Biofuels are not to blame for oil price rise - industry

16 July 2008 13:32  [Source: ICIS news]

By Hilde Ovrebekk

LONDON (ICIS news)--A number of biofuel industry associations attacked OPEC's president on Wednesday for claiming the renewable fuel was to blame for a surge in oil prices.

OPEC president Chakib Khelil has in the past couple of weeks blamed ethanol for 40% of the recent run-up in crude oil prices, with the weak dollar and geopolitical worries responsible for the remaining 60%.

“Since you, as the head of OPEC, provide no explanation for what in our view constitutes such a self-serving and misleading statement that goes counter to any independent analysis of the fuel market today, one can only conclude that OPEC views competition with biofuels as a direct threat to the cartel you have created,” the industry associations said in an open letter published in the Financial Times.

The Renewable Fuels Association, the Canadian Renewable Fuels Association, the European Bioethanol Fuel Association and the Sugarcane Industry Association quoted a recent International Energy Agency (IEA) report which said that biofuels have become a substantial part of faltering non-OPEC supply growth, contributing around 50% of incremental supply in the 2008-2013 period.

The biofuels industry associations said that recent research showed the growing volume of biofuels in the global fuels market is helping to keep world oil and gasoline prices lower than OPEC may like.

They said the factors driving oil prices higher included “a weak dollar encouraging increased speculation, geopolitical concerns including a possible military conflict with Iran, cost overruns and persistent project delays in the world’s oil patch, anxiety about scarce supplies and the fall off of long-term production and robust demand growth in the developing world”.

The associations said: “The fact is for more than a generation, OPEC has held the world over a barrel.”

“When it has suited the cartel, OPEC has forced the price of oil down, effectively killing off any alternatives that might prove competitive. But with global oil demand surging and supplies depleting, the future for many of the world’s largest oil exporters is far from clear,” they added.

Nobody was immediately available for comment at OPEC.

However, the cartel said in its recent 2008 World Oil Outlook that oil supplies were not a problem, but that the oil industry faced great uncertainties over how much to invest due to the influx of the renewable fuel into the market.

The US Energy Security and Independence Act of 2007 (ESIA) and recent EU proposals to address climate change and renewables targets could have substantial impacts on the amount of oil that would need to be supplied by OPEC, according to the report.

“Scenarios show that these policy measures could reduce the call on OPEC oil by close to 4m bbl/day by 2020,” said OPEC.

“Broader scenarios for OPEC crude oil suggest that the range of uncertainty for OPEC oil is considerable. By 2020, the amount of crude oil needed is in the range 29m–38m bbl/day, a gap of 9m bbl/day. This translates into an uncertainty gap for upstream investment needs in OPEC member countries of over $300bn in 2007 dollars,” it added.

OPEC, which consists of Iran, Iraq, Kuwait, Saudi Arabia, Venezuela, Qatar, Indonesia, Libya, United Arab Emirates, Algeria, Nigeria and Angola, controls more than two-fifths of oil production worldwide.

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By: Hilde Ovrebekk
+44 20 8652 3214

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