a diminished incentive to ramp up output, cast serious doubt over how much the cartel will expand its production going forward. Big nonOPEC producers like Mexico, the U.S. and Russia, meanwhile, are looking at slumping production and their own uncertain investment climates.
The IEA work aims to tally the range of investments and projects under way to raise production from the fields in question. That way, the agency hopes to get a clearer sense of what to expect in the way of production flows.
Fatih Birol, the IEA's chief economist, said the hurdles already look high. "One of our findings will be that the oil investments required may be much, much higher than what people assume," he said. "This is a dangerous situation."
The IEA study will dig into one of the issues that most bedevils those trying to forecast future prices and the supply/demand balance: how rapidly the world's top fields are declining. Oil-field-depletion rates are a much-debated barometer of the health of the world's oil patch. A study released earlier this year by the Cambridge Energy Research Associates, a U.S.-based consultancy, crunched the numbers on 811 of the biggest fields and concluded that the world-wide depletion rate was around 4.5% a year. At that rate, oil companies have to make huge investments just to keep their production steady. Others say the number could be higher.
"We are of the opinion that the public isn't aware of the role of the decline rate of existing fields in the energy supply balance, and that this rate will accelerate in the future," says Mr. Birol, who is leading the MA's field study.
The IEA study won't be definitive. Big producers like Venezuela, Iran and China aren't cooperating with the study. Other producing nations like Saudi Arabia typically treat specific production data of individual fields as closely guarded state secrets.
To get around that, the EEA will depend on data gathered by IHS Inc., a major data and analysis provider in the U.S., as well as the U.S. Geologic Survey, a smattering of oil companies and national petroleum councils. Some oil-service companies are also lending a hand. The agency also plans to do computer modeling to make estimates where it lacks firm data.
Critics of the IEA praise the continuing study but also say a revision of the agency's long-term forecasts is long overdue. The agency has missed many of the big energy developments in recent years, like the surge in Chinese demand in 2004 and this year's skyrocketing prices. "The IEA is always conflicted by political pressures," said Chris Skrebowski, a London-based oil analyst who keeps his own database on big petroleum projects around the world. "In this case I think they want to make as inconvertible as possible the fact that we are facing a real crunch."
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