Crude Oil Price Up, IEA Says Production Must Rise 45% to Meet Demand

"Globally, oil prices are not the thing that is going to cause us problems," says James A. Slutz in today's Australian. He's the deputy assistant secretary for oil and natural gas in the United States.

What's the English word for apparatchik?

Mr. Slutz is in Australia to present the conclusions of a report prepared by the independent National Petroleum Council (NPC). He also told the Australian that, "The key thing is that hydrocarbons are becoming more difficult to develop, taking more time, and the cumulative effect of this is a more challenging supply situation."

Yes. So how is it the oil price is not related to the "challenging supply situation?" Granted, the possibility of a Turkish invasion into Northern Iraq could have something to do with oil futures at US$87 in New York. But you'd think that the current oil price also reflects the market's skepticism about seamless growth in new supply to meet new demand.

You can find the NPC report, prepared by a who's who of the energy establishment, at this link.

You can also put the "challenging supply situation" in perspective with the image below, taken from the executive summary of the report. The forecast for demand of 124 million barrels per day comes from the International Energy Agency. Keep in mind the IEA expects production to increase by 45% to meet expected demand.

How does the NPC expect supply to grow? New discoveries and enhanced oil recovery (EOR), along with increased production from unconventional sources like Canada's tar sands are all expected to bridge the gap between where we are and where we need to be.

Mmm hmm. Easy as that. Sooner or later, buyers are going to be priced out of the oil market, forcing them to turn to coal, or leading to lower oil prices. But don't expect the world's supply to magically increase because of "technology." Technology is not fuel, as my friend Jim Kunstler has pointed out.

Dan Denning
The Daily Reckoning Australia

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