IEA warns of large drop in non-OPEC oil production in 2016

Governments needed to strike a delicate balance between continued investment in conventional sources of energy, so as to avoid sharp moves in prices, while also investing in the renewable sources which would be needed to take up the slack if long-term targets for limiting damage to the world’s climate were to be met, the rich-world’s energy watchdog said.

Addressing Japan’s International Finance and Economic Assessment Council, International Energy Agency chief Fatih Barol warned that oil supplies from outside of OPEC would fall by 700,000 barrels per day in 2016 – the largest fall since 1992.

Investment in upstream activities fell by 24% in 2015 and was set for another 18% drop in 2016, the largest back-to-back decline since the 1980’s, he said.

However, US light tight oil output was expected to recover, with the country being expected to contribute the most to growth in non-OPEC supplies from 2016 to 2021.

That would come as global demand for oil was set to continue growing by an average of 1.2m barrels per day between 2016 and 2021, crossing the symbolic 100m b/d threshold in 2019 or 2020, according to the IEA.

“With the fall in non-OPEC production we are seeing, we can expect the market to come back to balance in 2017. From 2018 onwards there will be stock draws, leading to a gradual increase in price levels,” Birol said in prepared remarks for a speech to be delivered to the council.

On a yearly basis, $630bn of investment was necessary in worldwide upstream oil and gas just to compensate for declining production at existing fields, Birol added.

A lack of investments in new gas projects today could also lead to a new period of tightness after 2020, he warned.