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Fresh economic disaster looms as oil drains away

The world is heading for a catastrophic energy crunch that could cripple a global economic recovery because most of the major oil fields in the world have passed their peak production, a leading energy economist has warned.

Higher oil prices brought on by a rapid increase in demand and a stagnation — or even decline — in supply could blow any recovery off course, said Dr Fatih Birol, the chief economist at the respected International Energy Agency in Paris, which is charged with the task of assessing future energy supplies by OECD countries.

Dr Birol said the public and many governments appeared oblivious to the fact the oil on which civilisation depends is running out far faster than previously predicted and global production is likely to peak in about 10 years — at least a decade earlier than most governments had estimated.

But the first detailed assessment of more than 800 oil fields in the world, covering three-quarters of global reserves, has found that most of the biggest fields have already peaked and the rate of decline in oil production is now running at nearly twice the pace as calculated just two years ago.

On top of this there is a problem of chronic under-investment by oil-producing countries, a feature that is set to result in an “oil crunch” within the next five years which will jeopardise any hope of a recovery from the global economic recession, he said.

In a stark warning to Britain and the Western powers, Dr Birol said the market power of the very few oil-producing countries that hold substantial reserves of oil — mostly in the Middle East — would increase rapidly as the oil crisis begins to grip after 2010.

“One day we will run out of oil, it is not today or tomorrow, but one day we will run out and we have to leave oil before oil leaves us, and we have to prepare ourselves for that day,” he said.

“The earlier we start the better because all of our economic and social system is based on oil, so to change from that will take a lot of time and a lot of money and we should take this issue very seriously.

“The market power of the very few oil-producing countries, mainly in the Middle East, will increase very quickly. They already have about a 40% share of the market and this will increase much more strongly.”

There is a risk of a crunch in the oil supply after next year when demand picks up because not enough is being done to build new supplies to compensate for the decline in existing fields.

The IEA estimates the decline in oil production in existing fields is running at 6.7% a year compared to the 3.7% decline estimated in 2007, which it now acknowledges to be wrong.

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