New report warns of imminent oil supply crunch

Fears that oil supplies could peak in the near future were increased this week, as oil prices hit a high for the year and a major report urged international governments to invest rapidly in renewable energy sources to stave off the worst effects of an impending oil supply crunch.

The study from NGO Global Witness, which took two years to complete, was published as US light crude futures rose above $79 (£48) a barrel earlier this week, driven up by predictions that the recovering world economy would increase demand. Oil prices have more than doubled from their lowest point in the spring, but still stand at about half the record of more than $140 a barrel that was hit in early summer last year.

Despite this year's price volatility, the underlying trend over the past decade has been for a steady rise in oil prices and Global Witness, which has become an influential voice after undertaking much of the research to expose Africa's trade in "blood diamonds", predicts that this upward trend is set to continue.

The report warns that dwindling supplies over the coming decades mean prices are likely to reach a level where many of the world's poorest countries will simply no longer be able to afford to pay for carbon-based energy. This scenario will mean that the market is effectively closed to them.

The study, entitled Heads in the Sand, also accuses governments of ignoring repeated warnings that oil supplies are unsustainable. As a result, they were completely unprepared for the impact of supply shortages, despite the fact that it will inevitably lead to price hikes and could result in rioting and conflict similar to that experienced during last year's food price spike.

The study is based on the latest figures from the oil industry and the Paris-based International Energy Agency (IEA), which last year drastically cut its forecasts on the amount of global oil available.

Its calculations showed that there could be a supply and demand shortfall of seven million barrels per day from as early as 2015. This figure amounts to about eight per cent of expected world demand, which is expected to stand at about 91 million barrels a day at that stage.

Meanwhile, production from existing oilfields is predicted to drop by 50 per cent between now and 2020, which means that an additional 64 million barrels a day in capacity terms will need to be found by 2030.

The IEA has also warned in recent months that a recovering global economy could drive soaring oil prices, and has recommended that governments accelerate efforts to move to a low-carbon economy.

But Global Witness refuted the IAE's additional recommendation that the oil industry should spend $450bn per year chasing dwindling supplies. It also dismissed the idea that Canada's tar sands industry could fill the supply gap, indicating that it was unlikely to ever yield more than three to four million barrels a day, which would no more than cover declines in more traditional oil production elsewhere.

Instead, the organisation recommended that money would be more effectively spent on encouraging the development of renewable energy sources and conservation.

In other news, conservation groups in Alaska have accused President Obama of repeating the mistakes of his predecessor, after his administration gave a conditional green light for Shell to start offshore drilling for oil and natural gas in the environmentally sensitive Beaufort Sea.

The area is home to large numbers of endangered bowhead whales, polar bears, walruses and ice seals and permission would run from July to October next year. Shell has agreed to suspend activities from its drill ship from late August, however, as this is the time that local Inuit people undertake their subsistence hunting.