IEA Concerned Over OPEC Plans

The International Energy Agency (IEA) said on Wednesday that it was concerned OPEC oil supply curbs were not factoring in leeway for an expected pick up in the oil demand in the second half of this year.

OPEC oil exporters agreed in March to uphold output limits of 21.7 million barrels per day (bpd) at least until June to rescue sagging oil prices, and the cartel's heavyweights intend to stretch the strict supply curbs into the third quarter.

OPEC meets on June 26 to chart policy for the second half of the year.

"We are rather concerned that the (OPEC) producers have not yet allowed sufficiently for the growth of demand which is expected to occur during the remainder of this year," Robert Priddle, executive director of the west's energy watchdog, told reporters.

"The rate of increase in demand in the second half will be quite fast, even to get to the level of 400,000 bpd to 500,000 bpd which we all expected for this year," said Priddle, who was visiting Seoul for a briefing on an IEA review of South Korea's energy policy.

He said OPEC needed to increase production to meet the growing demand, pointing out current oil prices around $25 per barrel were high enough.

"We don't yet know what they will decide, although there are many indicators they think present level of production is adequate," he said.

"The level of increase of non-OPEC production is going to need to meet increasing oil demand," said Priddle, referring to Russia and Norway who were not expected to continue to impose restrains on production.

Russia has said it would no longer restrict exports as prices were above its $20-$25 target range and Norway too has said there was no reason to extend the cuts beyond June if prices stay in their current range.

Meanwhile, the IEA yesterday praised South Korea's performance in energy market reform and urged the government to set and stick to a firm timetable for market liberalisation.

South Korea is privatising its power and gas sectors beginning this year under a broader public-sector reform scheme, a key policy aim for the President Kim Dae- jung in the run up to a presidential election in December.

"The government deserves credit for the ambitious reform policies it has formulated and implemented in the electricity sector, and now in the gas sector," IEA said in a statement.

"The most important are that the government set and adhere to a firm timetable for market liberalisation, and that it establish a regulator fully independent from the government," it said.

The IEA review of the country's energy policies came during a five-day visits to Seoul by IEA executive director Robert Priddle. South Korea, the world's fourth-largest importer of crude and oil products, became the 26th IEA member in March.

In April 2001, Seoul spun off the power generation division of state-run power monopoly Korea Electric Power Corp (KEPCO) into six units, of which five thermal power units are being sold off from this year.

The sixth unit, covering both nuclear and hydro power generation, will remain under state control.

Priddle told reporters that the government should give a clear indication of how the nuclear unit will affect competition as plans for the state-owned sector would affect investment plans in the private sector.

Nuclear power supplies about 40 per cent of South Korea's total power demand while coal-fired and gas-fired power the remainder.

In contrast, the break-up of the import and wholesale division of state-run Korea Gas Corp (KOGAS) into three entities, and the sale of two of them by the end of this year have not moved ahead as the plans require parliamentary approval.

"KOGAS should be privatised without delay, and without prejudice to existing KOGAS shareholders," the IEA said.

"Uncertainty about future plans could negatively affect investment."

The IEA review commended steps taken to diversify supply and other reforms, but called for more attention to energy efficiency in a country which consumes twenty percent more energy per inhabitant than the average of European OECD countries and almost double the energy per unit of GDP.

"The energy intensity of the Korean economy needs to be reduced substantially. Energy efficiency must be given higher priority," the statement said.

Priddle said that establishing prices that fully reflected costs would go a long way towards improving efficiency, in particular, for electricity sold to industry.

He said South Korea's policy on energy security -- referring to diversification of energy sources, namely increasing use of natural gas, and sufficient oil reserves -- met IEA standards. "Oil stocks are at a comfortable level, above IEA standard and oil stocks are in high quality," Priddle said.

South Korean oil reserves held by both the government and the private sector are equivalent to 96 days of consumption, above an IEA-set 90-day consumption. South Korea imports all of its crude and natural gas requirements.

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