The IEA predicts that oil production by non-OPEC countries will decline soon after 2010.

The IEA is not alarmist, but it is starting to prepare public opinion for a disappointing future: soon after 2010, production by non-OPEC member states is likely to start declining. This pessimistic forecast will be one of the messages contained in the IEA’s annual report “World Energy Outlook,” to be released on November 9. The IEA’s mandate is to represent the interests of consuming countries.

Non-OPEC countries include such large producers as Russia, China, the US, Mexico, Kazakhstan, Azerbaijan, and Norway. They currently produce 60% of world crude output. “Production of conventional oil-excluding heavy oil and bitumens-will reach a ceiling soon after 2010,” says Fathi Birol, director of economic studies at the IEA. “After that, the production curve will depend on technology, price and investments.”

This well-known expert adds that “if there is enough investment and the price is at the proper level, production may remain stable for some time,” before dropping off. On the other hand, he predicts, “low prices and insufficient investment-in exploration and production-will bring about a steeper decline.” He concludes that basic growth in oil output will therefore come from OPEC countries. Especially the Middle East and Africa, two regions studied in detail in the next “World Energy Outlook.”

“Like a girlfriend”

“Oil is like a girlfriend, you know from the beginning that one day she’s going to leave you,” is how Mr Birol sums up the situation. “If you don’t want your heart broken, you’d better leave her before she leaves you.” So he’s sending a double message to the consuming countries, much stronger than in the annual report published in fall 2004: “Conserve energy, conserve oil! And diversify, please. Get out of oil!”

For Claude Mandil, executive director of the IEA, “there really is a problem if we limit ourselves to conventional oil.” However, he reminds us that non-conventional crude (deep offshore, Canadian oil sands, Venezuelan heavy oil) has promising prospects. “I’m not an alarmist about global oil resources,” he continues, “even if we are going to be more and more dependent on fewer and fewer countries,” like Saudi Arabia, Iran, Iraq, Kuwait, and the UAE. On the other hand, the IEA director says that he is “an alarmist on the climate change” which is shaping up.

A short-term production increase will be at the center of discussions by OPEC oil ministers, who meet on September 19 and 20 in Vienna. To reassure the industrial countries, the ten members of the cartel (except for Iraq, which is not subject to quota) are expected to choose either a production increase by 500,000 barrels a day (to 28.5 million), or else the solution supported by the Kuwaitian president of OPEC, Sheikh Ahmad al-Fahd al-Sabah: supplying, “on demand,” two million extra b/d.

It’s really a political decision, because the cartel is already pumping much more than its official quota, without reassuring the market. A barrel of light sweet crude for October delivery was at $63.71 in the Asian market on Monday September 19. In the near-term, the problem is less a shortage of crude than one of refining capacity (in Europe and the US), even tighter since the damage from Hurricane Katrina.

In the medium term, there’s more anxiety about the capacity of the producing countries to extract more of the black gold. In the absence of an international audit, we don’t know the level of OPEC reserves, or of their investments in exploration and production. The cartel’s annual report, published on September 12, says only that these investments increased in 2004: 7.5% more wells drilled, and 18.8% more platforms and derricks at work compared with 2003.

Jean-Michel Bezat with Matthieu Auzanneau.