"The global financial crisis has turned the economic landscape upside down, with huge implications for the oil and gas sector," Nobuo Tanaka, the head of the Paris-based IEA, said at the launch of the agency's two new publications, the Medium-Term Oil Market Report 2009 and the Natural Gas Market Report 2009.

The IEA, which advises the world's oil-consuming nations, cut its forecast for global oil demand through 2013 by 3.35 million barrels a day. Demand for crude will reach pre-crisis levels not before 2012, the agency said. That's a 7-percent drop compared with the IEA's forecast from July 2008. Demand in Asia and the Middle East, the IEA said, could trump that within the Organization for Economic Cooperation and Development by 2014.

"Whether we end up facing a supply crunch again by mid-decade, or with a more comfortable buffer of supply flexibility, depends largely on the pace of economic recovery and government action on efficiency," Tanaka said in a statement.

Europe's oil demand is set to drop as the continent experiences a population decline, pursues energy-efficiency initiatives and is increasingly replacing gas-guzzling vehicles with diesel cars.

In its Natural Gas Market Report 2009, the IEA says that global demand for gas fell by 4 percent during the first quarter of 2009 and is expected to further decline through the year -- the first gas demand drop in 50 years.

Even some 60 million cubic meters worth of additional LNG capacity will not be able to offset this development, with U.S. domestic gas production -- which is more expensive -- expected to significantly decline. What's more, "The combination of weak demand and lower prices could undermine future investments," the IEA warned.

The agency also warned that the volatile relationship between Russian state-controlled energy giant Gazprom and Ukraine's Naftogaz continues to threaten Europe's gas supplies.

"The difficult economic situation in Ukraine makes every monthly payment a challenge, and tensions remain high," Tanaka said. "The IEA is therefore seriously concerned that the flow of Russian gas through Ukraine may be subject to disruption at almost any time." The IEA says gas storage projects and import diversification are key to minimize the threat.

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