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Shrinking world oil supply
Given the hullabaloo about rising energy production in the US, you would think that the IEA report was loaded with good news about the world's future oil supply. No such luck. In fact, on a close reading anyone who has the slightest familiarity with world oil dynamics should shudder, as its overall emphasis is on decline and uncertainty.

Take US oil production surpassing Saudi Arabia's and Russia's. Sounds great, doesn't it? Here's the catch: previous editions of the IEA report and the International Energy Outlook, its equivalent from the US Department of Energy (DoE), rested their claims about a growing future global oil supply on the assumption that those two countries would far surpass US output. Yet the US will pull ahead of them in the 2020s only because, the IEA now asserts, their output is going to fall, not rise as previously assumed.

This is one hidden surprise in the report that's gone unnoticed. According to the DoE's 2011 projections, Saudi production was expected to rise to 13.9 million barrels per day in 2025, and Russian output to 12.2 million barrels, jointly providing much of the world's added petroleum supply; the United States, in this calculation, would reach the 11.7 million barrel mark.

The IEA's latest revision of those figures suggests that US production will indeed rise, as expected, to about 11 million barrels per day in 2025, but that Saudi output will unexpectedly fall to about 10.6 million barrels and Russian to 9.7 million barrels. The US, that is, will essentially become number one by default. At best, then, the global oil supply is not going to grow appreciably - despite the IEA's projection of a significant upswing in international demand.

But wait, suggests the IEA, there's still one wild card hope out there: Iraq. Yes, Iraq. In the belief that the Iraqis will somehow overcome their sectarian differences, attain a high level of internal stability, establish a legal framework for oil production, and secure the necessary investment and technical support, the IEA predicts that its output will jump from 3.4 million barrels per day this year to 8 million barrels in 2035, adding an extra 4.6 million barrels to the global supply.

In fact, claims the IEA, this gain would represent half the total increase in world oil production over the next 25 years. Certainly, stranger things have happened, but for the obvious reasons, it remains an implausible scenario.

Add all this together - declining output from Russia and Saudi Arabia, continuing strife in Iraq, uncertain results elsewhere - and you get insufficient oil in the 2020s and 2030s to meet anticipated world demand. From a global warming perspective that may be good news, but economically, without a massive increase in investment in alternate energy sources, the outlook is grim.

You don't know what bad times are until you don't have enough energy to run the machinery of civilization. As suggested by the IEA, "Much is riding on Iraq's success ... Without this supply growth from Iraq, oil markets would be set for difficult times."