“If we see a continuation of [project] delays and cancellations, a recovery of demand in 2010 or 2011 and strong demand growth, then we may see higher prices than we saw last year,” Fatih Birol tells MEED.

In July 2008 oil prices hit a record $147 a barrel. However, as the global economy has faltered since then, so has demand and prices for oil, discouraging further investment in oil production, Birol explains.

“Non-Opec projects are being cancelled because of a lack of finance or profitability at current prices,” he tells MEED. “Opec [countries] don’t see demand, and if they don’t see demand, they don’t add production.”

An IEA study of infrastructure spending by national oil companies (NOCs) and international oil companies (IOCs) for the year to date has shown a 25 per cent decline from the same period in 2008, with IOCs the most affected, says Birol.

His comments echo recent remarks by Opec secretary general Abdalla Salem El-Baldric.

The secretary general said on the sidelines of the Chatham House Middle East Energy Meeting in London on 9 February that 35 of 130 plus major projects planned by Opec countries were now on hold or had been cancelled.

However, according to Birol, vast increases in capacity are required to meet future demand, regardless of the current downturn.

The IEA expects demand to reach 100m barrels a day by 2030, an increase of 15m b/d from current levels. Depreciation of existing reserves, however, means that as much as 60m b/d of new capacity may be required over the same period.

“By 2030 we will need 45m barrels just to compensate for the fall in existing reservoirs,” he says.

The issue, Birol explains, is that oil producers will continue to focus on present rather than future demand when planning their strategy and infrastructure spending.

“Demand is currently almost fully driven by the global economy, which is expected to be weak in 2009 and 2010 so [oil demand] will be rather poor,” he says.

This short term view would leave producers unprepared for a sudden return of demand. “The fundamentals of demand growth are there in China, India and the Middle East,” he says. “In the three years after 2001 demand grew by 8m b/d. If we see cancellations or delays it could be a big problem.”

Demand will begin to recover in 2010-2011, Birol says, and if the bounce was sharp, it could push prices up to $150 or even $200 a barrel, as producers struggled to cope.