LONDON--A top energy watchdog said the world will need more
Middle Eastern oil in the next decade, as the current U.S. boom
wanes. But the International Energy Agency warned that Persian Gulf
producers may still fail to fill the gap, risking higher oil
prices.
In its first update to the agency's energy investment outlook in
more than a decade, the IEA--which represents some of the world's
largest consumer nations--said it sees "growth in oil demand
[becoming] steadily more reliant on investment in the Middle
East."
Surging American production from tight oil--extracted from shale
formations in places like Texas and North Dakota--has led the
agency and other oil-market analysts to predict the U.S. could
leapfrog the world's largest oil producers, Saudi Arabia and
Russia, by 2020. That has triggered debate in Washington about
easing a long-standing ban on most crude exports from American
shores. It has also engendered hope of more energy security for the
U.S., as well as worry that if American reliance on Mideast oil
lessens, so might its military and diplomatic engagement in the
region.
In its report, a summary of which was released early Tuesday in
London, the IEA predicts that "output from North America plateaus
[from around 2020] and then falls back from the mid-2020s onwards."
That forecast is broadly consistent with studies by the
Organization of the Petroleum Exporting Countries, a cartel of some
of the world's largest producers.
While most of the oil found in the Middle East is cheap and easy
to extract, tight oil requires intensive drilling as discoveries
tend to deplete rapidly. When it comes to tight oil, "we are in a
sweet spot," said Gary Ross, chief executive of U.S. market
research firm PIRA Energy Group. "But it's like a treadmill, after
a while you get exhausted."
To fill any gap, the Middle East will "need to invest today if
not yesterday" because projects typically take seven years to
develop, the IEA's Chief Economist Fatih Birol said. He said the
region will need to spend an annual $90 billion through 2025 to
meet global needs for its oil.
Yet, the agency warned the Middle East may fail to fill the gap
because of high political risk and social spending. "We see a risk
of not enough oil coming from the Middle East," Mr. Birol said,
citing the fact those countries pour a quarter of their $800
billion in annual oil revenue into energy subsidies. The Arab
Spring, meanwhile, has forced many governments in the region to
increase social spending. Iraq is still facing oil-output
disruptions tied to political tensions, while Iran remains under
tight international restrictions on its oil sales.
If the Middle East doesn't cover the predicted shortfall created
by declining U.S. output, the average cost of a barrel of oil could
climb $15 by 2025, the IEA said.
The agency, which is charged with safeguarding energy security
for the world's most developed economies, often sounds the alarm on
what it says is underspending by producers.
Overall, global oil and natural-gas exploration and production
spending will rise by some 25% between now and 2035, reaching more
than $850 billion a year, the IEA said. That figure will be part of
$2 trillion in annual energy needs in the next two decades, up from
about $1.6 trillion last year.
The IEA, which will release the full version of the report later
Tuesday, had not fully updated its investment outlook since
2003.
Write to Benoît Faucon at benoit.faucon@wsj.com
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