High oil prices threaten to derail growth, IEA says

Higher oil prices will lead to rise in fuel subsidies despite efforts to curb them, economist says
High oil prices threaten to derail growth, IEA says
Oil prices will stay above $100 a barrel in the next year as supply worries outweigh concerns about lagging global economic growth, survey says
By Reuters
Tue 21 Jun 2011 05:13 PM

High crude prices may derail growth in China and India, the
two nations that have helped the global economy overcome the financial crisis,
the International Energy Agency
said.              

Asian countries led by China and India are tightening
monetary policies to battle a surge in inflation, partly caused by high oil
prices as geopolitical tensions in the Middle East and Africa reduce crude
supply. Brent crude  has peaked at just above $127 a barrel so far this
year.     

"High oil prices are a significant risk to derailing
the economic recovery not only in the OECD countries, but also in China and
India," the IEA's Chief Economist Fatih Birol said in the city
state.              

"China and India are two most important economies which
helped us get out of the economic crisis. If they go for tightening of monetary
policies, this may lead to a slowdown in their economies which is bad news for
all of us."             

Oil prices will stay above $100 a barrel in the next year as
supply worries outweigh concerns about lagging global economic growth, a survey
of oil industry officials, executives and traders showed last
week.        

Eight of 20 participants said they saw oil trading between
$110 and $130 a barrel in June 2012, eight saw prices between $90 and $100 and
three saw prices above $130. Only one respondent saw prices between $70 and $90
per barrel.

"If you look at the average over the year, oil prices
are still significantly higher than the average for 2008," Birol said.
"I'm also looking at the next couple of quarters and we expect that there
will be strong demand growth and sluggish non-OPEC
production."     

Higher oil prices will also lead to a rise in fuel subsidies
despite efforts by China and Iran to reduce them, he said.
           
                       

The West's energy watchdog raised its five-year global oil
demand forecast by an average of 700,000 bpd compared with the previous medium
term report issued in December on growth from non-OECD countries. China alone
accounts for more than 40 percent of the increase.   
          

Global oil production is expected to reach 96 million
barrels per day (bpd) in 2035 with the Middle East and North Africa regions
accounting for 90 percent of this volume, according to the IEA. 

The world will need more oil production from OPEC, Canada
and also non-gas liquids as many oil fields outside OPEC are maturing, Birol
said.       

"The era of cheap oil is over," Birol said, as the
world tries to recover from a "terrible economic crisis."  

Still, investments in the Middle East and North Africa may
be deferred and it could be difficult to send in workers because of the unrest,
he said.  

By 2035, IEA expects global energy use to grow by 36 percent
with non-OECD countries - led by China, where demand is expected to surge by 75
percent by then - accounting for almost all of the
increase.       

Strong growth in oil demand is mainly from transportation
sector where there are limited alternatives, Birol
said.            
               

China will still have to import half of its gas needs to
meet requirement as domestic output lags growth in demand. China will import
about 50 billion cubic metres of liquefied natural gas (LNG) by 2015,
equivalent to imports by Europe, he said.               

Australia will be a key supplier to China as the country
looks set to overtake Qatar as the world's top exporter of the fuel by 2020,
Birol said.

His comments come as analysts express doubts over some of
the Australian projects coming up on time due to higher costs and delays in
environmental approvals.

Growing concerns about safety of nuclear power plants
following the Fukushima crisis in Japan could boost demand for LNG, coal and
renewables.         

In some countries, plans to build nuclear plants are being
revised or deferred, while existing units are getting forced into early
retirement, Birol said.        

Last year, IEA forecast that the global nuclear capacity
will grow by 360 gigawatts between 2008 and
2035.           

If the capacity growth is reduced by half to 180 gigawatts,
the share of nuclear in the global energy mix will fall to 10 percent from 14
percent, Birol said.         

"You will have less eggs in the basket" for energy
diversification, he
said.             

Coal usage will increase about 6 percent compared with IEA's
forecast last year, while that for gas will rise by an additional 80 billion
cubic metres, he said, adding that one more Qatar will be needed to meet
requirement.          

"Nuclear is still very important for the global and
Japanese energy system," Birol said. "Without nuclear, we will see
higher energy prices and less energy security and higher carbon
emissions."    

               

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