Days of Cheap Oil are Over
Posted: Sunday, July 4, 2004
By Stephen Kangal
America's continuing quest and strategising for achieving a cheap oil-based energy security might well be abandoned. It must learn to live with the vicissitudes of petro-politics and end its efforts to manipulate external events. Energy security considerations constituted the real basis for US military intervention in Iraq (2-5m bpd) as well as covert interference in the internal affairs of Venezuela (15% of US supply) to foment the overthrow of democratically elected President Hugo Chavez.
The Anglo-American euphemistic Coalition invasion of Iraq was premised on the target of flooding the world market with 5m bpd of cheap Iraqi oil so as to dismantle the strangle hold of OPEC, the oil cartel. The opposite has happened with oil prices since May 2, 2003 (end of Iraqi war) powering to over a 50% increase and 25% since January 2004. Bush, Blair and Brown were instead groveling before OPEC oil Ministers to increase production at the recent Beirut OPEC summit.
The current 21-year record-breaking hike in crude prices breaching the psychological $40.00 barrier is not exclusively the result of a supply shortfall that can be effectively stabilised by OPEC's 2.5m increased production effective 1 July. This oil supply crisis is multidimensional. Producers obviously did not foresee increasing consumption in post-recession-USA (25% of world's energy), China (11% increase in oil consumption in 2003 and 25% since Jan.2004) and India (750,000 bpd increase in consumption). In fact rumour has it that OPEC is already pumping 2m bpd in excess of its agreed quota of 25.4m bpd. OPEC is a swing producer of one-third of the world's production of 72m bpd.
Real fears of continuing terrorist attacks/regime change in Saudi Arabia and Southern Iraq and consequent disruption of supplies have alone spiked the oil price by US$8.00. The fear factor is reinforced by the lack of increased refining capacity in mainland USA and production capacities in OPEC. Only Saudi Arabia, Kuwait and UAE enjoy increasing production/storage flexibility. Hedge funds have also invested in anticipation of expensive oil.
OPEC must be wary of ushering another 1997 oil-price debacle (shock) when oil price plummeted to $10.00 as a result of the Asian crisis. It was then that OPEC set the current price range of $22- $28 that obviously does not hold. OPEC although a swing producer/price fixer does not dominate the oil market as it did when it accounted for 50% of world's production. Non-OPEC producers now double OPEC's own 26m bpd.
Saudi Arabia has always pursued a moderate and sensible oil policy based on an appreciation of the adverse long- term effects of high crude prices. High prices in the 70's/80's made North Sea/Gulf of Mexico/Norwegian/Russian oil feasible and profitable. The search for cheaper alternative sources of energy (LNG, HEP, wind etc), more efficient uses of energy, reduction in consumption patterns, stimulation into commercial production of abandoned marginal fields are the strategic market responses to escalating oil prices.
In the face of current energy demands/prices that are beneficial to T&T, Parliament/T&T electorate must become energy-wise and fully apprised of the vagaries of the oil market and T&T's ultra- dependence on our non-renewable oil and LNG resources. T&T is emerging as a world player in the energy sector that cannot justifiably be shrouded in meetings behind the closed doors of commercial secrecy and confidentiality. Our Budget- our very bien etre- is oil-price based. Our patrimony now includes world-class plants in methanol, urea, LNG and to a lesser extent iron and steel all based on our hydrocarbons. Aluminium is in the gas pipeline but on a very tenuous bauxite ore supply line. We are a world energy player supplying 77% of America's LNG - the environmentally-sound fuel. In fact Guyana will be establishing an alumina plant with Russian assistance.
We Trinbagonians must be consulted and through Parliament brought into the energy equation. We refuse to be treated with scanty respect and contempt as if we do not matter by telegraphing to us that our role is constricted to staining our fingers red once every five years. Union villagers and Santa Cruz residents must have the support of all true patriots concerned with the transformation of our lives without meaningful consultations by secretive Cabinet dictats.
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