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Energy Agency Warns of Impending Supply Crunch

HOUSTON (AP) - More than a trillion dollars in annual investments to find new fossil fuels will be needed for the next two decades to avoid an energy crisis that could choke the global economy, the International Agency said.

The warning from the Paris-based agency comes at a time when major oil companies are pulling back investments amid the most severe economic downturn in a generation. The IEA stressed that it’s essential for the world’s energy companies to continue investing in new projects despite tumbling crude prices. The total potential tab through 2030: $26.3 trillion.

“ While the situation facing the world is critical, it is vital we keep our eye on the medium - to long-term target of a sustainable energy future,” IEA executive director Nobuo Tanaka told reporters at the release of its annual World Energy Outlook report in London.

There are growing fears that the simultaneous plunge in oil prices and a pullback in spending on exploration and production will result in another massive energy price spike.

“ While macroeconomic conditions have lowered oil prices for the moment, there is nothing in the underlying economic picture that suggests this slowdown will be long-lived, maybe a year or more out,” said former Secretary of Energy Spencer Abraham. “There was not enough production even when we were in triple-digit oil markets over the summer, and there’s going to be a lot of pressure on the system when economies recover.”

Tanaka said that state-run national oil companies - like those in Venezuela and Saudi Arabia - are projected to account for about 80 percent of the increase of both oil and natural gas production to 2030.

But it is “far from certain” those companies will make crucial investments.

Future sources of oil, the cost of producing it and the price consumers will have to pay for it are extremely uncertain, the IEA said.

That has prompted companies to withhold billions of dollars of investment in new oilfield and refining projects, even with major oil companies posting record profits this year thanks to triple-digit crude prices.

Producers and refiners, large and small, are delaying and even canceling some work as they adjust to oil prices that have fallen more than 60 percent since peaking in July above $147.

Many companies have slashed capital spending budgets for at least the coming year. Just last week, ConocoPhillips and the state-run Saudi Arabian Oil Co. said they’ve postponed construction of a multibillion-dollar refinery in Saudi Arabia.

Royal Dutch Shell PLC, Europe’s largest oil company, said it was pushing back a decision on expanding an oil sands project in Canada.

Multinational oil giants like Shell and Exxon Mobil Corp. are also finding it increasingly difficult to gain access to potential new sources of fossil fuels. State-run oil companies control about 80 percent of global oil reserves and, for now, are keeping a tight grip on their assets.

“ Even (in the United States) we’re limiting access,” said Mary Novak, an energy analyst at IHS Global Insight. “The $20 trillion figure sounds good, but who’s going to spend it and where are they going to spend it is the biggest problem.”

The IEA expects demand for oil to rise from 85 million barrels per day currently to 106 million barrels per day in 2030 - 10 million barrels per day less than projected last year.

The IEA is a policy adviser to 28 member countries, mostly industrialized oil consumers.

China and India continue to be the main drivers, accounting for more than half of incremental energy demand to 2030, but the Middle East, a longtime supplier, also emerges as a major new demand center.

The agency said these trends call for energy supply investment of $26.3 trillion to 2030, or more than $1 trillion a year, but it noted that tight credit conditions could delay spending.

OPEC has warned that crucial investment in refining and distribution will be cut if the oil price does not stabilize.

In addition to the postponement by ConocoPhillips and Saudi Aramco, North American refining giant Valero Energy Corp. has said it will curtail capital spending for the rest of 2008 and 2009. Also, Marathon Oil Co. has said it’s delayed expansion of a gasoline refinery in Detroit “due to current market conditions.”

The report also highlighted the expected rapid growth of renewable energy resources. It predicts that world renewables-based electricity generation - mostly hydro and wind power - will overtake gas to become the second largest source of electricity, behind coal, before 2015.

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