Future oil price dependant on oil output from MENA: IEA

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The International Energy Agency (IEA) in its latest World Energy Outlook (WEO) warned that consumers could face a near-term rise in the oil price to US$150/barrel if MENA investment and output drops.

The IEA argued that the short-term pressures on oil markets are easing with the economic slowdown and the expected return of Libyan supply

The report stated that the average oil price remains high, approaching US$120/barrel (in year-2010 dollars) in 2035. Reliance grows on a small number of producers: the increase in output from Middle East and North Africa (MENA) is over 90 per cent of the required growth in world oil output to 2035.

The IEA warned that if, between 2011 and 2015, investment in the MENA region runs one-third lower than the US$100 billion per year required, consumers could face a near-term rise in the oil price to US$150/barrel.

Yet "it is far from certain that all of this investment [needed from the MENA region] will be forthcoming" to keep oil below that level, said IEA. It cited increased political instability, conflicts damaging oil infrastructure, international sanctions and resource nationalism as key risks to spending.

Iraq will be the largest source of new production additions. Providing investments aren't delayed, the IEA expects its output to reach 5.4 million barrels a day in 2020 and 7.7 million barrels per day (mbpd) in 2035, compared with about 2.7 mbpd today. The numbers are lower, however, than Iraq's own plans to reach a capacity of 6 million-8 million barrels a day before 2020.

Production from the second contributor, Saudi Arabia, is expected to grow by almost 40% to nearly 14 mbpd by 2035, it said.

By contrast, the IEA takes a bearish view on Libya's output. It says could take two years to recover from war damage and won't grow at all until 2030--in contrast with the view in Tripoli that no more than 15 months are needed to return to normal.

The IEA also predicts production in Iran will be hindered by sanctions and tough investment terms with the Islamic Republic only adding 600,000 barrels a day in production by 2035.

According to the agency, Oil demand rises from 87 mbpd in 2010 to 99 mbpd in 2035, with all the net growth coming from the transport sector in emerging economies. The passenger vehicle fleet doubles to almost 1.7 billion in 2035. Alternative technologies, such as hybrid and electric vehicles that use oil more efficiently or not at all, continue to advance but they take time to penetrate markets. The future for natural gas is more certain: its share in the energy mix rises.

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