IEA says Iranian oil can be replaced but capacity tight

IEA says Iranian oil can be replaced but capacity tight

Doha (Platts)--22Apr2006

The International Energy Agency's top two officials said Saturday that
the world could cope with the possible loss of Iranian crude oil with stocks
enough to replace any loss in Iranian exports for 'some period of time' though
the shortfall would affect oil markets.
Claude Mandil, executive director of the IEA, the oil consumer watchdog,
said the agency's 26 members hold four billion barrels of strategic crude oil
stocks. "If you want exact figures, we have four billion barrels of stocks and
Iranian exports are 2.7 million b/d, that makes four years," he told reporters
on the sidelines of the 10th International Energy Forum, a biannual forum for
producer-consumer dialogue.
"Of course we don't think that we would be happy to totally exhaust our
stocks," Mandil added.
When asked what he considered decent spare capacity, he replied: ?The one
we really enjoyed four to five years ago, that means four to five million
b/d."
Current spare capacity is running at just over 2-million b/d, the bulk of
which is held by OPEC kingpin Saudi Arabia, which can produce up to
11.3-million b/d if needed. Current production is running at around
9.5-million b/d.
Earlier, IEA deputy executive director Bill Ramsay said the world could
cope with the loss of Iranian crude oil though the development would cause
tensions in the market and contribute to the factors he said had given rise to
the "perfect storm" and led to $75/barrel oil.
"We have made the point already. Iranian oil can be replaced for some
period of time," Ramsay told Platts in an interview in Doha on the sidelines
of the conference. "Not that we would not have tensions in the market," he
added.
Ramsay said the recent rise in crude oil prices to new records on global
futures markets was partly caused by a shortage in refining, "partly
geopoliics, partly robust growth. It is so many things that you can't say one
is the answer."
But he added that OPEC was unable to add more crude oil to the markets
because its members produce mainly heavy, sour grades that are not the right
types of crude to respond to heavy demand for gasoline-rich lighter grades
with Saudi Arabia holding the bulk of the incremental barrels of mainly sour
crude.
The shortage of sweet crudes has been exacerbated by the loss of 20% of
Nigerian oil production because of militant action.
"We are struggling right now with the Nigerian loss because most of the
incremental crudes don?t fit the specs," Ramsay said, adding that this was a
particular issue because of the onset of the summer driving season in the US,
when demand for gasoline rises sharply. The shift away from MTBE to ethanol as
a oxygenate in the US is expected to lead to supply disruptions in some US
states.
Furthermore, the steep market contango was encouraging companies to hold
stocks, Ramsey said. "Operators are holding stocks rather than releasing
stocks. With the contango market plus the geopolitical risks, people have a
tendency to retain stocks rather than put on the market," he said.
Another concern on the supply side has been Russian production, which is
running at a near record level above 9.5 million b/d. Mandil said last month
that he was concerned Russian output may have peaked and will decline over the
next decade.
"That is part of the tension on the market," said Ramsay but he added
that he believed declines in production by some Russian companies had
"bottomed out."
"Given these prices, they will be looking at ways to expand their
capacity," he said.

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