Oil price to spike because needed investment falling dangerously behind

Oilfields decline on average at 6.7% a year (according to the IEA), the trillion dollar of investment needed just to replace that is not materializing…

Report: Oil Investment Falling Dangerously Behind

Oil prices may return to “significantly higher” levels because companies have cut investment in the new production needed to match demand from fast-growing China and India, the International Energy Agency’s chief economist said Friday.

IEA chief economist Fatih Birol told The Associated Press that oil companies have canceled at least $170 billion of planned investments — including $100 billion this year — as they seek to save money amid the financial and economic crisis.

That’s equivalent to 2 million barrels of oil per day, and a further 4.2 million barrels per day of future oil-supply has been delayed by at least 18 months, he said.

Oil companies are likely to announce even more cutbacks in oil and gas production investments in coming months, he said.

“If there is a rebound in demand with a reduction of investments on the supply side, we may have difficulties” with oil prices “significantly higher than today” in coming years, he said.

“It’s bad news for the economy which is still very, very fragile.”

Oil prices, buoyed by hopes that the worst of the recession is over in the U.S., the world’s biggest oil consumer, held above $61 a barrel Friday, down from $147 in July.

Birol declined to give an estimate of how high he expects prices to go, but he said oil supply could tighten quickly when the global economy starts to recover and demand strengthens.

The IEA’s outlook is part of a report to be delivered Sunday to energy ministers from the world’s top eight industrialized powers meeting in Rome and to Group of Eight leaders at their July summit.

The Paris-based agency report also predicts that global electricity consumption will fall this year for the first time since records began in 1945, highlighting the depth of the current recession.

“If you want to measure the health of an economy, you look at the electricity consumption,” Birol said.

“In the last 65 years we had so many things: we had the first oil price shock, the second oil price shock, Asian financial crisis, U.S. recession — electricity has never ever gone down. In 2009 for the first time it will go down. It shows how serious the recession is.”

The IEA forecasts global electricity demand will fall by 3.5 per cent in 2009, he said.

In China the drop is estimated above 2 percent; in Russia close to 10 percent; and the rich countries of the Organization for Economic Co-operation and Development will see a drop near 5 percent, he said.

The IEA will recommend that governments earmark more stimulus spending for the development of renewable energy, he said.