Global energy consumers are enjoying lower prices today but the plunge in crude costs – coupled with rising geopolitical tensions – is setting the stage for future supply shortages and price spikes, the International Energy Agency says in its annual World Energy Outlook.

"The global energy system is in danger of falling short of the hopes and expectations placed upon it," said the Paris-based group that advises richer countries on energy policy. Its annual survey was released Wednesday, and provides a stark warning that the world is falling short of the investment required to meet energy demand and reduce greenhouse gas emissions from fossil fuels.

The challenges lie across the energy spectrum but are particularly acute in the global oil market, where the recent plunge in prices will deter capital expenditures that are needed to offset declining production from aging fields, even as lower pump prices spur demand growth.

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That decline in supply and increase in demand would drive prices higher in the coming years than they would be under a stable price scenario.

"The short-term picture of a well-supplied oil market should not disguise the challenges that lie ahead as reliance grows on a relatively small number of producers," primarily in the Middle East, it said.

In an interview from Paris, IEA chief economist Fatih Birol said Canada's oil sands are an important source of secure supply as other major producing regions – from Russia and the Middle East – face political upheaval.

"We expect Canadian production will be a very important cornerstone of the security of global oil markets," Mr. Birol said. The IEA forecasts that Canadian production will grow from four million barrels a day currently to 7.4 million by 2030, with virtually all of that growth coming from the oil sands.

Environmental groups have launched concerted attacks on oil sands production, primarily by aiming to block pipelines that would facilitate its growth. They argue that the world must not develop carbon-intensive fossil fuels like Canada's oil sands if it is to rein in climate change, and that the necessary shift to cleaner energy will leave the oil sands and its pipelines as "stranded assets" in a few decades.

But the IEA forecasts that global crude demand will continue to grow to 104 million barrels a day by 2040 from 90 million currently, and Mr. Birol said the difference between emissions from the oil sands and conventional crude is virtually immaterial to the global climate battle.

"The additional contribution [of greenhouse gases] coming from the oil sands in Canada, compared to the same amount of oil from Middle East or Brazil or central Asia, is completely peanuts," he said. "It is less than one day of CO2 emissions of China – less than one day; it's a couple of hours."

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He said the real challenge involves less where the crude comes from, but in reducing oil demand as quickly as possible, and in switching the world's electricity system off coal-fired power.

In a report this summer, the IEA laid out the investment challenges required to ensure adequate energy supply to meet growing demand, particularly in the high-growth countries of Asia and the Middle East.

The IEA said that over the next 20 years, the world will need investments of $40-trillion (U.S.) across the energy spectrum, 60 per cent of which would be needed just to replace aging assets and meet current demand. Some 80 per cent of upstream oil and gas investment would go to offset declines in today's fields and keep production at current levels.

But the agency warned in its report released Wednesday that conflict in the Middle East, North Africa and Ukraine could forestall that much-needed investment in new oil production.

Iraq is a key linchpin, with potential to add five million barrels a day of production over the next two decades. But given security concerns in the Middle East, "the appetite for investment is very, very weak," Mr. Birol said.

By 2020, the IEA expects the U.S. to have peaked in oil production and begin to decline, yielding more market share for the Organization of Petroleum Exporting Countries. And the U.S. supply growth from the unconventional tight oil fields will be weaker than expected if prices don't rebound.

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"We estimate if prices remain at today's level, there will be a 10-per-cent decline in U.S. upstream capital expenditure in 2015," Mr. Birol said.

"Given a rather shorter investment cycle, the impact on production levels for tight oil will be much more pronounced than in other resource basins."