Asia should push ahead with costly emergency oil stockpiles even though the West's huge government reserves have been unable to quell market fears of a shortage, the head of the International Energy Agency (IEA) said on Saturday.
"They have to start - perhaps only a few days (worth) at the beginning," said Claude Mandil, executive director of the IEA, the West's energy watchdog.
"It could take several years to get to the 90-day (OECD) level," he told Reuters after a meeting of Southeast Asian energy ministers in Laos. The world's number two consumer China said this week oil was too expensive to start filling its first strategic storage tanks while South Korea proposed joint stockpiling to the Association of South East Nations (Asean) in the Laotian capital.
"The period is not well chosen - it's expensive," Mandil said.
Developing nations will struggle to afford such stockpiles, analysts say, given it would cost over $100 a barrel to store oil at today's prices including investment costs.
It would have been more feasible early this decade, when Opec producers were aiming for prices in the $20-$30 range. Mandil said releasing oil from the 4 billion barrels of commercial and government stocks in IEA member countries was a possibility if there were more supply disruptions from Nigeria only if producers could not fill the gap. He said the trigger would not be price - even $100 - but an actual supply loss.
"The trigger is the number of barrels," he said. "If there are more outages in Nigeria, plus hurricanes, plus a decrease in Iraqi output, we'd look at whether the world could cope with this by itself - we'd prefer Saudi Arabia to increase its output."
Saudi Arabia is the only Opec producer with significant spare capacity. Oil prices have rallied from $20 a barrel in 2002 to a record over $78 this month on worries of supply disruptions against a backdrop of growing demand.
"We think around 2010 there's the possibility of prices going down because of all the extra capacity, both upstream and down stream," he said, adding the impact of $70 oil on poorer countries' economic growth may be seen later.
The IEA organised a co-ordinated stock release last September after hurricanes battered US Gulf oil output, dampening then record prices, but they have surged again this year on fears tension in the Middle East could affect exports.
"The market anticipates that there could be supply disruptions and does not anticipate that we can fill that," Mandil said. "Before the hurricanes there was a general feeling the IEA would never use it stocks - now you cannot say that."
Mandil said more measures were still needed on the demand side of the equation in Asia, including diversification of supplies, greater energy efficiency and reduction of fuel subsidies, as cheap fuel has led to wasteful energy use.
"China is heading in the right direction. It could go a little quicker with market reform - one of the main problems is low subsidised prices," he said, adding using money to directly benefit low income people was better than blanket subsidies that mostly benefited the high-energy using rich.
Moves to substitute oil demand for domestic biofuels such as sugar cane and palm oil could play a major role, he said. "They need to be cost effective with no subsidies, with a good yield that does not produce a lot of CO2 in processing - not the case in the European Union and the United States."
While competition of fuel against food could cause problems in countries such as Thailand, others such as Indonesia and Laos could become big biofuel exporters, he said.
Comments
Comments are closed.