The International Energy Agency’s annual World Energy Outlook forecasts that by 2035 oil will cost $200 a barrel in today’s dollars. That’s not $200 during a price spike, that’s $200 as the new normal. The world entered recession when the price went over $100 in a spike during 2008. A permanent price of $200 a barrel is simply unaffordable.
What that price is telling us is that there is not enough oil to go around. But the experts are saying that the IEA is being far too optimistic in its outlook.
The big problem is that to arrive at ‘only’ $200 a barrel the IEA had to assume some remarkable things, the most remarkable of which was that in the next 24 years we will find and develop new oil fields with a production capacity equivalent to twice what Saudi Arabia currently produces. Iraq is predicted to more than double its output and Saudi Arabia to increase its by 50% – this despite the fact that oil producers failed to lift their production in reaction to the last great oil spike. Global oil output has been stagnant since 2004 but is meant to rise about 20% in the next 24 years (btw, the prediction for future output has fallen with each annual revision by the IEA this century).
So, $200 a barrel is very optimistic and higher total oil supply. Ludicrously optimistic, in fact.
The reality will be that the world economy will simply not be able to pay such a high price. Instead, there will have to be a long series of recessions to get oil demand down low enough that the price can drop to an affordable level. And in a world where the marginal barrel will be coming from lignite to liquids or deep drilling under the Arctic, even that ‘low-enough’ price will be eye-watering.
In the end, a lot of oil will remain in the ground because it is simply too expensive to extract.