"What We Have Got Is a Bottleneck in Terms of Investment"
13 Jul, 2007 04:47 pm
Lawrence Eagles is the head of the Oil Market Division at the International Energy Agency. He discusses his report entitled, "Medium Term Oil Market Report".
What are the numbers that the IEA released?
The situation is that over the course of the next five years we are likely to have a net improvement in OPEC capacity, but beyond 2010 we start to see demand growth surpassing growth in supply. This means that you start to see a fall in OPEC capacity.
Why is production lagging behind the demand?
There are a number of reasons behind this. For one, you need to have 3 million barrels of production a day of new production every year to offset the decline in existing mature fields. We’ve essentially gotten to the stage where there was underinvestment in the exploration and production side for a period of time in the 1990’s and the early part of this decade. As a result, we had a contraction in capacity. Now there is strong demand for new drilling rigs, new equipment, etc. To go out and explore, that equipment just simply isn’t there. We’ve come to a point where there is tightness in the labor market, there is tightness in the equipment market, there is tightness in the service sector market, which all act as restraints. There is certainly an increase in investment going on. However, what is happening is that it’s resulting in a large amount of inflation in these costs. As a result, you are seeing a large increase in cost. The more money that is being thrown at it isn’t necessarily having a proportionate result. What we have got is a bottleneck in terms of investment.
Does the IEA have a position on peak oil if any?
No I don’t think we have a position at all. By definition we recognize that oil is a finite resource. We think that the argument for peak oil is concentrated in a very narrow band of oil. Peak oil is usually defined as non-OPEC conventional oil. There are certain things within that definition. The definition of conventional oil is to an extent fluid. If you look back 20 to 25 years ago North Sea oil, which is counted within the conventional category, would probably have been regarded as non-conventional at that time. We have a lot of oil resources that are out there, but some of them are undoubtedly hard to extract with existing technology. The issue at the moment is not lack of oil resources, but a lack of investment and a need to push technology to get more oil out of the ground.
Interview by: Christopher Le Coq
Lawrence Eagles you are head of the Oil Market Division at the International Energy Agency.