Era of cheap oil is over, says energy agency

OIL PRICES will rebound to more than $100 a barrel as soon as the world economy recovers, and will exceed $200 by 2030, the International Energy Agency (IEA) will say in its flagship report to be published next week.

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

The developed world's energy watchdog has doubled its long-term price expectation from last year's $108 a barrel for 2030 and assumes oil prices will rebound from today's $60-$70 a barrel to trade, in real terms adjusted by inflation, at an average of more than $100 a barrel from 2008 to 2015.

The IEA's World Energy Outlook has come to this conclusion because it believes companies will struggle to pump enough new oil to offset the steep production declines of the world's older fields.

"Current global trends in energy supply and consumption are patently unsustainable," the report states.

In its WEO report, the IEA estimates that by 2010 oil companies will have to commit to projects producing almost as much oil as Saudi Arabia - or about seven million barrels a day - if the world is to avoid a supply crunch by the middle of the next decade.

The IEA refused to comment.

The stark assessment comes as companies cancel projects from Kazakhstan to Canada because the collapse in oil prices makes them uneconomical. The industry will have to invest $350 billion each year until 2030 to counter the steep rates of decline of existing fields and find enough extra oil to satisfy the growing demand of countries such as China.

Output from the world's oil fields is declining at a natural rate of 9 per cent, the IEA found, following the most comprehensive review of its kind. This decline rate is curtailed to 6.7 per cent when current investments to boost production are made. However, even with such investments, the decline rate worsens significantly to 8.6 per cent by 2030. - ( Financial Timesservice)