International Energy Agency predicts that if demand path does not change significantly we may face a severe demand-supply imbalance that can be restored only by much higher oil prices. This report comes about time when oil prices are already testing all time highs (in nominal terms).

See report quotes reported after Daily Telegraph:

In a report that painted a bleak outlook for the global economy, the IEA said spare capacity in oil production would dry up over the next five years, even as demand continues to jump significantly.

“Oil and gas price pressures look set to remain in the coming years,” the report said. “Slower-than-expected GDP growth may provide a breathing space, but it is abundantly clear that if the path of demand does not change on its own, it may well be driven to change by higher prices.”

The price of oil is already closing in on record levels above $75 a barrel amid geo-political tensions, and shows no sign of declining.

“Despite four years of high oil prices, this report sees increasing market tightness beyond 2010,” the IEA said. “It is possible that the supply crunch could be deferred, but not by much.”

The IEA, which acts as an energy watchdog for industrialised nations, said Opec would be unable to increase production in line with demand, while the rate of growth in supplies of oil from other producing nations is also set to slow.

In addition, the gas market will face a supply crunch of its own at the turn of the decade, limiting governments’ ability to turn to different sources of fuel. Although the production of biofuels is set to double over the next few years, it will remain a marginal source of energy, the IEA said.

Lawrence Eagles, head of the IEA’s oil industry and markets division, said: “The results of our analysis are quite strong. Either we need to have more supplies coming on stream or we need to have lower demand growth.”

My comment: human being is a very innovative creature. If oil prices continue to climb, then the likelihood of major disruptive innovation will massively increase, hydrogen or something else. Oil producers will be aware of this fact and will maximize their  expected future oil income taking this innovation threat as the part of the decision-making process. I do not know how we will travel in 20-30 years, but I am quite positive it will have very little to do with today’s car-on-highway commuting (maybe ultra-fast trains powered by nuclear energy???). High oil prices simply speed up the change process.