Economist experiences "earthquake"

As oil hits $96, the news keeps getting better and better at the Oil and Money conference in London — better, that is, in terms of a growing recognition that oil supplies are liable to continue getting tighter and tighter.

As we noted yesterday, a former poobah at Saudi Aramco said openly that many countries overstate their reserves.  And now the top economist at the International Energy Agency says he's experienced a revelation — or in his words, "an earthquake."

The rapidly growing appetite for fossil fuels in China and India is likely to help keep oil prices high for the foreseeable future, threatening a global economic slowdown, a top energy expert said on Wednesday.

The unusually stark warning by Fatih Birol, chief economist of the International Energy Agency, about the effect of Asia’s emerging giants comes as the agency prepares to issue its influential annual report next week, which will focus on China and India.

In preparing the report, Mr. Birol said he had experienced “an earthquake” in his thinking.

“China plus India are going to dominate growth in the oil markets,” Mr. Birol said during an interview at an oil industry conference. Over the last 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone.

I know, I know.  China and India consuming more and more fossil fuel isn't exactly breaking news to you and me.  But if mainstream folk like Mr. Birol are waking up to the reality, I'll take it as an encouraging sign.  He even came up with a nifty way of looking at things that I hadn't thought of before:

Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia. Partly as a result, the annual report will predict that oil prices could hit levels much higher than once thought possible…

Mr. Birol's remarks come four months after the IEA's annual medium-term forecast took a sharply pessimistic turn from years gone by.  It forecast a "supply crunch" after 2010, with OPEC's spare production capacity more or less gone by 2012.

None of this adds up to good news for Big Oil, though — as we see with Exxon Mobil's third-quarter numbers, record revenue notwithstanding.  In a world of scarce supplies snapped up by government entities, the real action in the energy sector is elsewhere, as Strategic Investment editor Dan Amoss has outlined in a special report.