IEA warns of looming oil supply crunch as industry leaders gather in Houston

Watchdog pointed to a decline in investments as global energy leaders meet in Houston, Texas.

US oil is going through a revival, but a slowdown in projects in the rest of the world is throwing future supply levels into question, according to the IEA. Above, oil pumps in Texas, where industry eShow more

The International Energy Agency (IEA) warned yesterday of a looming oil crunch as industry leaders gather in Houston to ­discuss the state of the world’s oil market.

The Paris-based energy watchdog for rich countries said in its annual medium-term outlook that “global oil supply could struggle to keep pace with demand after 2020, risking a sharp increase in prices, unless new projects are approved soon”.

It is a warning the IEA has issued before amid an unprecedented crash in investment following the oil price slump that began in late 2014, which depressed world oil and gas upstream investment to US$450 billion last year from $780bn two years before.

Oil prices have recovered during the past year, from lows of about $30 per barrel to sustained levels above $50 per barrel following the December deal between Opec and non-Opec producers to limit production.

But the price gains have been capped by the slow progress in reducing the glut of oil in storage worldwide, as well as the sharp bounce back in production in the US shale oil sector, where there is also an expectation that the US president Donald Trump’s pro-oil policies will spur the sector on further.

But the IEA sees these positive developments offset by the crash in investment elsewhere in the world’s oil provinces.

“While the US oil industry is seeing a revival, the dramatic declines in global oil industry investment over the last two years, and only modest signs of recovery in 2017, mean that it is far from clear that enough projects will enter the pipeline in the next few years to avoid a potentially tight market by 2020 and with it, the possibility of a price spike,” the agency said.

The IEA outlook echoes the prediction by the industry consultant Wood Mackenzie that while industry finances and investment will improve this year, especially in the US, the industry as a whole will still experience a decline in capital spending.

“US independents could increase investment by over 25 per cent if oil prices average above $50 per barrel [this year], but spend for the bigger players will continue to trend down – total investment by the majors will fall by around 8 per cent as recent capital-intensive projects wind down,” Woodmac forecast in its annual outlook in December.

Furthermore, while supply might be hit by under-investment, the IEA sees no sign of demand peaking any time soon, with India taking over from China as the world’s fastest-­growing oil market.

“Given the many uncertainties on the production side and the expectation of sustained demand growth, many are predicting greater volatility in the oil market, which generally has negative consequences for both consumers and producers,” said Fatih Birol, the IEA’s executive director, who will be speaking at this week’s big annual oil industry gathering in Houston.

The CeraWeek confab in the Texas oil capital will also hear from a number of leading energy ministers, with Saudi Arabia’s Khalid Al Falih, Suhail Al Mazrouei of the UAE and Iraq’s Jabbar Al Luaibi due to speak today.

The key question for them will be how closely the Opec and non-Opec participants are sticking to their deal to cut nearly 2 million bpd from combined output in the first six months of this year, and whether that will be enough to bring the oil market back into balance and keep prices up above $50 per barrel.

Many of the leading national and private-sector oil company chiefs will also be speaking, including Abu Dhabi National Oil Company’s Sultan Al Jaber; José Anaya, the head of Petróleos Mexicanos; Patrick Pouyanné, the head of Total; and Darren Woods, ExxonMobil’s new chief executive.

Oil companies have shown an inclination to invest more, although at a much slower pace and more selectively than before the crash.

Abu Dhabi will also be represented in Houston by the newly appointed head of Mubadala Investment Company’s petroleum and petrochemicals division, Musabbeh Al Kaabi, who will talk today about the upstream outlook for the industry, and Masdar’s chief executive, Mohamed Al Ramahi, who is on a panel on Friday discussing climate and energy strategy after the 2015 Paris deal to curb carbon emissions.

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