OPEC and climate change

Being the major producer of fossil fuels which are the single important contributor of carbon emissions, OPEC role in climate change is pivotal. The key to reducing greenhouse emissions is the use of renewable and alternative energies and less use of polluting fossil fuels. Whilst OPEC has to ensure the future profitability of its oil revenue, it at the same time wants to be perceived to be an advocate of climate change issues.

Change in OPEC stance

In the early 2000s when climate change starts to gain global attention, there were initial rumblings among members of OPEC. There were fleeting suggestions of compensation for schemes like carbon trading and carbon tax that would have reduced the attractiveness of crude as a fuel source. OPEC wanted an assurance that even as it invested in its capacity, future demand would be assured.

Over the past decade, even as climate change talks stagnated and gained more prominence, OPEC has changed its stance. In 2007, it adopted a $3b climate change fund to fund research in carbon capture and sequestration (CCS) technology, especially in the area of enhanced oil recovery. This research is envisaged to reduce the carbon emissions from the use of fossil fuels and increase its attractiveness. Such technology is more suited for immovable facilities like power plants and industrial facilities (eg refineries). At the moment this technology is prohibitive and will be cost effective only if carbon price reaches more than $60/tonne. (Comparatively, the present EUA on the european trading scheme is about $22 at time of writing.)

The electric vehicle and transportation fuels

The advance of CCS technology is not likely to make an immediate significant reduction in carbon emissions due to the exorbitant costs to modify existing industrial facilities, and potential fuel switching to the less pollutive and cheaper natural gas.

A recent Apr 2011 report by the IEA highlighted the progress of the use of renewable fuels. However, since the strong production growth of 2010, its growth (including bioethanol and biodiesel) has slowed to less than 2mb/d. The use of such biofuels is also strongly dependent on mandates and subsidies, making it an unattractive proposition.

An analysis of the usage of fossil fuels indicates transportation fuels to be the main demand driver. Gasoline, jet fuel and diesel constitute 21.3 mb/d, 6.9 mb/d and 21.2 mb/d or 55% respectively of 90 mb/d global demand (notwithstanding bunker fuel which will change to use marine diesel in the next decade).

It is the advent of the electric vehicle that may potentially displace the major use of transportation fuels and thence fossil fuels. It is this area that OPEC will probably be watching. The use of such vehicles will take time to filter through as old vehicles are replaced. Further it requires infrastructure to be built for the re-charging and maintenance of expensive batteries.  A research by Goldman Sachs estimates this revolution to slowly take place over the next 5-10 years. For its use by the mainstream consumer, this will take an even longer time.

In the interim period, the insatiable global demand for crude oil from the emerging economies is expected to increase, creating a temporal period of imbalance in demand/ supply. The world is not going to wean itself of dependence on fossil fuels in the medium term. This will continue to incentivise OPEC to invest in existing capacity.

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  1. rogerthesurf
    April 17, 2011 at 10:15 am

    If we are forced to follow the IPCC assertions with regard to CO2 emission reductions, the price of fossil fuels (including oil) will soar and OPEC and co will enjoy equally soaring margins with the ability to reduce production.

    Funny:- Isn’t that what they have been striving to achieve for the last 35 years or so?

    Cheers

    Roger

    http://www.rogerfromnewzealand.wordpress.com

  2. April 18, 2011 at 8:49 am

    In parallel to alternative energy & renewables, the technology is already with us to serious reduce our dependency on fossil fuel. However the mindsets required to achieve the desired outcomes are missing. Selfishness & Greed in the society and in the leadership are the root causes.
    Imagine if all cars in USA run at 15 km/l + (conservative and achieveable in many countries) instead of current 7-9 km/l. Behavoural changes and political wills to see this thru are the main stumbling blocks. If achieved, this will mean reduction of oil demand in USA by about 25 % or 5.5 mil b/d. This is almost equivalent to the demand of the whole country of INDIA….with population of 1.1 billion people.
    This will surely shake up the oil supply/demand picture; hence the oil price hike perhaps.

  3. rogerthesurf
    April 18, 2011 at 11:35 am

    And how do you compell everyone to drive slowly and use a small car? Authoritarian government maybe? Oh I know, let the price of fuel rise so that most people have no choice. Pity that heating fuel etc will go up as well.
    If you are north of the sunshine states, what do you set your thermostat to in the winter?

    Cheers

    Roger

    http://www.rogerfromnewzealand.wordpress.com

    PS are you a subsistance farmer then?
    If so look after your horse.

  4. April 19, 2011 at 8:30 am

    cheeky cheeky… various countries in europe have already moved into driving cars with good & low consumption, and with only slight differences on speed and size.
    These are not authoritarian govts. The people went for the change, partly due to the hi-prices, but mainly becos it makes sense. In USA, its missing the mindset and will to do it, probably due to cocktail of “liberty, greed & selfishness”.

    • rogerthesurf
      April 21, 2011 at 4:42 pm

      Why do you describe the wealth that generations of americans have worked and fought so hard for so that we may have a reasonable life as “liberty, greed & selfishness”?
      I seem to recall that america was populated by people fleeing the oppression in Europe so why should americans feel guilty about their wealth?

      Now if they were wealthy through repressing the common majority I would agree with you, but the one thing about america that it has, as far as is possible, equal opportunity for all.

      If the economic cost of reducing CO2 emissions the 57% approx, which the IPCC is saying is necessary, was to reduce you, your family and your society to poverty and starvation, what would your attitude to reducing CO2 emissions be?
      Cheers

      Roger

      http://www.rogerfromnewzealand.wordpress.com

  5. May 3, 2011 at 10:47 pm

    Having created the wealth and reaching the status of consuming more than 60,000 barrel per day per 1000pop for usa, and 30,000 b/d per 1000 pop for europe, do you expect the developing areas (china, India, and other emerging regions) to remain at consuming less than 8,000 barrel per day per 1000 pop…..?
    Think well and ponder deep before you reply with facts and not rhetorics.

  6. rogerthesurf
    May 4, 2011 at 7:18 am

    “do you expect the developing areas (china, India, and other emerging regions) to remain at consuming less than 8,000 barrel per day per 1000 pop…..?”

    Of course not, they have as much right to wealth as we do.

    Your point is?

    Cheers

    Roger

    http://www.rogerfromnewzealand.wordpress.com

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