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IEA Expects World to Rely More on Middle East Oil

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A top energy watchdog said the world will need more Middle Eastern oil in the next decade, as the current U.S. boom wanes. But the International Energy Agency warned that Persian Gulf producers may still fail to fill the gap, risking higher oil prices.

In its first update to the agency’s energy investment outlook in more than a decade, the IEA—which represents some of the world’s largest consumer nations—said it sees “growth in oil demand [becoming] steadily more reliant on investment in the Middle East.”

Surging American production from tight oil—extracted from shale formations in places like Texas and North Dakota—has led the agency and other oil-market analysts to predict the U.S. could leapfrog the world’s largest oil producers, Saudi Arabia and Russia, by 2020. That has triggered debate in Washington about easing a long-standing ban on most crude exports from American shores. It has also engendered hope of more energy security for the U.S., as well as worry that if American reliance on Mideast oil lessens, so might its military and diplomatic engagement in the region.

In its report, a summary of which was released early Tuesday in London, the IEA predicts that “output from North America plateaus [from around 2020] and then falls back from the mid-2020s onwards.” That forecast is broadly consistent with studies by the Organization of the Petroleum Exporting Countries, a cartel of some of the world’s largest producers.

While most of the oil found in the Middle East is cheap and easy to extract, tight oil requires intensive drilling as discoveries tend to deplete rapidly. When it comes to tight oil, “we are in a sweet spot,” said Gary Ross, chief executive of U.S. market research firm PIRA Energy Group. “But it’s like a treadmill, after a while you get exhausted.”

To fill any gap, the Middle East will “need to invest today if not yesterday” because projects typically take seven years to develop, the IEA’s Chief Economist Fatih Birol said. He said the region will need to spend an annual $90 billion through 2025 to meet global needs for its oil.

Yet, the agency warned the Middle East may fail to fill the gap because of high political risk and social spending. “We see a risk of not enough oil coming from the Middle East,” Mr. Birol said, citing the fact those countries pour a quarter of their $800 billion in annual oil revenue into energy subsidies. The Arab Spring, meanwhile, has forced many governments in the region to increase social spending. Iraq is still facing oil-output disruptions tied to political tensions, while Iran remains under tight international restrictions on its oil sales.

If the Middle East doesn’t cover the predicted shortfall created by declining U.S. output, the average cost of a barrel of oil could climb $15 by 2025, the IEA said.

The agency, which is charged with safeguarding energy security for the world’s most developed economies, often sounds the alarm on what it says is underspending by producers.

Overall, global oil and natural-gas exploration and production spending will rise by some 25% between now and 2035, reaching more than $850 billion a year, the IEA said. That figure will be part of $2 trillion in annual energy needs in the next two decades, up from about $1.6 trillion last year.

The IEA, which will release the full version of the report later Tuesday, had not fully updated its investment outlook since 2003.


27 Comments on "IEA Expects World to Rely More on Middle East Oil"

  1. Davy, Hermann, MO on Tue, 3rd Jun 2014 5:24 am 

    Reading between the lines of a governmental double speak outlet is dismal news. We all know the Mideast is on a trajectory of overshoot in all major vital resources categories. The regions ability to grow production will be compromised by both above and bellow ground problems that are now predicaments. If the Mideast is the only hope then there is no hope.

  2. Mike2 on Tue, 3rd Jun 2014 5:31 am 

    “.. the average cost of a barrel of oil could climb $15 by 2025, the IEA said.”
    That doesn’t sound that hard. Today US light oil is sold for ~103US$/bl +15$ makes up ~120$. In 2008 oil was already priced at ~140$ and now we had several years to adapt economy to higher oil prices.
    And even if US shale oil plateaus and OPEC can’t meet excess demand, isn’t there also some “new” found oil&gas in eastern mediterranean sea? A kind of a ‘new north sea’ some would say. 😉

  3. Aaron on Tue, 3rd Jun 2014 6:01 am 

    “If the Middle East doesn’t cover the predicted shortfall created by declining U.S. output, the average cost of a barrel of oil could climb $15 by 2025, the IEA said.”

    So we hit peak oil, supply can’t match demand, but a $15 price rise can suppress enough demand to match supply. I guess that’s feasible if the shortfall is quite small.
    It’s funny how they can’t allow themselves to say “Peak oil”.

  4. chilphil1986 on Tue, 3rd Jun 2014 8:18 am 

    If they did, this website’s traffic would explode overnight. Then it would probably get shut down once TPTB realized the gravity of that mistake. This won’t happen, of course. The economy will crumble and they will be out of office before they admit it.

  5. bobinget on Tue, 3rd Jun 2014 9:01 am 

    Wipple’s view:

    Iraq: Sunni bombers continue to kill and maim dozens of Shiites – most civilians. The fighting in Anbar province continues as some 42,000 Iraqi troops attempt to drive out the Sunni insurgents that have occupied portions of the province. Some news outlet are reporting ill-equipped government forces are losing the struggle against better equipped and motivated Sunni insurgents who continue to stream into the province fresh from the fighting in Syria. Hundreds of thousands have been driven from their homes by the fighting in Anbar as government forces resort to artillery fire on urban areas to dislodge insurgent forces. The International Red Cross is becoming increasingly disturbed by what is happening to civilians in the province.

    The Turks seem to have sided with the Kurdish Regional Government in permitting the export through Turkey of all the oil the Kurds can produce. A Kurdish spokesman said Erbil will not yield to Baghdad and would continue exporting oil as the central government is no longer sending to the Kurds the full agreed-upon share of the national oil revenues. The Kurds say they need to export some 400-500,000 b/d to keep their government afloat without Baghdad’s support.

    No progress has been reported on forming a new Iraqi government as charges of election improprieties muddy the prospects for a coalition.

    The province of Nineveh, which was home to the largest city in the world during Assyrian times, has asked Baghdad if it can get out and become an autonomous region as the central government never does anything for the province with all its oil revenues.

    Libya: Things got even worse last week. The country now has two prime ministers and nobody knows which one has the keys to the nation’s treasury; the US embassy told all American citizens to get out; a militia stole the weapons the US had provided to train Special Forces – halting the training; and the Libyan air force is bombing militia bases in Benghazi. With a former general, carrying a US passport, trying to suppress Islamist forces in the country, many are saying that a lengthy civil war with little to no oil production is either here already — or not far away.

  6. GregT on Tue, 3rd Jun 2014 9:58 am 

    In the last 11 years, oil prices have climbed by over 400%. Our economists are still pushing for an exponential growth rate of around 3% per annum, which would double output in 23 years. China is adding around 30 million cars to it’s roads annually, and the Middle East has exploded into violent conflict. Yet the all knowing useful idiots at the WSJ are predicting a mere 1.3% annual increase in oil costs for the next decade?

    What planet do these people actually live on?

  7. Dave Thompson on Tue, 3rd Jun 2014 10:07 am 

    91 million per day now. I am no expert, but what I see and read we are not going to produce much more per day. No matter where the IEA thinks it will come from.

  8. shortonoil on Tue, 3rd Jun 2014 10:12 am 

    “If the Middle East doesn’t cover the predicted shortfall created by declining U.S. output, the average cost of a barrel of oil could climb $15 by 2025, the IEA said.”

    These guys obviously don’t get out much! If you feel in a patriotic mood send the IEA a note, and tell them to go to our site: go to commentaries, and read “The Energy Factor III”. It could be be a real wake up call for them!

    Of course they may ignore it? It consists of all that scientific, and engineering stuff. A completely different approach to their dart board technique of prediction.

  9. meld on Tue, 3rd Jun 2014 10:33 am 

    or to sum up


  10. Northwest Resident on Tue, 3rd Jun 2014 10:38 am 

    “Surging American production from tight oil—extracted from shale formations…”.

    What is that “surging American production” — about 7.5 million bpd, about half of which is condensate that can’t be converted into fuel for transportation? Some “surge”. Whatever the reason for pumping that lie and inflating it and retelling it constantly, fact is, the “surge” is nothing but a minor blip on the daily demand for REAL oil — the type that actually provides energy to run the global economy and transportation.

    Who would have guessed that peak oil would be accompanied by peak B.S. and peak denial — all at the same time?!

  11. GregT on Tue, 3rd Jun 2014 11:28 am 

    Yes NWR,

    And the BS is helping to fuel the denial, but somehow, I don’t quite seeing either of them reaching a peak, just quite yet. Peak BS, and peak denial, will probably occur after the collapse of MIS.

  12. Plantagenet on Tue, 3rd Jun 2014 12:32 pm 

    There is no point quibbling over whether oil production from shales is “surging” or merely increasing.

  13. GregT on Tue, 3rd Jun 2014 1:55 pm 

    “There is no point quibbling over whether oil production from shales is “surging” or merely increasing.”

    No, there most certainly is not. The end result will be the same. Shale oil production WILL dry up, sooner than later. Plan accordingly.

  14. Juan Pueblo on Tue, 3rd Jun 2014 2:08 pm 

    GregT, my thoughts, exactly.

  15. J-Gav on Tue, 3rd Jun 2014 4:12 pm 

    Short – I liked the ‘dartboard prediction’ metaphor, never heard that one before – although some people are better at darts than others …

  16. Davy, Hermann, MO on Tue, 3rd Jun 2014 4:25 pm 

    Gav, in the end that is all there is one big dartboard!

  17. Plantagenet on Tue, 3rd Jun 2014 5:15 pm 

    I wonder why the IEA predicts only a $15 increase in the price of a barrel of oil through 2025. Back in 2008 oil went $40 higher then it is today. Surely it will go up again far more than $15 in the next 10 years.

    I wouldn’t be surprised if oil went up $50-$100/bbl over the next 10 years.

  18. Harquebus on Tue, 3rd Jun 2014 6:00 pm 

    Does that mean that the 96% reduction in Monterey’s recoverable reserves is a lie?

  19. Bob Kraus on Tue, 3rd Jun 2014 6:12 pm 

    I think the real significance of this news release is that it is yet more evidence that the energy establishment is acknowledging–for the first time–that the world is facing a major red-line disaster. This is new, and it’s huge. And I expect we will see more of this startling shift in tone in the public pronouncements by the oil companies and their allies.

  20. Davy, Hermann, MO on Tue, 3rd Jun 2014 6:25 pm 

    Bob, the problem is they cannot connect the dots. The magnitude and significance is lost in translation so to speak. The systematic risks are too abstract for most folks to comprehend. I don’t think the politicians are even fully appreciative of the implications. In any case you are right they are recognizing there is a problem and this awareness may force TPTB to address a plan B or sorts. We really must get the system prepared for the coming shocks with adjustment and mitigation policies.

  21. Bob Kraus on Tue, 3rd Jun 2014 6:48 pm 

    It’s like a giant tanker shifting course. Watch what they’re saying in their PR releases. Something’s going on in the boardrooms. It’s fascinating.

  22. Makati1 on Tue, 3rd Jun 2014 8:21 pm 

    Davy, our government is already getting ready, but maybe you didn’t notice the Executive Orders removing our freedoms one by one.

    Or the construction/renovation of FEMA Camps everywhere.
    Or the militarization of your local police department.
    Or the huge purchase of weapons and ammo for every government department/agency on the planet.
    Or Kerry and “O” beating every hot spot in the world with a big stick to start world war 3.
    Or, the lies, now called statistics, coming out of your government?

    The list is almost endless, and yes, I am an American and not proud of it … anymore.

  23. Davy, Hermann, MO on Tue, 3rd Jun 2014 8:26 pm 

    Mak, no argument there

  24. Makati1 on Tue, 3rd Jun 2014 8:48 pm 

    Davy, I just looked out the window to see if it is snowing here in Manila. Nope, 92F, but that we agree on a few points is uncommon. I am smiling.

    I guess we will just have to defend our personal view of the world and agree to disagree on some points. But, you do make me consider your viewpoint. That is why I read all of the comments, even if I don’t read the article. I don’t want to get too fixed on one viewpoint or miss an alternate to my plans or future.

  25. Davy, Hermann, MO on Tue, 3rd Jun 2014 8:55 pm 

    Fair enough Mak, We can take a break from the usual battles at least for today.

  26. rockman on Wed, 4th Jun 2014 12:35 pm 

    What always amazes about such predictions is that the predictors may feel their reports are actionable. IMHO it doesn’t matter to the oil patch or consumers what they predict. We have a very long and very predictable history of be reactionary: when whatever happens does finally happens we adjust. Few people were buying high fuel efficient vehicles back when gasoline was selling for less than 1/3 of what costs are today. That’s why the average MPG of the exiting US fleet has only increased a whopping 1 mpg in the last 5 – 10 years. Not per year but for the entire period.

    Just like the focus in predicting the future supply/demand situation. Supply will always meet demand. Pricing will make sure of that: whether oil is going for $80/bbl or $200/bbl every one that can afford the price will be able to buy all they want. The market place will make sure of that.

  27. keith on Wed, 4th Jun 2014 1:44 pm 

    They always understood and got it. They will always live comfortable. That is: as long as they keep the majority of us sedated while slowly unrolling the truth to us over many decades so we may climatize to the new reality. This theater is about keeping them comfortable.

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