The International Energy Agency (IEA) has warned that another year of lower upstream oil investment in 2017 would create a risk of a shortfall in oil supplies within a few years.
Announcing the latest edition of its flagship publication World Energy Outlook, the IEA said: “Traditional concerns related to oil and gas supply remain — and are reinforced by record falls in investment levels.
“The report shows that another year of lower upstream oil investment in 2017 would create a significant risk of a shortfall in new conventional supply within a few years.”
In the report, the IEA added: “In 2015, the volume of conventional crude oil resources that received development approval fell to its lowest level since the 1950s and the data available for 2016 show no sign of a rebound.
“A lot of attention is focused on the remarkable resilience of US tight oil output through the current downturn and its potential ability, because of a short investment cycle, to respond in a matter of months to movements in price.
“But there is a threat on the horizon to the ‘baseload’ of oil output, the conventional projects that operate on a different rhythm, with lead times of three to six years from investment decision to first oil.
“We estimate that, if new project approvals remain low for a third year in a row in 2017, then it becomes increasingly unlikely that demand (as projected in our main scenario) and supply can be matched in the early 2020s without the start of a new boom/bust cycle for the industry.”
The report predicts that global oil demand will continue to grow until 2040, mostly because of the lack of easy alternatives to oil in road freight, aviation and petrochemicals.
However, it predicts oil demand from passenger cars will decline even as the number of vehicles doubles in the next 25 years, thanks to improvements in efficiency, biofuels and rising ownership of electric cars.
“We are entering a period of greater oil price volatility,” said IEA executive director Fatih Birol.
“If oil prices rise in the short term, then shale producers can react quite quickly to put more oil on the market, producing a see-saw movement.
“And if we continue to see subdued investments in new conventional oil projects, this could have profound consequences in the longer term.”
The report said renewables and natural gas will be the big winners in the race to meet energy demand growth until 2040.
It said a detailed analysis of the pledges made for the Paris Agreement on climate change “finds that the era of fossil fuels appears far from over and underscores the challenge of reaching more ambitious climate goals.”
It said natural gas will continue to expand its role while coal and oil will fall back.
“We see clear winners for the next 25 years — natural gas but especially wind and solar — replacing the champion of the previous 25 years, coal,” said Birol.
“But there is no single story about the future of global energy: in practice, government policies will determine where we go from here.”
Birol added: “Renewables make very large strides in coming decades but their gains remain largely confined to electricity generation.
“The next frontier for the renewable story is to expand their use in the industrial, building and transportation sectors where enormous potential for growth exists.”