Peak Oil News: OPEC still sings same tune

Wednesday, May 11, 2005

OPEC still sings same tune

David Lazarus

And now a brief word on oil prices from our friends at OPEC:

They're fine right where they are, thank you very much.

In fact, we think we're providing you more than enough oil, so we're not going to increase production even though the United States, the world's largest oil consumer, is entering its peak driving season.

"We believe there is 2 million barrels per day of overproduction in the market," the president of the Organization of the Petroleum Exporting Countries, Sheikh Ahmed Fahd al-Sabah of Kuwait, was quoted as saying this week.

Added Iran's oil minister, Bijan Namdar Zangeneh: "The market situation is good."

In reality, said David Goodstein, a physics professor at the California Institute of Technology and author of "Out of Gas: The End of the Age of Oil," we're nowhere near a good market situation.

"There's very little excess capacity," he said. "Everyone is pretty much maxed out in terms of production."

Yet that's not the song OPEC has sung year after year.

In November, after oil prices topped $50 per barrel for the first time, Iran's OPEC governor, Hossein Kazempour Ardebili, said the organization should slash production because there was more than enough crude on hand.

"The market is currently oversupplied by 2 million barrels a day," he said, using the same questionable figure trotted out this week.

Earlier, in April 2003, OPEC was fretting because oil was trading near $22 per barrel, the lower end of the organization's preferred trading range (it was more than double this price at $52 on Tuesday). OPEC officials urged cutbacks in production.

"The market is facing a surplus today, not a shortage," the organization's then-president, Abdullah bin Hamad al-Attiyah, said at the time.

Prior to that, in December 2002, then-OPEC General Secretary Alvaro Silva Calderon said the organization may need to reduce production because, well, there was too much oil around.

"The market is oversupplied at the present time," he said.

Nearly two years earlier, in January 2001, the Saudi oil minister, Ali Naimi, said production would need to be throttled back because -- you guessed it -- too much crude was flooding a thirsty world.

"We think the market is oversupplied," he said. "We are here to steady the market."

Before that, in December 2000, President-elect George W. Bush was calling on OPEC to "open the spigots" and bring down oil prices.

Then-OPEC President Ali Rodriguez of Venezuela replied that there was no need to do this because, yup, there was plenty of oil to go around.

"At the moment, there is an oversupply of oil," he said.

And so on and so on.

I wrote last month about peak oil, the inevitable moment when global oil production hits its peak and, from that point on, reserves are on an ever- dwindling downward spiral.

Peak oil means prices will push higher and higher in the face of surging demand. This in turn will have a catastrophic impact on oil-addicted economies worldwide and, according to some prognosticators, will lead to wars over remaining supplies.

Despite OPEC's persistent and almost laughable declarations that the planet is burdened with a glut of oil, many analysts say we'll reach peak oil at some point during the next decade (if we haven't already).

Oil prices -- and, in turn, the price of virtually everything else -- will continue to rise until world economies hit the breaking point.

"We're playing with the future of our civilization," said Caltech's Goodstein. "We could soon find ourselves without oil or anything to substitute for oil."

He says OPEC keeps going out of its way to create an illusion of excess capacity as a means of deterring investment in alternative energy sources.

"If they can keep people believing they can flood the market with cheap oil anytime they want, no one will pursue alternatives," Goodstein said. "But it's just a myth. Supplies are very tight."

Yet each year that passes without a serious commitment to ameliorating this situation is another that pads the pockets of OPEC and other oil producers at the expense of, well, all of humanity.

"Every year we waste is another really important year lost," said Matthew Simmons, chief exec and chairman of Houston's Simmons & Co. International, the world's largest investment bank focusing on the energy business.

He says we may have already reached peak oil and should be aggressively working to prepare for the unavoidable consequences.

"Solar and nuclear and wind are all very important, but they're not the answer," Simmons said. "None of them will be able to replace oil."

Basically, he doesn't know what the answer to our energy dilemma may be. He just knows that some new discovery or technology will almost certainly come our way -- as long as we manage our resources wisely until it gets here.

That means investing in alternative fuels like solar and nuclear power as a stopgap until that miraculous new energy source arrives. It also means promoting conservation and efficiency in both industry and daily life to get the most out of our waning oil supply.

"We need to do everything at once so we have the ability to fail at one or two things along the way," Simmons said. "The most important thing is that we need to buy ourselves some time."

And time, like oil, is running out.


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