Oil could be $15 more per barrel without more Middle East investment
If the Middle East fails to invest adequately in its oil fields, global oil prices could spike by an additional $15 per barrel in the 2020s. That comes from the聽聽in a new report assessing global energy investment needs through 2035.
The report estimates the investment in energy required to meet global demand over the next several decades. For example, $1.6 trillion was spent on energy supplies across the globe in 2013. That figure is expected to climb to $2 trillion annually over the next 20 years, with more than half of the annual sum going to offset declining production. In other words, the world will be forced to cough up over $1 trillion each year just to keep energy production flat.
While those figures are hard to fathom, they point to a future in which fossil fuels 鈥� oil in particular 鈥� become more expensive as cheaper reserves decline and producers go after harder-to-reach resources.
The US has become infatuated with shale oil and gas, and has been lulled into a false sense of confidence because of rising oil production in North Dakota and Texas. The oil industry has been busy convincing the American public that we are destined for energy 鈥溾�� status.
It is true that US oil production has risen to its highest levels in over 20 years, but it may be short-lived. The聽聽that tight oil production in non-OPEC countries 鈥渟tarts to run out of steam in the 2020s.鈥� After US shale oil begins to fizzle out, the world 鈥渂ecomes steadily more reliant on investment in the Middle East鈥� to meet demand growth.
But the problem is that the Middle East may not be up to the task. The IEA projects that the Middle East will need to lift its production from around 28 million barrels per day (bpd) currently to 34 million bpd by 2035. This will require billions of dollars in new investment.
But the national governments in question 鈥� which largely control oil within their territories instead of private companies 鈥� cannot necessarily be counted upon, according to the IEA. 鈥淭here are competing government priorities for spending, as well as political, security and logistical hurdles that could constrain production,鈥� the report says, in what could be the understatement of the year. (Related Article:聽)
The Middle East will 鈥渘eed to invest today if not yesterday,鈥� the聽, because oil projects have lead times of about seven years. So in order to make up for declining tight oil production in places like the U.S., as well as meet rising demand, the Middle East needs to be preparing today for its 2020 production.
More to the point, the IEA聽聽in a 2013 report that nearly half of total oil production growth between now and 2035 would come from just two countries 鈥� Iraq and Brazil. Iraq has succeeded in boosting its production to 3.6 million bpd, the聽, but its ability to nearly triple its oil production over that timeframe 鈥� which the IEA is counting on 鈥� is suspect, to say the least.
That means that oil prices could spike much higher by the 2020鈥檚. The IEA estimates it could be $15 per barrel more as a result, but that could be wildly optimistic. Just to take one example, the IEA predicted in its聽聽that oil prices would remain flat for a decade or so, hitting $21 per barrel in 2010, after which prices would 鈥渞ise steadily to $29 in 2030.鈥�
Accurate forecasting is difficult, but that鈥檚 the point: Unanticipated geopolitical events can disrupt or entirely shatter our assumptions about what the future will look like.
All this is to say that we can鈥檛 count on adequate supplies (at a price we are willing to pay) to meet demand indefinitely. US tight oil won鈥檛 solve all of our problems, despite what the industry says, nor will the traditional producers of the Middle East.
