IEA chief warns oil drop may hurt investment in energy projects

The rapid decline in oil prices and volatility in crude markets may deter investment in all types of energy needed to meet future demand, the head of the International Energy Agency (IEA) said.

“There is reluctance for investments in energy projects in general,” Maria Van Der Hoeven, executive director of the IEA, said Wednesday in an interview in Abu Dhabi. “We can see it everywhere. If these low oil prices delay investment, or investment decisions, the world will be in a problematic situation in the next decade.”

Brent crude, a benchmark for more than half of the world’s oil, has tumbled about 37 percent since OPEC agreed on November 27 to maintain its output target amid a global glut.

The Organisation of Petroleum Exporting Countries is battling a US shale boom by resisting cuts and signalling a readiness to let prices fall to a level that slows growth in US output, which has surged to a three-decade high.

A sluggish economic recovery and the surge in shale production is contributing to the drop in crude, Van Der Hoeven said.

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Brent futures were trading at $48.36 a barrel at 12:24 p.m. in London on Wednesday, down 16 percent this year.

IEA chief economist Fatih Birol sees crude at around $45 as “a temporary phenomenon” and predicts upward pressure on prices in the second half of 2015, he said Wednesday at the World Economic Forum in Davos. The agency’s latest analysis shows oil investments falling by $100 billion, or 15 percent, this year from 2014, he said.

The IEA, a watchdog for industrialised energy-importing nations, forecast last week that supply from non-OPEC producers would decline because of the price slump. The world will need 14 million barrels a day of additional supply by 2040 and a “big chunk” of that will come from the Middle East, Van Der Hoeven said.

The balance between supply and demand “is going to reset itself,” she said. “The market is very, very well supplied at the moment.”

China, the world’s second-biggest oil consumer after the US, continues to take advantage of low oil prices to build up strategic reserves, Van Der Hoeven said.

China has stockpiled enough oil to cover about five days of imports compared with at least 19 days for IEA members, she said. Reserves in IEA member states “are nicely filled,” and “there is a lot of interest in floating storage,” she said.