OPEC's Slowing Investment May Cause Supply Crunch

By Shigeru Sato and Michio Nakayama

Nov. 14 (Bloomberg) -- The International Energy Agency warned that slower investment in new oil projects by OPEC member countries in the aftermath of the global economic slowdown may cause an energy-supply crunch in the next two decades.

``Many projects will be delayed because of the economic crisis,'' Nobuo Tanaka, Executive Director of the Paris-based adviser to 28 nations, said today in an interview with Bloomberg News in Tokyo. ``The biggest concern I have is that there may be a supply disruption in the years ahead when the global economy and oil demand recover.''

The IMF warned last week of the first simultaneous recession in the U.S., Japan and Europe in more than 60 years amid the worst financial crisis since the Great Depression. OPEC, supplier of more than 40 percent of the world's oil, will meet in Cairo Nov. 29 to discuss a further cut in production after crude slipped to a 21-month low yesterday.

The 13-member Organization of Petroleum Exporting Countries was originally scheduled to meet next on Dec. 17 in Oran, Algeria. Oil has plunged 60 percent from a record $147.27 a barrel on July 11 as the global economic slowdown erodes consumption.

``If ever this collapse in demand stops, finds a bottom, and the economy starts to grow again, we're going to be faced with problems with supply,'' said Anthony Nunan, assistant general manager for risk management at Mitsubishi Corp., Japan's largest trading house. ``Then we'll have to have higher prices to ration demand, so we'll be facing this volatility.''

Supply Crunch

OPEC nations should team up with major oil companies to diversify financing risks for new oil-field developments, Tanaka said. Investment of $26 trillion, or over $1 trillion a year, is needed in the period 2007-2030, the agency said in the World Energy Outlook 2008 published this week. The current credit squeeze could delay spending, paving the way for an energy supply crisis once the economy recovers.

The Paris-based agency expects oil-import prices will rebound to average $100 a barrel between 2008 and 2015, it said in the report, predicting that the financial crisis will be offset by rising demand in developing countries, led by China and India.

Crude oil for December delivery was little changed at $58.31 a barrel at 2:04 p.m. Tokyo time on the New York Mercantile Exchange. The contract yesterday fell to $54.67 a barrel, the lowest since Jan. 30, 2007.

The current oil price is far above the minimum needed by world's key producing nations, said Faith Birol, the IEA's chief economist. ``But a further price slide will in general discourage investment and could lead to a serious consequence,'' Birol told reporters in Tokyo.

Demand to Rebound

The IEA yesterday slashed its oil demand forecast for 2009 for a third month, its biggest cut in 12 years, on the deteriorating economic outlook.

``It's not out of the question that OPEC will conclude that not much oil is required for now,'' Tanaka said when asked what the group should decide at its meeting next month. ``In the longer term, OPEC should be confident about making new oil-field investments because the demand will be out there.''

Tanaka is due to visit China, South Korea, Indonesia, Australia and Singapore after his three-day trip to Tokyo.

To contact the reporter on this story: Shigeru Sato in Tokyo at ssato10@bloomberg.net.