By Peter Odell, Professor Emeritus of Erasmus University at Rotterdam Published: September 19 2000 13:13GMT | Last Updated: September 19 2000 18:50GMT Oil supply and price remains an issue of power politics, rather than of economics, let alone of reserves and resources awaiting development. Claims that current high prices indicate a world running out of oil have no credibility. On the contrary, it is running into it. The US Geological Service estimates that over 2,000bn barrels of conventional oil remains to be used, compared with only 800bn used to date. Including the still almost untouched non-conventional reserves, world oil production can go on expanding at 2 per cent per annum until after 2050. This reflects the most recent dramatic improvements in upstream oil technology: not only enhancing discoveries and production, but generating large cost savings, especially in more challenging environments, such as deep offshore waters;and in enhanced production techniques (now expected to enable up to 85 per cent of oil in place to be recovered). These developments reduce the long-run supply price for oil, so if economics were the main variable, prices would not have increased since 1998. It is politics that have caused price increases. The US wanted higher prices to counter a serious threat to the global economy from loss of revenues by oil-dependent producing countries, particularly Russia, and exerted pressure to achieve them. But since the price upturn in March 1999, the US and its G7 allies have simply failed to take appropriate additional policy steps to stop the price going too high. Rather, they have allowed market forces to operate in the context of serious disinformation over supply potentials, stock volumes and demand developments. First, additional production potential has been understated, not regarding OPEC output, but also that of companies with equity oil, not least in the North Sea. Yet there has been no hint of any government pressure on the companies concerned to boost their output. Second, stocks held by OECD countries are not at "their lowest levels since the 1970s". Quite the contrary: they are close to an all-time record high. There are currently some 3.750bn barrels of oil in stock, making a drawdown of one million barrels per day eminently possible. Third, demand for oil has not been booming. Since 1998 the global use of oil has grown by only 2 per cent in response to higher oil prices and to the higher taxes on that oil. The latter are an important tool in so constraining demand; and thus not only in controlling price levels, but also in limiting CO emissions. In these respects, the UK has a bad record. Taxes on domestic, commercial and industrial oil use range from zero to a maximum of under 25 per cent: compared with tax rates of 5-150 per cent in Europe's other five main oil-consuming countries. Indeed, if one also takes taxes on gas and electricity into account, the UK has by far the lowest energy tax regime of the six countries; and thus makes the least contribution to restraining use and to keeping down the price of oil. In other words, UK policy more closely reflects its role as an oil and gas producer and exporter. Public debate on the issues involved would be improved were this policy choice to be made explicit. _______________________________________________ Crashlist resources: http://website.lineone.net/~resource_base To change your options or unsubscribe go to: http://lists.wwpublish.com/mailman/listinfo/crashlist
