More On The IEA Report  

The forthcoming IEA report continues to generate plenty of advance press. It seems some of the production decline numbers that generated so much initial chatter are actually for already declining fields - not ones growing or holding steady, so they don't really mean all that much (its the average across all fields that really counts, which may still be around the 4.5% figure CERA predicts).

MSN - IEA sees oil above $100, recognizes supply limit.

The world will have to live with the risk of an energy supply crunch and an oil price well above $100 a barrel in the years to come, the International Energy Agency (IEA) said on Thursday.

Massive investment of more than $26 trillion will be needed in the next 20 years to offset the impact of falling supply at aging oilfields and ensure the world has enough energy, the IEA said.

"There remains a real risk that under-investment will cause an oil supply crunch (by 2015)," the IEA said in an executive summary of the World Energy Outlook (WEO) to be released in full next week. "The gap now evident between what is currently being built and what will be needed to keep pace with demand is set to widen sharply after 2010."

The emphasis on investing enough for supply to meet demand has been a recurrent theme in the IEA's annual WEO.

The 2008 edition shifts the focus to dwindling reserves. It looked at 800 of the world's oilfields and found the average rate of decline was 6.7 percent for those that have passed their production peak. It expects that rate to increase to 8.6 percent in 2030.

The era of cheap oil is over, the International Energy Agency warned yesterday as it predicted crude values would soon rebound to above $100 a barrel and double again by 2030 as fields in the North Sea and elsewhere in the world declined faster than expected.

More than $26tn (£16tn) of new investment would be needed over the next 20 years to ensure the world had enough energy, according to the IEA, which was founded during the oil crisis of 1973-74 and acts as energy policy adviser to 28 member countries including Britain.

"While market imbalances could temporarily cause prices to fall back, it is becoming increasingly apparent that the era of cheap oil is over," the organisation stated.

What does it say when the normally conservative International Energy Agency is even gloomier than already depressed markets? That this autumn’s relatively cheap oil is likely a flash in the pan—and that triple-digit oil will soon be a permanent fixture again.

The Paris-based IEA, energy adviser to rich countries, is warning that crude oil will average $100 a barrel between 2008 and 2015 because of a looming supply crunch. That’s a more pessimistic take than the oil market itself, which prices forward oil futures contracts in the $80s (for 2010 and 2011) and around $90 (for 2012 and 2013).

The biggest cause of that coming crunch, the IEA says, is “under-investment” in new and existing fields in order to make sure oil production keeps pace with production declines and growing global demand.

Sure, today’s cheap oil threatens to stunt some investment. In fact, the investment retrenchment going on today as cheaper oil prices make marginal oil projects less attractive is surprising in itself: “The speed with which the supply side has screamed in pain this time is dramatically faster than in previous price cycles,” Barclays Bank says.

But that’s just the half of it. An investment slowdown just aggravates an already bad situation.

To wit: Even steady investment in new upstream oil projects outside of OPEC would be hard-pressed to keep the world awash in oil, the bank says. Unlike previous production slumps—like in the early 1990s, when Russia was quavering—several countries are simultaneously facing Sisyphean tasks to keep oil production from floundering, including the U.K., Mexico, and even Brazil, where deep-water oil fields are proving much trickier and much more expensive than expected to exploit.

That’s the main reason oil prices spiked this year. And it’s the main reason oil prices will head north again despite the slowdown, Barclays says.