IEA head sees high oil prices for at least 2-3 years

Gold Coast, May 8: International Energy Agency (IEA) director Claude Mandil said on Monday he expected oil prices to remain high for at least two to three years because of high global demand and tight supply.

Mandil told reporters on the sidelines of an oil and gas conference in Australia that companies were still not investing enough in exploration to grow or even maintain present insufficient production levels to keep pace with demand.

''It's a stretched market with lots of demand ... we're probably in for high prices for a while now, for at least two to three years, except if consumers can be more efficient in their consumption,'' he said.

Mandil added that oil companies had to take high demand levels -- which have seen oil prices set new records above a barrel in recent weeks -- as a given, and accelerate their exploration programmes to make up for a period of under-investment.

''They have not invested enough for the last 20 years,'' he said. ''This is a cyclical business. We had low prices in the 1990s which was unfortunate for investment in future production.'' ''We now have accelerating investment, but that will not [see] results overnight,'' he said.

Turning to Australia, Mandil said new exploration in the country was backed by abundant reserves, a stable policy regime and an open investment climate.

Still, he warned Australia's fiscal regime was less conducive than others to encouraging investment, and saw tightness in the labour and transportation market as barriers to new investment.

''More oil will be found, if not in Australia then elsewhere in the world,'' he said. ''The risk is that we depend on a more limited number of countries which means less security of supply and high prices again.'' The IEA chief advocated the use of alternative energy sources to fill the supply gap, saying nuclear energy would undoubtedly account for a higher share of global electricity generation as it continued its renaissance as a low emissions form of power.

Mandil was also a strong supporter of the expanding ethanol industry, but saw more cost-effective scales of production in less-developed countries, rather than Australia -- which also aims to be a major ethanol producer.

The sugar-based alcohol can be blended with petrol to produce a more environmentally friendly fuel.

''Ethanol and bio-fuels can play a major role but I hope it is done cost-effectively,'' he said. ''The best places for that would be places like Brazil and India and ethanol can then be imported from those countries.

Mandil was more bullish on ethanol than natural gas as a long-term solution to short fuel supplies, saying surging prices demonstrated one of gas' key difficulties.

''It's (gas) a partial and costly solution,'' he said. ''It's difficult to have a new system for distribution, which is not the case for something like ethanol, so I don't think it's such a long-term solution.''

Reuters