Minister says crude could be back at record highs within two years
Saudi Arabia warned today that the world could be facing another oil shock, with prices back above the record highs of almost $150 a barrel within two to three years.
The comments from the Saudi oil minister at an energy summit in Rome were echoed by the IMF, both blaming lower prices and the global recession for hampering investment in new capacity.
Prices have fallen back from the peak they reached last year, largely because of the fall in demand in the downturn, and are hovering at about $60 a barrel.
"We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions," said the Saudi oil minister, Ali al-Naimi, ahead of an Opec meeting in Vienna on Thursday. "However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to or worse than what we witnessed in 2008."
He said low prices and weak demand had discouraged investment in energy projects. Those problems had been compounded by high development costs, tight credit markets and energy policies that are focused on alternative fuel sources.
IMF first deputy managing director John Lipsky said: "With long time-to-build lags, significant setbacks to oil investment today could set the stage for future sharp price increases."
Oil prices reached $147 a barrel in July 2008, worsening the global downturn, before falling sharply to $32 as the recession took hold.
"The extreme volatility we experienced is detrimental to our goal of establishing secure and stable energy markets," Al-Naimi added. "It discourages the smooth flow of capital into the energy sector and in doing so undermines our collective energy security."
A study published in March suggested that the slowdown in investment in oil and gas production could cut nearly 8m barrels a day of future oil supply growth. The report from Cambridge Energy Research Associates said the reduction in capacity is a "potentially powerful and long-lasting aftershock".
The International Energy Agency has voiced similar concerns. At a conference in London two months ago, the agency's deputy director, Richard Jones, said: "Unless sufficient companies have the will and financial ability to invest through the downcycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases – possibly as early as this year."
Opec has said that as many as 35 new projects could be delayed beyond 2013.
The G8 energy summit aims to define a joint strategy to tackle climate change, promote investment in new projects and spur dialogue between producers and consumer nations, as well as increasing energy resources in poor countries. The World Bank urged leaders not to forget the poor in Africa.
Output levels are expected to remain unchanged at the Opec meeting. Al-Naimi said Opec would probably "stay the course" rather than cutting output. And the Iranian oil minister also said that cuts in capacity were unlikely, according to local media, although president Mahmoud Ahmadinejad said today that he would prefer Opec to cut further.
"The real economic value of a barrel of oil is much higher than what it is today," he said. "Unfortunately today the oil price is fluctuating under the impact of non-economic conditions."
The comments from the Saudi oil minister at an energy summit in Rome were echoed by the IMF, both blaming lower prices and the global recession for hampering investment in new capacity.
Prices have fallen back from the peak they reached last year, largely because of the fall in demand in the downturn, and are hovering at about $60 a barrel.
"We are maintaining our long-term focus rather than being swayed by the volatility of short-term conditions," said the Saudi oil minister, Ali al-Naimi, ahead of an Opec meeting in Vienna on Thursday. "However, if others do not begin to invest similarly in new capacity expansion projects, we could see within two to three years another price spike similar to or worse than what we witnessed in 2008."
He said low prices and weak demand had discouraged investment in energy projects. Those problems had been compounded by high development costs, tight credit markets and energy policies that are focused on alternative fuel sources.
IMF first deputy managing director John Lipsky said: "With long time-to-build lags, significant setbacks to oil investment today could set the stage for future sharp price increases."
Oil prices reached $147 a barrel in July 2008, worsening the global downturn, before falling sharply to $32 as the recession took hold.
"The extreme volatility we experienced is detrimental to our goal of establishing secure and stable energy markets," Al-Naimi added. "It discourages the smooth flow of capital into the energy sector and in doing so undermines our collective energy security."
A study published in March suggested that the slowdown in investment in oil and gas production could cut nearly 8m barrels a day of future oil supply growth. The report from Cambridge Energy Research Associates said the reduction in capacity is a "potentially powerful and long-lasting aftershock".
The International Energy Agency has voiced similar concerns. At a conference in London two months ago, the agency's deputy director, Richard Jones, said: "Unless sufficient companies have the will and financial ability to invest through the downcycle, there is a real risk that supply growth may lag the eventual rebound of demand, leading to substantial price increases – possibly as early as this year."
Opec has said that as many as 35 new projects could be delayed beyond 2013.
The G8 energy summit aims to define a joint strategy to tackle climate change, promote investment in new projects and spur dialogue between producers and consumer nations, as well as increasing energy resources in poor countries. The World Bank urged leaders not to forget the poor in Africa.
Output levels are expected to remain unchanged at the Opec meeting. Al-Naimi said Opec would probably "stay the course" rather than cutting output. And the Iranian oil minister also said that cuts in capacity were unlikely, according to local media, although president Mahmoud Ahmadinejad said today that he would prefer Opec to cut further.
"The real economic value of a barrel of oil is much higher than what it is today," he said. "Unfortunately today the oil price is fluctuating under the impact of non-economic conditions."
Source: The Daily Telegraph
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