Slowdown triggers fears of cut in investment from Opec

The economic slowdown could send a signal to Opec producers to lower their investment, warns the International Energy Agency.

PARIS // The global economic slowdown could send a dangerous signal to Opec producers to lower their investment in oil production, the International Energy Agency (IEA) has warned.

The IEA forecasts that at least US$10 trillion (Dh36.73tn) of oil industry spending is needed to keep up with global demand.

The danger if investment falls short is more volatility in oil prices and tightness in supplies should the economy pick up, warned the IEA, which represents the interests of 28 industrialised nations from its headquarters in Paris.

"We see risks, particularly if producers perceive us to be in the throes of an economic slowdown," said David Fyfe, the head of oil industry and markets at the IEA. "What we're looking for is people to invest in the down cycle." Opec member countries are investing $312 billion over the next five years to bring 21 million barrels per day (bpd) of new capacity to the market, Abdalla El Badri, the secretary general of Opec, said last month in Dubai. Producers need to know there will be buyers for that crude, part of the organisation's target of maintaining a 40 per cent share of the market, he said.

Yesterday the IEA offered a more sober projection of Opec supply growth - 2 million bpd total over the next five years. About 1 million bpd of capacity needs to be added to world supply every year to meet demand growth, the IEA said. "There will be a lower investment in producing countries," said Didier Houssin, the IEA's director of energy markets and security. "It could be geopolitical uncertainty, it could be a lower oil price or a strategy for there to be less investment and to put more money in other parts of the economy.

"We will need a very high level of investment in Opec countries. If that level of investment were jeopardised, it could have a serious effect on the security of supply and on oil prices." Brazil, Russia and countries off the Caspian Sea and North Africa are all bringing on new capacity.

"There is significant contribution coming from non-Opec growth," Mr Fyfe said. "Over the medium and longer term, greater reliance on non-Opec supply is a fact of life."

Meanwhile, the return of Libya's crude, which was all but wiped from global markets during its civil war, remains uncertain.

The loss of its 1.6 million bpd of highly valued sweet crude was one of the factors that sent the oil price as high as $126 in April.

Yesterday Brent crude, the European benchmark, was trading around $112. The IEA has projected that Libya will revive 600,000 bpd by the end of the year.

"We're dealing with very waxy crude in Libya, and if there are protracted delays by the end of the year in getting facilities back online, that could be a problem," Mr Fyfe said. "It's going to be a while still before we can be very confident about the levels of production to come from Libya."