OTTAWA -- Surging demand in the developing world and oil-addicted consumers in the West will ensure at least five more years of tight petroleum markets, maintaining the boomtown momentum of Canada's oil patch, the industrial world's energy watchdog predicts.
Unlike in the past, sharply higher oil prices have not dampened global demand, nor brought on sufficient new supplies of crude oil to offset declines in more mature fields, the International Energy Agency said yesterday.
"Despite four years of high oil prices, this report sees increasing market tightness beyond 2010," the IEA concluded in its medium-term forecast, released yesterday. The agency increased its five-year forecast for global oil demand from the one released six months ago, and reduced its expectation for more supply from non-members of the Organization of Petroleum Exporting Countries.
As a result, the energy agency is forecasting "substantially higher cash returns to shareholders" of global oil companies, whether those owners are governments or private investors.
Peter Tertzakian, chief energy economist with Calgary-based ARC Financial Corp., said the IEA outlook was extremely bullish for Canadian oil and gas producers, and underscores the ever-increasing appetite for oil sands production, even as costs there soar.
"This report confirms what the market is already starting to believe," Mr. Tertzakian said. "There had been a sense of complacency [about abundance of cheap energy], and that complacency should end."
The IEA noted that the demand for petroleum products continues to climb around the world, even though crude prices have tripled in the past four years.
While growth in demand has slowed in the developed world, booming economies in Asia and the Middle East have taken up the slack. Indeed, Asia and the Middle East are expected to account for three-quarters of the demand growth between now and 2012.
Globally, the IEA forecasts demand for crude oil products will grow 2.2 per cent a year on average to 95.8 million barrels a day in 2012. It expects 1.3-per-cent average annual growth in North America, and 0.7-per-cent in Europe.
But the agency forecasts 3.6-per-cent yearly growth in demand in emerging economies and developing world.
At the same time, the agency is forecasting only modest growth in crude oil supplies, as producers struggle to offset declines from existing fields.
While there will be some spare capacity among OPEC members in the next few years, that cushion will drop to "minimal levels" by 2012, it said.
The IEA does not include a specific price forecast in its outlook, but with crude prices hovering above $70 (U.S.) a barrel, it provides little hope for a significant easing.
The agency predicts there will be an increasingly tight market for natural gas, in North America and around the world, after 2010. Western Canadian gas producers have recently been squeezed by rising costs and soft prices, but analysts expect natural gas prices to climb as conventional supplies of it continue to decline.
On the oil side, the only potential silver lining for hard-pressed motorists is the indication that investment in refining capacity has picked up, meaning the North America gasoline markets will be better supplied. As a result, refiners' margins, which have driven pump prices higher this year, should ease somewhat.
But while oil prices remain high, the agency said crude oil supply will remain under pressure, partly due to the high cost of production and the delay of major projects. The increasing assertiveness of governments in producing regions will also be a growing factor.
"Supply-side uncertainty is further exacerbated by increasing incidences of resource nationalism and geopolitical risk, constraining the ability of the industry to produce the three million barrels per day of production needed each year to offset the effects of decline," it said.
The IEA said the Canadian oil sands are among a few notable exceptions to the general trend of declining production outside of OPEC, with others including the former Soviet Union, Brazil and the deep waters in the Gulf of Mexico.
Those four regions will account for the bulk of non-OPEC growth in crude supply over the next five years, offsetting steep declines in the North Sea, Mexico and the continental United States.
Over all, non-OPEC daily production is expected to grow by 2.6 million barrels over the next five years, or about 1 per cent a year. That compares to an annual growth rate of 1.4 per cent over the past seven years.
The IEA also forecast OPEC will add four million barrels a day of productive capacity over the next five years, nearly half of which will come in Saudi Arabia.
The agency noted that some OPEC producers have warned that their investment plans may be reduced if the developed world moves aggressively to cut its demand for crude through conservation and use of alternative fuels.
But the international energy watchdog questions the estimates of vast, recoverable reserves in Canada after the inclusion of 174 billion barrels of established reserves placed Canada in second place behind Saudi Arabia.
The IEA said "uncertain project economics" suggest that much of that resource base may not be commercially exploitable, and said a more prudent estimate of proven reserves would be 15 billion barrels.
Still, the report forecasts Canadian daily crude production will grow by nearly 700,000 barrels - to 3.9 million - by 2012. And most longer-term forecasts project oil sands alone could be producing 3.5 million barrels a day by 2020.
