TIME: Oil Prices: It Gets Worse

"I am sorry to say this, but we are headed toward really bad days," IEA chief economist Fatih Birol told TIME this week.
By VIVIENNE WALT/PARIS

Oil prices hit a record high of $97 a barrel on Tuesday, but the next generation of consumers could look back on that price with envy. The dire predictions of a key report on international oil supplies released Wednesday suggest that oil prices could move irreversibly over the $100 a barrel threshold in the not too distant future, as the global economy faces a serious energy shortage.

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This gloomy assessment comes from the International Energy Agency, the Paris-based organization representing the 26 rich, gas-guzzling member nations of the Organization for Economic Cooperation and Development (OECD). The agency is not known for alarmist warnings, and its World Energy Outlook is typically viewed by policy wonks as a solid indicator of global energy supplies.

In a marked change from its traditionally bland, measured tones, the IEA's 2007 report says governments need to make urgent, bold decisions on energy policy, or risk massive environmental and energy-supply crises within two decades — crises and shortages that could spark serious global conflicts.

"I am sorry to say this, but we are headed toward really bad days," IEA chief economist Fatih Birol told TIME this week. "Lots of targets have been set but very little has been done. There is a lot of talk and no action."

The reason for the IEA's alarm is its expectation that economic development will raise global energy demands by about 50% in a generation, from today's 85 million barrels a day to about 116 million barrels a day in 2030. Nearly half that increase in demand will come from just two countries — China and India, which are electrifying hundreds of cities and putting millions of new cars on their roads, most driven by people who once walked, or rode bicycles and buses. By 2030, those two countries will be responsible for two-thirds of the world's carbon gas emissions, which are the primary human activity causing global warming.

India and China have argued against enforcing strict emission controls in their countries, on the grounds that these could hinder their economic growth and prompt a global economic slowdown. But the new IEA report says working with China and India on alternative energy sources and curbing emissions is a matter of global urgency.

The bad news is not only environmental. As the world scrambles to boost energy supplies over the next two decades, an ever-greater percentage of its supplies of oil and gas will come from a dwindling number of countries, largely arrayed around the Persian Gulf, as the massive North Sea and Gulf of Mexico deposits are finally exhausted. That will leave the industrialized countries far more dependent on the volatile Middle East in 2030 than they are today, and the likes of Saudi Arabia, Kuwait and Iran will dictate terms to companies like ExxonMobil and Chevron, which increasingly operate as contractors to state-run oil companies in many producer nations.

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