Demand for oil rising faster than expected

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11 July 2007The AgeJames Kanter

DESPITE four years of high prices and warnings about climate change, a new report predicts world oil demand will rise faster than previously expected over the next five years while production slips, threatening a supply crisis.

In the report, the International Energy Agency, which is based in Paris and advises 26 industrial nations, said that global oil demand would rise by an average of 2.2 per cent a year from this year to 2012, up from a forecast in February of 2 per cent annual growth from 2006 to 2011.

The share of world oil consumption represented by the developing world, including emerging industrial economies, will rise to 46 per cent of global demand by 2012 from 42 per cent, the report said.

"Demand is growing and, as people become accustomed to higher prices, they are starting to return to their previous trends of high consumption," said Lawrence Eagles, head of oil market analysis at the energy agency, which is linked to the Organisation for Economic Cooperation and Development. "It's important that we have more investment and a greater emphasis on energy efficiency."

The pressures on fuel supplies are growing because booming Asian economies are using more fuel to power their manufacturing industries, including the production of growing numbers of cars. Rapid growth in petrochemicals industries and the spread of low-cost airlines are also lifting demand.

Amid these demand factors, there is a scarcity of refining plants and the personnel to operate them. Supplies are also a concern because of deteriorating output from some countries outside the Organisation of the Petroleum Exporting Countries, the grouping of the biggest producers.

The world "needs more than 3 million barrels per day of new oil each year to offset the falling production in the mature fields outside of OPEC," Mr Eagles said.

Other analysts said that behind the overall numbers were signs energy habits were moving in two directions. In developed countries, and especially the European Union, obligations agreed to by governments to conserve energy and use renewable energy are expected to ease pressure on oil supplies.

But that trend is being offset in developing nations. While they still use far less energy per capita, they are making goods for rich consumers elsewhere and are increasingly adopting heavy energy-consuming lifestyles that include the use of cars, refrigerators and air conditioners.

Colette Lewiner, who monitors energy at the Capgemini consultancy in Paris, said, "My view is that energy consciousness will figure strongly in Western countries and could contribute to demand decrease but it's not at all sure that we will see the same trends in China and India."

Mr Eagles welcomed progress in Europe and Asia, where governments are mandating more efficient cars. He said the "United States is very clearly coming to the point where there would be a landmark change in fuel-efficiency policies".

He said that stepped-up investment in refining capacity could help reduce petroleum prices over the next three years but those effects were likely to be short-lived.

Beyond 2010, Mr Eagles warned, "tightness in OPEC's spare capacity will reassert itself". And by 2012, he said, there would either have to be limits on demand or additional supplies to avoid further price increases.

Mr Eagles said that biofuels were unlikely to be a quick solution. By 2012, he said, biofuels would account for only 2 per cent of global energy supplies.