Lawrence Eagle, the Head of Oil Industry and Markets of the International Energy Agency commented for Russia Today on a possible fall in oil supplies in the next five years.

An oil supply shortfall leading to higher prices is on the cards, according to the International Energy Agency.

In a report out this week, the IEA says spare capacity in production will dry up by 2012, at the same time as demand increases.  

Global media have dubbed it a “crisis”, but the IEA's Lawrence Eagle told Business Today that's an over-reaction.

Lawrence Eagle: I would not go as far as to say that we are talking about a crisis. We are not running out of oil or anything like that. What we are seeing is a resumption of the lack of a buffer of spare capacity by 2012. We have been in this situation before, we were there in 2004. We have had a gradual improvement and see it continuing for a couple of years. But then by 2012, at the start of the new decade I think it is likely to start to get slightly tighter.

Russia Today: How much would oil and gas prices go up?

L.E.: I think it is fair to say that if you look at 2004, when we were in the same situation. we actually had oil prices of $US 30 a barrel below current levels. One of the factors which has been driving oil prices higher has been the tightness in the refinery sector, the lack of flexibility in there. And that had a compounding effect, we believe, on oil prices. And that is why the IEA reports we see are getting better, we see a lot more flexibility coming into the refinery sector. There are a lot of investments happening there. And the ability to get rid of a lot of surplus fuel oil and produce, more of that much needed transportation fuels.

RT: So, all in all, It sounds like you are saying the situation is actually not that serious?

L.E.: It is not that there is nothing to worry about. I think it sends a signal not necessarily in the next five years, but perhaps beyond. The message is that we are seeing a very strong demand growth in the non-OECD countries; there are supply problems at the moment. And that is not just in the oil sector but it is also in the gas sector as well.

RT: And how will this all affect Russia?

L.E.: With Russia being a major oil exporter it obviously means that there is a sustained market for their product. It obviously means that if they invest in additional supplies – there is going to be a market for them. And I think that it is a signal to Russia that if there is the ability to increase the investment in both oil and gas, which are areas that both are going to need increased investment further forward, there is going to be the demand to be out with the consumer products.

International Energy Agency