OPEC Solicits Industrial Nations to Ensure Future Demand for Oil
OPEC Nations' Concern Grows Over Growth of Alternative Fuels
By Walid Khadduri, Al-Hayat
Jun, 19th
 OPEC's in the redOPEC has raised the question of ensuring future demand for oil, especially with the announcement of plans by member states to invest tens of billions of dollars to provide additional oil production capacity.
in a statement to the 'Financial Times', OPEC Secretary-General Abdullah al-Badri warned of the effects of renewable fuels (atomic energy, solar, hydrogen and bio-fuels made from plants) on the economies of petroleum investments future.
The warning coincides with the plans of OPEC states to invest more than $200 billion in new oil projects till 2020, to increase energy production by nine million barrels per day (bpd) - compared to the current OPEC production capacity which amounts to 30 million bpd - having allocated in past years about $120 billion in additional investments petroleum, till 2012. They also tried to ascertain the availability of the necessary demand for oil for these huge investments, in the light of the persistent attempts of the industrialized countries to reduce use of oil derivatives.
It is noteworthy that Saudi Oil Minister Ali al-Naimi announced in Riyadh early this month that Saudi would increase production capacity to 12.50 million bpd by 2009, the rate planned at present, attributing the cause to the development of energy alternative programs.
The reply of Claude Mandel, Secretary-General of the International Energy Agency, whose agency represents the interests of consuming countries, to OPEC was his alleging that the "proportion of energy alternatives, specifically organic fuels, will remain limited in the foreseeable future". He demanded that "OPEC continues to increase production to reduce oil prices and meet growing global demand".
However, what worry the OPEC are the statements of industrialized nations these days about increasing energy production or productivity, which is very similar to what was circulated in Western capitals in the late 1970s-80s about the need for additional capacity, which actually recorded a surplus of supply compared to demand, this is how prices collapsed to their bottom level in 1986. With the difference that oil in that period was the chief fuel for power stations, the prices have deteriorated sharply now. Fuel oil is no longer used in new power stations, as it was replaced by coal, gas or nuclear energy.
There is also a new threat to the oil industry and its basic sector (transportation), which is still dominant while production of gasoline and diesel fuel (ethanol) now comes from plants. 10% of the gasoline used in the United State is made up of organic fuels today. The American Congress has also developed new projects to spend between $104 and $205 billion in the next 15 years to increase the production of organic fuel (ethanol). This will, of course, come at the expense of traditional gasoline, in the biggest global market for the consumption of oil.
Gasoline production from plants is not for free, though, as the production of organic fuel comes at the expense of the increased cost of food globally. The latest statistics from China indicate that the cost of food rose 3.4% in May compared to April last year. A conference of experts was convened in Sao Paolo in Brazil early this month to discuss the importance of this issue, but without any clear solutions related to the production of alternative energies that are cleaner than oil but do not threaten food security.
The American production represents 37% of the global production of ethanol, which depends on corn. Brazil comes second in the global production of ethanol, and its share of 35%, depending on sugar cane. China's proportion is 7.7%, followed by India with 7%. The result of the intensive use of corn in ethanol production, specifically in the United States, is that the price of the standard corn plant has gone from the traditional price of $2 to more than $4 recently.
Badri's statements also coincides with the American Senate discussion last week of the energy laws, which were aimed to reduce the consumption of crude oil in the United States by about four million barrels per day by the advent of 2020 (i.e., reducing American oil consumption by 25% from its current level of about 21 million barrels a day), and reducing the import of crude oil from abroad. Thus reducing gasoline consumption in automobiles, as well as extracting petroleum liquids from coal, and encouraging the production of organic fuel chart the road ahead. Moreover, the attempt to prosecute OPEC in US courts over its "policies that do not promote competition". This is an old threat the US courts rejected many times before.
What is OPEC requesting? What the Petroleum Exporting Countries want is to ensure a particular demand for its new oil production in exchange for the costly investments that will be carried out. Its demands, in fact, are similar to the demands of industrial nations, to ensure the continued flow of energy sources to their markets. Just as the demands of industrialized nations to ensure the security of oil supplies, oil exporting countries demand that oil demand be ensured and not replaced by other sources to make sure that these huge investments are economical.
Needless to say, the balance of power between the industrialized nations and OPEC states is not the same. But Badri did say in his interview with the 'Financial Times' "If we cannot establish the existence of demand, then our investments will slow down in the long term.". This, of course, if implemented, would lead to a large rise in prices.
*Dr Walid Khadduri is an energy expert.
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