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Oil price slide tests unconventional oil producers - IEA

Falling crude prices are an unprecedented test for producers of unconventional oil and a golden opportunity for governments to phase out costly subsidies, the head of the International Energy Agency (IEA) said on Monday.

Global benchmark Brent crude has dropped by around 40 percent since June. Selling accelerated last week after the Organization of the Petroleum Exporting Countries decided against output curbs to support the market.

"The economics of unconventional oil have never been tested in this way before," IEA Executive Director Maria van der Hoeven said in an interview.

Unconventional oil is produced through techniques other than conventional crude extraction. It includes crude produced from shale oil and oil sands.

She said investment was needed in oil to offset the decline of mature fields and cope with demand growth, led by Asia, and it was too soon to say whether that would be forthcoming.

"Breakeven varies from block to block," she said. "Light tight oil producers in the U.S., Canadian oil sands are achieving impressive cost savings. We have to wait and see."

At the same time, the IEA is pushing for more efficient use of fuel and a changed energy mix, including carbon-free nuclear and renewable generation.

"It is not the moment for policy-makers to forget the big picture. They should seize the opportunity to adopt some kind of carbon tax and to phase out fossil fuel subsidies," van der Hoeven said.

Indonesia has already announced a deep cut in subsidies, helping to address the nation's biggest fiscal problem - a $23 billion fuel subsidy bill.

Globally, fossil fuel subsidies amounted to $550 billion in 2013, the IEA said.

Major economic thinkers, such as the World Bank, have lent their voice to calls to phase out fuel subsidies, which encourage energy waste and tend to benefit the car driving higher classes rather than those most in need.

Van der Hoeven was in Brussels for the launch of an IEA review of EU energy policy and to meet European Commission officials.

She said the EU had work to do to complete its single energy market and reinforce its Emissions Trading System to remove a surplus of permits that has pushed the cost of allowances down to around 7 euros per tonne, too little to encourage low carbon fuel.

Van der Hoeven would not be drawn on the precise date when the EU needs to bring on a proposed carbon market reserve to remove the glut of allowances, but said speed was crucial.

Published on:
December 1, 2014
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