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IEA predicts $145 oil as it plays down fracking revolution

by David Campbell on Nov 25, 2013 at 09:27

IEA predicts $145 oil as it plays down fracking revolution

The International Energy Agency (IEA) has toned down previous estimates of the impact of North American shale fields on oil prices, suggesting oil will rise steadily to $145 per barrel (pb) by 2035.

The 2012 World Economic Outlook’s central policy scenario produced a price of $125pb in constant dollars by 2035. Earlier this year the agency estimated that US oil production had grown 50% since 2008.

In its annual long-term World Energy Outlook – considered the gold standard of energy analysis – the IEA said the price in current US dollars would remain at the upper end of its recent range, as new, unconventional oil supply was balanced by lower Middle Eastern exploration and higher demand.

While new sources of supply lowered short-term price projections, higher input costs, Asian growth and a slowdown in Saudi Arabian development would contribute to a price of $120pb by 2020, $127pb by 2025, and $136pb by 2030, under its current central policy scenario, said the IEA.

‘Technology and high prices are opening up new oil resources, but this does not mean the world is on the verge of an era of oil abundance,’ said IEA chief economist Fatih Birol.

While the headline price of oil would remain elevated, the IEA added that the changing profile of production would accelerate and deepen current regional energy price disparities, with a major impact across the global economy and supply chain. 

It said the US would become the largest oil producer in the world by 2015 and be become self-sufficient by 2030.

While that would have a limited impact on global prices, the country would reap huge competitive benefits from other areas of energy policy, primarily in gas-fuelled manufacturing.

Less efficient distribution and less transparent pricing mean gas pricing disparities would continue and deepen, it said. US wholesale prices are currently one third of the price in Europe and one fifth of the price in Japan.   

‘The US [will see] its share of global exports of energy-intensive goods slightly increase to 2035, providing the clearest indication of the link between relatively low energy prices and the industrial outlook,’ said Birol.

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