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By Robert Rapier on Feb 12, 2010 with no responses

OPEC Wants Certainty

First OPEC wanted to be compensated if climate change legislation costs them revenue, and now this:

OPEC: give us certainty to invest

You only get a small preview of the following story, but I found the bit that is accessible to be pretty humorous:

OPEC’S producers need greater certainty over long-term oil demand if they are to justify upstream investments to bring new production capacity on stream, says the group’s secretary-general. In an interview with Petroleum Economist, Abdalla El-Badri reiterated Opec’s message that greater clarity about demand is necessary if the world expects Opec’s exporters to continue investing in new output capacity.

Uncertainty over demand yields a startling gap in the group’s 10-year outlook. Opec says demand for its crude in 2020 could reach 37m barrels a day (b/d) – up from 28.8m b/d now – or remain almost flat, reaching just 29m b/d.

It’s a dilemma, because the additional investment needed to meet the higher figure amounts to $250bn, says El-Badri. “We could use that money somewhere else; in our infrastructure or for the welfare of our people.

Sorry, but that’s just not the way the world works. All businesses would like some certainty about demand. If GM had some certainty about demand, they would never have had to declare bankruptcy. They could have just built the cars that would be demanded. But the best you can do is try to estimate where demand will end up, and make your decisions accordingly.

However, I will give some free advice. I don’t believe the world will be able to build out enough crude oil capacity to keep up with demand. (Even if demand remains flat, new capacity has to come online to compensate for depleting fields). I don’t believe biofuels can scale up enough to displace more than a small fraction of our oil consumption. I believe demand from China and India will continue to grow. I believe that oil production will soon peak (if it hasn’t already). And I believe that a lot of projects have already been delayed or canceled, increasing the likelihood of a return of supply/demand imbalances within a few years. If my musings are correct, upward pressure will continue to be the trend in oil prices, and countries that have export capacity will make a lot of money.

So nobody is going to give you certainty on demand (in fact, most people are likely to be appalled at the idea), but if it were me I would make the investments in capacity. Even though many countries will continue to attempt to migrate away from oil, demand for oil will remain strong for many years to come.