Ex-IEA chief Tanaka warns of negative impact of high oil prices

31 October 2011 10:20  [Source: ICIS news]

SINGAPORE (ICIS)--High oil prices of above $100/bbl will derail global economic growth and spending on oil imports by many countries will reach or surpass levels seen in 2008, Nobuo Tanaka, the former executive director of the International Energy Agency (IEA), said on Monday.

Tanaka, who was speaking at the Singapore International Energy Week (SIEW), noted that oil price spikes have preceded every recession since the 1970s.

Tanaka recognised the need to balance the requirements of consumers with those of producers. With the Arab Spring unrest continuing in the Middle East and north Africa region, producing nations need oil prices of $70-80/bbl in order to balance their budgets. Prices also need to be high enough to prompt producers to develop new resources and technology, Tanaka said.

However, he commented that organisations such as the IEA had to act, at times, to protect the interests of consuming nations. He noted the IEA move on 23 June to release 60m bbl of emergency stocks of oil over a month, in response to the ongoing disruption of oil supplies from Libya.

When asked about his price forecasts, Tanaka said that in the longer term, oil prices will strengthen as a result of ever-increasing demand. “The cheap energy age is over,” he said.

In the medium term, there is more price uncertainty as high prices erode demand and economic growth. Tanaka commented that 30% less growth would translate into 1m bbl/day less demand.

Tanaka drew attention to the fact that the growing share of oil demand from countries outside of the Organisation for Economic Co-operation and Development (OECD) will result in a decline in the coverage that IEA oil stocks can provide for global demand.

The 90 days of oil stocks held by member nations of IEA covered just over 40% of global demand in 2010, but this will decline to around 15-20% by 2035, Tanaka said. This development will lead to an increased importance of strategic oil stocks held in China, India and countries of the Association of South East Asian Nations (ASEAN), he added.

Tanaka added that as most growth in energy demand is in Asia, “Asian nations need to either join the IEA or form their own association” to represent their interests in negotiations with energy producers.

Speaking on the impact of Japan’s Fukushima nuclear disaster, Tanaka noted the nation’s increased reliance on thermal power generation. Only 11 of Japan’s 55 nuclear power plants are running at present and all of them will be off line by next June if none of the plants that were shut for safety checks come back online in the coming months.

Tanaka said that even if some of the nuclear facilities restart, Japan would require an additional 230,000 bbl/day of oil and 10 billion cubic metres (cbm) of liquefied natural gas (LNG) in 2011, and an extra 270,000 bbl/day of oil and 18bn cbm of gas in 2012.

However if there were no restarts of nuclear facilities, the requirement for additional oil and gas would climb to 460,000 bbl/day and 30bn cbm respectively.

The increased demand for gas from Japan could remove the present glut in gas supplies and tighten the market, he noted.

The Singapore International Energy Week runs from 31 October to 4 November.

By: James Dennis
+65 6780 4359

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