Investment by Oil Industry “Inadequate” Says IEA

Further analysis of the IEA’s World Economic Outlook reveals that oil industry has barely increased its investment in oil and natural-gas production during the past five years after accounting for inflation.Data compiled by the IEA and reported in the Wall Street Journal, show that investment in the oil-and-gas industry was $340 billion in 2005, up 70% from 2000.

But cost inflation for goods and services used by the industry accounted for almost all of that increase. Adjusted for inflation, the oil industry’s investment increased by 5% between 2000 and 2005 said the IEA. “That’s almost nothing; it’s inadequate,” said Fatih Birol, the IEA’s chief economist.

Altogether oil and gas companies plan to spend $470 billion in 2010, up 38% from 2005. Two-thirds of the industry’s spending is expected to be directed into oil and gas production. Mr. Birol said that he expects the oil industry’s production capacity to slightly outstrip demand through the end of this decade — or by 1.3 million barrels a day — “if all the projects see the light of day.”

Even then, when added to current spare oil-production capacity of roughly two million barrels a day, the total reserve of 3.3 million barrels a day still would be well short of the five million barrels a day needed to put the world into the comfort zone, he said.

Article quoted: Bhushan Bahree,  “Investment by Oil Industry Stalls – Prices Are Likely to Rise – As Inflation Erases Outlays, Energy-Agency Study Finds”, Wall Street Journal, November 8, 2006; Page A11