IEA predicts oil breaking $200 by 2035 as China keeps on trucking

Oil prices will rise beyond $200 a barrel as global supplies, strained by rising demand from China, India and other emerging economies, near their peak in 2035, the International Energy Agency (IEA) predicted yesterday.

Ahead of that, the Paris-based IEA's 2010 World Energy Outlook also forecast prices of more than $100 a barrel in 2015. "Production in total does not peak before 2035, though it comes close to doing so," the agency said.

The forecasts are based on a so-called "New Policies" scenario, which accounts for the broad policy commitments that have already been announced and assumes the "cautious implementation of national pledges" to cut greenhouse gas emissions by 2020, and to reform fossil fuel subsidies. Prices will be lower if stronger policies – including the near universal scrapping of fossil fuel consumption subsidies – are adopted after 2020. If that happens prices are forecast to be less than $175 per barrel in 2035. The predictions came as prices hit $87.63 a barrel yesterday, the highest since October 2008.

"The global outlook for oil remains highly sensitive to policy action to curb rising demand and emissions, especially in the developing world... The global economic recovery is expected to drive oil demand back up following two consecutive years of decline in 2008 and 2009," the agency said.

The IEA's chief economist, Fatih Birol, said that, in the absence of government action, prices would rise even faster than forecast.

"The message is clear, the price will go up, especially if consuming countries do not make changes in the way they consume oil, especially in the transport sector," he said.

The IEA expects natural gas and unconventional sources of oil such as the Canadian tar sands to play a bigger role as crude oil output eases, "reaching an undulating plateau of around 68-69 million barrels a day by 2020". The peak was in 2006, when output touched 70 million barrels a day. The outlook varies across regions, though all of the increase in the world oil demand between 2009 and 2035 comes from non-OECD countries.

China is seen as the source of the biggest increase in demand in absolute terms. Under the "New Policies" scenario, Chinese demand is projected to rise from just over 8 million barrels a day last year to more than 15 million by 2035. "China accounts for 57 per cent of the global increase in demand," the IEA said. "Demand could grow even more if the rising international prices of oil assumed in this scenario were offset by an appreciation of the yuan against the dollar".