Techfun

There has been a lot of rhetoric in the US political news all aimed at blaming OPEC for the energy aspects of our economic woes. For that blame to be deserved you have to:

• Forget the fact that the US invasion of Iraq reduced its oil exports.
• Forget that our military presence in Iraq and Afghanistan has introduced far more instability to the energy rich Persian Gulf region than was present when Bill Clinton left the presidency.
• Forget the fact that a 1997 provision in the U.S. tax code (Section 179) provided small businesses with a tax write-off of up to $25,000 for a vehicle weighing more than 6,000 pounds- used 50% of the time for work purposes and only a $7,000 deduction for smaller, more fuel efficient cars.
• Forget that in 2003, the Bush administration proposed increasing the tax deduction to $75,000 but the Republican legislators in Congress responded by expanding it to a whopping $100,000 as part of the $350 million tax cut package.
• Forget that Jimmy Carter warned us 30 years ago that over reliance on foreign sources of energy makes the US economy as a whole subject to market spikes like the one we are all living through now.
• Forget that Vice President Dick Cheney said “conservation may be a sign of personal virtue, but it is not a sufficient basis for a sound, comprehensive energy policy” and refused to use his position as head of the President’s Energy Task Force to include conservation and higher efficiency standards as part of the task force’s recommendations.

Its much easier instead to blame OPEC. After all, they are the ones with the oil and we need that oil. Doesn’t that mean they must pump as fast as they can to keep up with the ever growing demand from the US and China and India and Europe and everyone else who wants it? Saudi Arabia did not play a role in the “Green Revolution” in which we turned over vast portions of our food supply chain to industrial farming that is so dependent on petroleum and natural gas that corn wheat, and rice are hitting record highs when oil prices are doing the same.

Venezuela’s Hugo Chavez may call our president names, but help expand the “Hummer Loophole” in the US tax code that encouraged Americans to buy the biggest, heaviest, and most inefficient behemoths that Detroit could conceive.

OPEC nations are not huge recipients of non-military US foreign aid. Our “aid” to Saudi Arabia involves congress giving them permission to pay our defense contractors vast sums of money. Knowing all this, why do we feel entitled to dictate how quickly other soveriegn nations sell off a natural resource that is often their only source of wealth?

OPEC is not the US’s biggest source of oil. For that we need to look to our parters in NAFTA. Despite the vilification of OPEC in the news, they are not our biggest supplier. The problem right now is that NON-OPEC oil exporting nations are going to fail to keep supplies up with demand for the foreseable future as noted in the Financial Times story below.

Non-Opec producers face stalling output

By Carola Hoyos in Madrid and Javier Blas in London
Published: Jul 02, 2008

Countries outside the Opec oil cartel will barely be able to increase their production of crude oil over the next five years for the first time in the industry’s history, the western countries’ energy watchdog warned yesterday.

The International Energy Agency’s dim forecast to 2013 suggested record oil prices have yet to balance sluggish supply with relatively robust demand.

“Structural demand growth in developing countries and ongoing supply constraints continue to paint a tight market picture over the medium term,” the IEA said in its Medium-Term Oil Market Report.

Despite billions of dollars of investment, the challenge of pumping ever more oil out of ageing fields is proving so great that non-Opec countries will, in the next five year, have to rely on bio-fuels, such as corn-based ethanol, for 50 per cent of their growth in overall fuels.

The IEA said annual non-Opec supply growth, including biofuels, would slow to 0.5 per cent between 2008 and 2013. But demand, supported by rising incomes in developing countries such as China, would grow by 1.6 per cent a year.

Analysts warned the new forecast meant the world economy would rely more on Opec and oil prices were likely to remain elevated.

“Poor supply-side performance . . . in the face of strong demand pressures from developing countries has forced oil prices up sharply to curb demand,” said the IEA.

Crude oil prices moved more than $3 higher to $143.33 a barrel as the market digested the forecast. The IEA said that current prices, which hit a record high this week of $143.67 a barrel, were “justified by fundamentals”.

The fast decline of fields – especially in the North Sea and Mexico, where production is shrinking by more than 20 per cent each year – means that 14.8m of the 16m barrels of new supply from non-Opec countries over the next five years will only go to make up for losses from old fields producing less each year. Stagnant oil output in Russia is another key factor in lower non-Opec supply growth.

Nobuo Tanaka, executive director of the IEA, said in an interview: “In non-Opec countries we want to see more access to resources and more transparency of the legal system because we believe that . . . the underground resource is still there; the problem is above ground.”

Opec, meanwhile, is also struggling, with project delays constraining its ability to add new capacity. The IEA substantially downgraded its expectations for Opec crude capacity from 2008-2013, cutting earlier forecasts by 1.2m b/d.

The IEA said it believed Saudi Arabia was having bigger problems than the kingdom, the world’s largest exporter, was willing to admit to.

These fluctuations in oil supply come as demand growth is continuing, especially in the developing countries, whose oil needs are expected to have almost caught up with those of the rich world by 2013.