Crude prices could spike sharply in a few years unless the oil industry starts soon to invest in major projects again, the International Energy Agency warned on Monday.
The second wave of U.S. shale oil production has begun. But drillers cut spending by hundreds of billions during the oil bust. The IEA expects growth in global oil demand to outstrip production growth, with demand growing 7.4 million barrels a day and output rising 5.6 million barrels a day by 2022.
That could strain OPEC’s resources and shrink spare oil production capacity – the amount of crude that nations could put out in a short period of time – to a 14-year low, threatening to leave markets short of oil if a supply levels suddenly dropped because of a war or geopolitical tension.
“In 2017, the pace of investments will become very important for international relations,” said Fatih Birol, IEA executive director, at the IHS CERAWeek energy conference in downtown Houston. “We may see markets tighten around 2020 and spare production capacity shrink big time.”
The IEA expects global oil demand to reach 100 million barrels a day by 2019, and nearly half of the demand growth will come from China and India.
Assuming oil prices reach $58 a barrel over the next few years, U.S. shale oil output could rise by 1.6 million barrels a day by 2022. If prices rise more than expected and hit about $80 a barrel, it could rise by 3 million barrels a day.
“We’re witnessing a second wave of shale oil growth,” Birol said. “Its size will depend on price levels.”
But even with that growth, he said, “we see a significant risk of prices rising sharply by 2022 unless a significant amount of projects are sanctioned, and sanctioned quickly.”