(Updates throughout)

By Barbara Lewis

DAVOS, Switzerland, Jan 29 (Reuters) - Energy leaders at the World Economic Forum debated the true cost of fuel on Thursday as they grappled with the implications of world recession and how to navigate out of it.

Record-high oil prices close to $150 a barrel in July last year added to the pain of economic slowdown, and now much cheaper prices of near $40 a barrel could help the global economy to rally.

But for consumers, producers and the planet, oil at that level could be too cheap as it slows investment in new supplies of fossil fuel as well as in alternative energy.

Saudi Arabia, the world's leading oil exporter, said late last year $75 was a fair price for crude -- at the top end of the $60-$80 a barrel many in the industry consider a desirable level.

"That seems to be what you need to get investment," BP <BP.L> Chief Executive Tony Hayward on Thursday told the forum in Davos, with reference to the $60-$80 range.

To help push prices back to that level, the Organization of the Petroleum Exporting Countries has agreed to cut 4.2 million barrels per day (bpd) from September output levels.

Supplier of roughly a third of the world's oil, the producer group has strictly enforced those curbs and said it was ready to cut more if the price remained low. OPEC ministers next meet to assess output policy on March 15 in Vienna.

"OPEC will not hesitate ... we are still reviewing," the group's Secretary-General, Abdullah al-Badri, said. "Even with $50, we cannot have a decent income for our members."

Nobuo Tanaka, executive director of the International Energy Agency, which advises 28 industrialised countries, agreed consumers would eventually have to pay more.

But low prices could aid a world economy that the International Monetary Fund has said will be near a standstill this year.

"To stimulate the economy, you need a low price, but to stimulate investment long-term the price should be higher," Tanaka said on the sidelines of the forum.

"In the mid to long term, oil prices will go up."

ENVIRONMENTALLY FRIENDLY

Many attending the Davos forum have strived to maintain the momentum to couple economic recovery with green policies, and Tanaka said any financial stimulus package should be as environmentally friendly as possible.

"If governments are spending ... for a stimulus package, why not spend it on renewables?" he asked.

"It stimulates the economy short-term and in the long-term is sustainable. You kill two birds with one stone."

But, in times of financial crisis, it is a huge challenge to switch the focus from short-sighted survival, which can mean using the cheapest, most polluting fuel.

The IEA is studying the implications of economic recession for energy and the agency's chief economist Fatih Birol said he was worried.

In the short-term, fuel use in general has fallen, but the risk was that would be offset by greater use of highly polluting coal -- because it is cheap -- and by lower investment, he said.

"It's bad news for the long term. Many renewable, nuclear and efficiency projects are being postponed," he said.

"The long-term impact is that emissions will go up if governments don't do something."

Industry executives also said investment in the cleaner kinds of energy, as well as in oil, was bound to decrease.

Nuclear power has many detractors because of the toxic waste it generates, but it can provide huge amounts of energy without producing carbon emissions.

The high cost of bringing on new reactors means nuclear energy is only competitive when oil costs about $70 a barrel, analysts have said.

"We can be part of the solution or we can make more problems. If we will not get a proper return, we will not make the investment," said Ignacio Galan, chief executive of Spanish utility Iberdrola <IBE.MC>, which has announced reduced capital expenditure plans for 2009 compared with 2008.

"If the price of oil is low, nuclear cannot compete. It's the same thing with hydro," he told Reuters. (Editing by Jim Marshall)

AlertNet news is provided by