IEA sees oil demand rising 1.4 % per year

Economic recovery, mainly in Asia, is set to push up oil demand by 1.4 per cent a year, the International Energy Agency estimated yesterday, saying this would leave behind a crisis consumption dip lasting three years.

But if sovereign debt crises and other drags slow down the recovery, oil demand might grow by only one per cent a year and the trough in usage would last for four years, it said in a medium-term outlook for energy markets.

The agency stressed that the increasingly important dynamics of growth for overall activity and therefore energy demand were blowing from emerging economies rather than from the 31 advanced OECD countries.

And new ways of exploiting gas in North America were becoming critical to the energy outlook.

The International Energy Agency, which is the oil policy arm of the Organisation for Economic Cooperation and Development, also said that the outlook for investment in oil and gas resources was far better than it had feared at the depths of the downturn 12 months ago.

"The main impact of the upstream spending dip last year was to postpone rather than cancel upstream projects, many of which have been reactivated," it said, in response to economic recovery, strong non-OECD oil demand and higher prices.

Twelve months ago, the IEA had estimated that investment in upstream resources and infrastructure might drop by 21 per cent in 2009, but the fall now seemed to be 10-15 per cent the agency said.

It now estimated that investment this year would rise by eight to 12 per cent.

"Oil and gas markets are starting to show important signs of recovery," the agency said, but the effect of the downturn on oil and gas demand had been different.

"Gas demand fell by more than three per cent in 2009, double the pace of decline seen for oil," it said, highlighting the use of oil mainly for transportation for which demand varied little.

"Gas on the other hand, as a major industrial and power generation fuel, was fully exposed to the decline in industrial production seen in the recession."

The IEA said in its opening remarks: "But common to both oil and gas is the dichotomy between OECD and non-OECD markets, with continuing growth in non-OECD regions, notably China, India and the Middle East, contrasting with weaker demand in OECD and FSU (former Soviet Union) countries."

The agency said that as last year, it had drawn up two estimates for the medium-term outlook, favouring the higher estimates for economic growth and also gains in efficiency.

But it warned of many uncertainties such as regulation of commodity markets, the effects on policy of the oil spill in the Gulf of Mexico, the European debt crisis, and possible overheating of the Chinese economy.