OPEC Move Over:
The "Green-Eyed Sheiks" Are Coming to Town


Michael H. Glantz
14 July 2008

 

 

OPEC, the Organization of Petroleum Exporting Countries whose members include Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates, and Venezuela, has considerable control over the price of oil. As a result, at times when consumers become dissatisfied with the price they have to pay for energy (oil or natural gas) and reduce consumption, the OPEC cartel responds by lowering its prices in the markets, which lures consumers back into their old energy use patterns. This tactic also has the effect of reducing interest and investment in alternative energy sources such as wind and solar power. This is the way the cycle has gone . . . until recently.

Dwindling supply of oil...

In the past few years there has been a lot of talk about "peak oil," which suggests that oil production has reached its peak, in that few new resources of oil are expected to be found, so known reserves are all we have left to consume. In the meantime, however, demand for oil continues to rise unabated. This trend results from economic development pressures and a sharp increase in affluence most evident in populous countries like China and India. Energy users are caught between the blades of the proverbial pair of scissors: one blade represents the dwindling supply of oil and the other a sharp increase in cost.

But OPEC is not the only oil-producing cartel. There is a shadow cartel of non-OPEC oil producers, some of which are net exporters and others that are net importers. These countries include Kazakhstan, Russia, Canada, the UK, Norway, Mexico, and China. Though individually they are not major producers of oil like the OPEC countries, collectively they are.

Non-OPEC countries produced 60 percent of the world's oil (total liquids) in 2004, down from 62 percent in 2003. In fact, non-OPEC production as a share of the world's total oil production reached a high of 71 percent in 1985 and a low of 48 percent in 1973, with a 60 percent overall average since 1970. (Source: EIA Country Fact Sheet)

These non-OPEC countries are sharing in the windfall profits that arise from escalating oil prices, which are, again, more or less controlled by the OPEC cartel.

With energy costs already high and no apparent price ceiling in sight, other entrepreneurs have entered the energy business in a big way. Given the concern about peak oil and the sharp increase in the price of oil, other sources of oil are back in the spotlight. During the 1970s’ oil crisis, for example, a lot of attention was focused on Alberta, Canada's tar sands, which are believed to contain humongous oil reserves. At that time, a book appeared in which the author referred to potential oil entrepreneurs in Canada as the "blue-eyed sheiks" (P. Foster, 1979: The Blue Eyed Sheiks: The Canadian Oil Establishment). This was to distinguish them from the oil sheiks of the Middle East.

Once again, tremendous interest exists in commercial oil extraction from these oil-laden sands. In the United States, the state of Colorado also has potential oil reserves tucked away in oil shale. These "new" sources of oil are extremely attractive, given what has happened to oil prices in the marketplace, and given that all countries need oil for transport, manufacturing, and agriculture.

You will notice, however, that to this point no mention has been made about global warming or about the emissions of greenhouse gases that result from industrial, agricultural, and land-use practices. But it is well known that the extraction of oil from the tar sands of Canada and from the oil shale of Colorado will yield amounts of greenhouse gas emissions to the atmosphere that are two to three times higher than from oil drawn directly from the ground.

The green eyed sheik
The green-eyed sheik

Today, in mid-2008, we are now witnessing the emergence of a new group of energy investors who, for lack of a better term, can be referred to as the "green-eyed sheiks." These are the entrepreneurs entering the oil business through their financial investment in the conversion of biological matter into biofuels. Interest and investment in biofuel production has spread like wildfire around the globe. Many governments, as well as companies, see the potential for relieving some domestic pressure on their energy needs by growing their own feedstock for biofuel production. Other governments are entering the biofuel business in order to make money to enhance their economic development prospects.

Lots of controversies now surround bioenergy. For example, are the high profits from biofuels causing farmers to shift the use of their fields from food to fuel production? Are entrepreneurs taking over previously unused, often protected areas like rainforests to produce biofuels? To what extent has the rapid development and expansion of biofuel production abetted the sharp increase in food prices and the widespread appearance of food riots as well as less violent forms of protest around the globe?

Recent, though belated, analyses of biofuel production have raised questions from a climate impacts standpoint about their expected contribution to reduce greenhouse gas emissions. For example, corn for ethanol production now seems to have a changed status from good crop to bad crop, just on its global warming potential (GWP) alone.

An image that comes to mind, when I think about today’s energy quagmire, is that of people re-arranging the deck chairs on the Titanic: A ship that is destined to sink regardless of how well arranged the chairs become. Instead of focusing on how best to save the passengers, the captain and his crew — those in the energy business as well as policy makers — are busy arranging the deck chairs to get a better view of the oncoming iceberg. It appears that there is great resistance to coping with the energy crisis head on, from a climate standpoint.

Countries need energy to function and energy corporations are reaping enormous profits because of that need. Alternative energies are still not taken seriously by most governments, even though an all-out war on dirty greenhouse-gas-producing energy sources in favor of truly cleaner solar and wind energy, for example (and even a serious all-out approach to conservation), is one war that could likely be won.

There seems to be an energy version of a good old-fashioned high-school-style food fight going on right now, but instead of the school cafeteria, the battleground is Planet Earth, and instead of students we find the brown-eyed, blue-eyed, and now the green-eyed energy entrepreneurs fighting for a larger share of the profits to be made in the energy sector. Brown-eyed sheiks now have to make room at the energy planning table for both the blue-eyed and the green-eyed sheiks.

 

--Michael H. Glantz

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