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Shortfall in Oil Supply Forecasted By 2010
A new study has found that the global supply of oil will tighten in the next three years despite a surge in investment, a prediction that could lead to still higher energy prices.
The Platts study by Chief Economist Larry Chorn concludes that despite the 70 percent investment increase in 2005 over 2000, the industry still fell behind in field development activities in 2005, straining supplies in 2010 and beyond.
Major oil fields require a minimum of three years of engineering and construction and often an additional year or more to reach peak production rates after start-up, according to Chorn.
The shortfall in 2005 could lead to a 0.8 million barrel per day reduction in anticipated spare capacity within three years, if the International Energy Agency (IEA) demand forecast is correct. This shortfall could grow to 4 million barrels per day in 2011 as existing fields continue to decline and demand rises.
Anticipating a demand of 90 million barrels per day in 2010, the industry needed to invest $435 billion in development drilling and production facilities and refining capacity back in 2005, says Chorn. But, according to recently released IEA estimates, the industry was only able to commit $340 billion with $225 billion directed to field development.
"The scarcity of spare capacity makes crude oil inventory management all the more important to the refining industry and the markets,” Chorn says. “Spot prices are clearly impacted today by unexpected drawdowns. One peripheral consequence of the analysis is that we should expect inventory markers' influence on spot and month-ahead prices will grow.”
The investment shortfall is indicative of several forces at work. Analysts have long expressed concern that producing countries are closing off resource access to multi-national companies, thereby slowing development. Further, a limited supply of experienced engineers and geoscientists means fewer and fewer large projects can be staffed in a timely manner.