Oil price must foster costly investment: IEA chief

By Osamu Tsukimori

TOKYO (Reuters) - Oil prices should be high enough to foster sustained investment in a range of new sources including costly projects like tar sands, the head of the International Energy Agency (IEA) said on Friday.

"The cost of investment is different by region or country," Nobuo Tanaka, executive director of the agency that advises 28 industrialized countries, said two weeks before producer group OPEC holds an emergency meeting to discuss the oil market.

"In the oil sand or tar sand production, we'd say the marginal cost of a barrel is about $70-$80 (a barrel). On the other hand, in the Middle East producers, the cost is much less.

"We need to maintain the level of investment. I can't tell you what is the proper price level, but I strongly believe that the price signal must satisfy these different needs in the energy sector," Tanaka told Reuters in an interview.

The Organization of the Petroleum Exporting Countries has called a meeting on November 29 in Cairo in response to a fall in oil prices from above $147 a barrel in July to below $60 this week, which is largely due to falling demand linked to the credit crisis.

Iran's OPEC governor was quoted as saying his country would back an output cut and an OPEC delegate said on Friday the group would probably need to cut 1.5 million barrels per day.

As a representative of consumer interests, the IEA voiced concern earlier this year about high oil prices. But it has also repeatedly argued that excessively low prices could discourage investment in production, with serious implications for supply in future, once the global economy recovers from the slowdown.

There have already been delays in expensive projects including oil sands schemes in Canada, where oil is abundant but difficult to extract.

Tanaka did not say what the IEA considered to be a desirable oil price.

"The market situation is certainly improving because of the demand slowdown. In the coming months the important element is the weather. Is it a colder winter or normal winter? I wish that OPEC will take a closer look at the market situation and make a proper decision."

The IEA this week estimated the world needs investment of more than $26 trillion in the next 20 years to ensure adequate energy supplies, an increase of more than $4 trillion from estimates in its 2007 World Energy Outlook.

GROWTH TOUGH TO PROJECT

Tanaka said it was "very difficult to project" whether the global oil demand growth may turn negative in 2009.

The IEA on Thursday slashed its 2009 global oil demand growth forecast to only 350,000 barrels per day (bpd) -- down 340,000 bpd from the IEA's prediction a month ago.

Tanaka said much hinged on forecasts by the International Monetary Fund, Organization for Economic Cooperation and Development and World Bank.