International Energy Agency says oil prices will stay 'very high,' threatening global growth

The rapidly growing appetite for fossil fuels in China and India is likely to help keep oil prices high for the foreseeable future - threatening a global economic slowdown, a top energy expert said Wednesday.
The unusually stark warning by Fatih Birol, chief economist of the International Energy Agency (IEA), about the impact of Asia's emerging giants comes as the agency prepares to issue its influential annual report next week, which will focus on China and India.
In preparing the report, Birol said he had experienced "an earthquake" in his thinking.
"China plus India are going to dominate growth in the oil markets," Birol said during an interview at an oil industry conference. During the past 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone.
Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia.
Partly as a result, he added, the annual report would predict that oil prices, now at about $93 a barrel, could remain at levels much higher than thought possible in the past. This, he said, heightened the risk of a serious global economic slowdown.
"We may see very high prices that will come to a level where the wheels may fall off," Birol said. "I definitely believe that if prices stay at these levels, there will be a slowdown of the global economy."
Birol said that China and India could help reduce demand and the environmental impact of their booming energy consumption by introducing greater efficiencies, building up renewable sources of energy, using more nuclear power - and by committing to cutting emissions.
China and India have long resisted calls to cut emissions, saying they need to grow to match developed-world standards of living.
They argue that other major emitters of greenhouse gases, like the United States, should lead the way in cutting emissions before poorer and less developed nations bear the same costs.
The debate, which has undermined the Kyoto Protocol, a global treaty on greenhouse gas reductions, is set to resume when nations meet in December in Bali, Indonesia, where the two-year process of negotiating a successor treaty to Kyoto formally gets under way.
At the oil conference, organized in part by the International Herald Tribune, major industry players struck a firmly upbeat tone about oil production - particularly if prices stay high.
"At $93 a barrel, everything is possible," said José Sergio Gabrielli de Azevedo, chief executive of the Brazilian oil company Petrobras. He suggested that oil producers would continue to have incentives even to pursue the most expensive of technologies, like producing oil from shale at $70 a barrel.
But other officials at the event, including Guy Caruso, an administrator at the U.S. Department of Energy, emphasized the need for continuing investment to recover oil from well-established oil-producing sources and countries, where he said the most important supplies would continue to come from in the future.
Much of the growing Chinese and Indian demand for oil is expected to result from burgeoning car ownership. In China now, only about 17 people out of 1,000 own a car, compared to about 680 people out of every 1,000 in Europe and 860 out of every 1,000 in the United States, said Birol.
But last year, Birol noted, the Chinese bought the same number of cars as the Japanese and would buy the same number as Americans within five years time.
"With the increasing income levels in China, one of the first things they do is to buy a car for convenience and for prestige reasons, which in turn will fuel the oil demand growth worldwide," he said.
He said new cars sold in China are 20 percent more efficient than those sold in the United States, but that efficiency levels still lagged behind Europe.
Demand for energy from China and India is coming at a time when structural changes are under way in global oil markets, reinforcing the view among experts that there will be a period of increasingly tight supplies ahead. Fields in many parts of the world including the North Sea, the United States and Russia either have hit a plateau or are in decline.
On the demand side, much was coming from growth in the transportation sector. But with little prospect of fuels that can be substituted for oil in most economies, the most feasible option was to produce more efficient cars, said Birol.
Should governments fail to limit oil demand growth or fail to find alternative energy sources, especially in China, India and developed nations, "we may see price levels much higher than we conventionally believed in the past," Birol said.
Birol said that developed-world consumers were more willing to pay for higher oil - and to keep on paying those higher prices - because those countries had become more prosperous.
Consumption at current global prices also remained robust in the developing world, he said, because many of those countries use subsidies to keep pump prices down.
China and India alone were paying $15 billion each year in subsidies, out of a total of about $50 billion across all developing countries.
Those subsidies would ensure that demand for oil probably would continue to accelerate in those countries too, he said.
Factors that Birol said could contribute to a global energy crunch included the decline of oil fields, but he added that much more research was needed to ascertain how fast those oil fields were really running out.
He said the next International Energy Agency report, in 2008, would seek to provide much more information on the true state of the world's oil fields.