Jeddah: International Energy Conference
Rizwan Ghani
June 26, 2008
Saudi leadership has taken a timely decision to call the meeting of oil producers and consumers to help tackle several factors behind rising oil prices. The meeting was also necessary to show the world that speculators not demand is the root cause of high oil prices.Reportedly, it takes 31 US dollars to produce a barrel of oil but no one is ready to explain why and how a barrel is being sold for 137 US dollars.
Similarly why world is being forced to pay more for basic commodities like wheat and rice than their actual cost? Why developed world leadership instead of blaming others is not barring speculators and stock traders to end speculation that is pushing price up, which is adversely affecting public life while wall street is raking in huge profits? The fundamentals of free market economy need to be checked in accordance to US Supreme Court 1936 New Deal decision in which the Court upheld govt. right to interfere in case of events that were beyond control of public.
The reports show that Heads of State, ministers from 35 countries including top executives of 25 oil companies and 7 international organizations attend the conference.
Saudi Arabia as world´s largest oil producer with 40% of the total OPEC output is as always playing a pivotal role in helping rest of the world find a way forward to common challenge. However, the onus of responsibility should not lie with any single country, OPEC or producers alone.
The consumers also need to play a positive role including seeking combined solutions to bring down the oil prices instead of solely focusing on production increase. There are political, economic and social factors involved, as opined by Prince Abdulaziz, Saudi Deputy Minister for Petroleum and Mineral Resources.
It has been rightly pointed out ahead of the conference that Kingdom has no ´magic wand´ to resolve skyrocketing oil prices. The CNN report echoes global opinion that market speculation headed by banks, hedge funds and energy giants is a major contributor to unprecedented rise in fuel prices. The same report showed how these investors are using a loophole in European stock trading laws, which is not subject to US laws to push oil prices up through ´phony transactions´ and speculative investments.
It is hoped that PM Brown instead of leaving the issue to Securities and Exchange Commissions´ of both countries will individually look into the matter. Similarly, Sam Bodman, US Energy Secretary needs to move the concerned to end speculative investment in commodities to restore real value of barrel of oil. Reportedly, Bodman ruled out state interference in oil pricing mechanism as part of free trade economy, which is a violation of US Supreme Court 1936 New Deal decision in which the court upheld state interference in events that are beyond people´s control- speculative investment should be no exception.
The return of crude oil to 135 dollar a barrel following 5-dollar dip following Beijing´s 18% increase in fuel prices has busted the oil consumption ´China syndrome´. The return of high prices shows that demand is not only the factor driving fuel prices. Reportedly, contrary to general perception that there is a supply problem the global figures show that fuel demand is ´flat´ and ´contracting´. The March 08 demand and supply figures showed a 2 mbd difference. The global consumption is 88 mbd against 86 mbd daily production.
G-7 States instead of blaming oil producers for high oil prices need to cut taxes in their own countries. In a report covering the 2002-2006 period, the G-7 group earned pure profit of $2,310 billion from oil taxation, as compared to $2,045 billion gross earning by the OPEC member states, who must meet the cost of finding, producing and transporting that oil from their profit.
The govt. should reduce/eliminate discriminatory domestic taxes imposed on crude derivatives. Such burden taxes account for 27 percent of gasoline price in US, 63 percent in Italy, 65percent in Holland, 67 percent in France and 68 percent in UK. These taxes otherwise are violation of free trade model and adversely affect consumer rights in presence of sales tax on fuel pumps etc. The fact of the matter is a liter of fuel costs 61.20 rupees with 139 dollar a barrel cost. Add another rupee for overhead charges including transportation it should not cost more than Rs 62.20. A barrel of oil is 2,350 times cheaper than gold, 77 times cheaper than silver, five times cheaper than comparable quantity of vegetables and three times cheaper than barrel of dairy products (Time for OPEC to defend … Arab News dated June 22).
Unlike major oil consumers including US, which has not established a single oil refinery since 1976, the Gulf States are spending huge sums in improving oil infrastructure and oil production to keep pace with growing demands. Reportedly, Saudi Arabia in addition to increasing daily 300,000 barrel of oil is investing 90 billion dollars in refining and allied setups to boost the oil production.
The developed world instead of making oil producing countries political scapegoats before their public need to come up with matching programs to improve the domestic refining facilities to bring down oil prices. Reportedly, China has signed an agreement of establishing a refinery with Venezuela to address its local fuel needs. It will start importing one mbd from 2011. China through effective planning is providing liter of fuel to its pubic at half the international per liter price.
It should be model for rest of the oil-consuming world. American oil companies cannot have it both ways- rake in 123 billion dollars in profits in 2007 and cry for cheap oil. It is therefore time to end culture of blame game and draw a line between public welfare and corporate profits, worldwide.
The global community should focus on combining conventional and alternate energy options to increasing oil production. America needs to increase its domestic oil production from 5 mbd. Reportedly, it is using 18.5 mbd of 88 mbd total global production. Gulf States, Asia and Europe should collectively invest in eight Arctic Circle identified sites for increasing global oil production on lines of Brazil´s PetroBras deep offshore project, reportedly which will soon be adding 180,000 bpd to country´s oil put bringing it to 12 mbd.
Reportedly, despite repeated efforts by the concerned, US Congress failed to allocate development funds for alternate energy in 2007, whereas the both US and Europe are urging oil producing states to invest in alternate energy. Gulf States are already planning to invest in alternate energy.
In political terms the reports of Israel´s rehearsal of possible strikes on Iran´s peaceful nuclear program, opposed by UN IAEA are helping speculators push fuel prices further for individual gains. The concerned must play their role to restore peace in ME to help reduce fuel prices. In this regard by removing sanctions, Iran should be helped to increase production and refining to bring down fuel prices. In this regard global community needs to push for nuclear free ME. Similarly, other oil producing countries faced with political and economic challenges including Nigeria and Sudan need to be facilitated to bridge the gap between demand and supply of oil.
Global community including US should encourage and facilitate Latin American states including Venezuela, Brazil and Cuba to increase production. Similarly, as British PM Gordon Brown said in his address to energy conference in Jeddah world needs to invest in non-oil energy options including alternate energy with maximum emphasis on zero carbon homes. http://www.guardian.co.uk/environment/energyefficiency.
Saudi Arabia like rest of the world including Gulf States is keen to bring down oil prices to help reduce adverse effects of inflation on domestic economy. Riyadh wants low fuel prices to reduce cost of imports so that country´s economic managers control poverty. It is only possible if fuel prices drop. Therefore, those who are blaming OPEC members for rising fuel prices and raking huge profits are misleading the world. The Saudi officials are on record seeking ´just price´ of barrel of oil.
The rising oil prices cannot be solely blamed on inadequate supply and rising consumption only. The developed world has to recognize negative role of Wall Street speculators moping profits at the cost of Main Street, loopholes in trans-Atlantic trading rules and handful of critical shortcomings on domestic fronts including lack of investment in refineries and allied infrastructure and weakening dollar. Similarly, global platforms should play their role to improve geo-political situations including peace in ME by helping resolve Palestine issue, end Iraq and Afghan wars and lifting of sanctions against Iran to help end growing fuel prices.
Finally, oil-producing states cannot be solely blamed for rising fuel prices. The consumers and global players need to address critical underlying issues to end rising fuel prices including speculative investments and hedge funding backed by international banks and organizations trying to recoup subprime, credit card losses or supporting wars. King Abdullah has called the conference to help the rest of the world to understand these causes and extent of challenge. It is therefore hoped that following Jeddah conference sense will prevail not politics. PM Brown´s call for spending on alternate energy is a practical proposal provided world capitals could break free from international energy nexus.
Similarly why world is being forced to pay more for basic commodities like wheat and rice than their actual cost? Why developed world leadership instead of blaming others is not barring speculators and stock traders to end speculation that is pushing price up, which is adversely affecting public life while wall street is raking in huge profits? The fundamentals of free market economy need to be checked in accordance to US Supreme Court 1936 New Deal decision in which the Court upheld govt. right to interfere in case of events that were beyond control of public.
The reports show that Heads of State, ministers from 35 countries including top executives of 25 oil companies and 7 international organizations attend the conference.
Saudi Arabia as world´s largest oil producer with 40% of the total OPEC output is as always playing a pivotal role in helping rest of the world find a way forward to common challenge. However, the onus of responsibility should not lie with any single country, OPEC or producers alone.
The consumers also need to play a positive role including seeking combined solutions to bring down the oil prices instead of solely focusing on production increase. There are political, economic and social factors involved, as opined by Prince Abdulaziz, Saudi Deputy Minister for Petroleum and Mineral Resources.
It has been rightly pointed out ahead of the conference that Kingdom has no ´magic wand´ to resolve skyrocketing oil prices. The CNN report echoes global opinion that market speculation headed by banks, hedge funds and energy giants is a major contributor to unprecedented rise in fuel prices. The same report showed how these investors are using a loophole in European stock trading laws, which is not subject to US laws to push oil prices up through ´phony transactions´ and speculative investments.
It is hoped that PM Brown instead of leaving the issue to Securities and Exchange Commissions´ of both countries will individually look into the matter. Similarly, Sam Bodman, US Energy Secretary needs to move the concerned to end speculative investment in commodities to restore real value of barrel of oil. Reportedly, Bodman ruled out state interference in oil pricing mechanism as part of free trade economy, which is a violation of US Supreme Court 1936 New Deal decision in which the court upheld state interference in events that are beyond people´s control- speculative investment should be no exception.
The return of crude oil to 135 dollar a barrel following 5-dollar dip following Beijing´s 18% increase in fuel prices has busted the oil consumption ´China syndrome´. The return of high prices shows that demand is not only the factor driving fuel prices. Reportedly, contrary to general perception that there is a supply problem the global figures show that fuel demand is ´flat´ and ´contracting´. The March 08 demand and supply figures showed a 2 mbd difference. The global consumption is 88 mbd against 86 mbd daily production.
G-7 States instead of blaming oil producers for high oil prices need to cut taxes in their own countries. In a report covering the 2002-2006 period, the G-7 group earned pure profit of $2,310 billion from oil taxation, as compared to $2,045 billion gross earning by the OPEC member states, who must meet the cost of finding, producing and transporting that oil from their profit.
The govt. should reduce/eliminate discriminatory domestic taxes imposed on crude derivatives. Such burden taxes account for 27 percent of gasoline price in US, 63 percent in Italy, 65percent in Holland, 67 percent in France and 68 percent in UK. These taxes otherwise are violation of free trade model and adversely affect consumer rights in presence of sales tax on fuel pumps etc. The fact of the matter is a liter of fuel costs 61.20 rupees with 139 dollar a barrel cost. Add another rupee for overhead charges including transportation it should not cost more than Rs 62.20. A barrel of oil is 2,350 times cheaper than gold, 77 times cheaper than silver, five times cheaper than comparable quantity of vegetables and three times cheaper than barrel of dairy products (Time for OPEC to defend … Arab News dated June 22).
Unlike major oil consumers including US, which has not established a single oil refinery since 1976, the Gulf States are spending huge sums in improving oil infrastructure and oil production to keep pace with growing demands. Reportedly, Saudi Arabia in addition to increasing daily 300,000 barrel of oil is investing 90 billion dollars in refining and allied setups to boost the oil production.
The developed world instead of making oil producing countries political scapegoats before their public need to come up with matching programs to improve the domestic refining facilities to bring down oil prices. Reportedly, China has signed an agreement of establishing a refinery with Venezuela to address its local fuel needs. It will start importing one mbd from 2011. China through effective planning is providing liter of fuel to its pubic at half the international per liter price.
It should be model for rest of the oil-consuming world. American oil companies cannot have it both ways- rake in 123 billion dollars in profits in 2007 and cry for cheap oil. It is therefore time to end culture of blame game and draw a line between public welfare and corporate profits, worldwide.
The global community should focus on combining conventional and alternate energy options to increasing oil production. America needs to increase its domestic oil production from 5 mbd. Reportedly, it is using 18.5 mbd of 88 mbd total global production. Gulf States, Asia and Europe should collectively invest in eight Arctic Circle identified sites for increasing global oil production on lines of Brazil´s PetroBras deep offshore project, reportedly which will soon be adding 180,000 bpd to country´s oil put bringing it to 12 mbd.
Reportedly, despite repeated efforts by the concerned, US Congress failed to allocate development funds for alternate energy in 2007, whereas the both US and Europe are urging oil producing states to invest in alternate energy. Gulf States are already planning to invest in alternate energy.
In political terms the reports of Israel´s rehearsal of possible strikes on Iran´s peaceful nuclear program, opposed by UN IAEA are helping speculators push fuel prices further for individual gains. The concerned must play their role to restore peace in ME to help reduce fuel prices. In this regard by removing sanctions, Iran should be helped to increase production and refining to bring down fuel prices. In this regard global community needs to push for nuclear free ME. Similarly, other oil producing countries faced with political and economic challenges including Nigeria and Sudan need to be facilitated to bridge the gap between demand and supply of oil.
Global community including US should encourage and facilitate Latin American states including Venezuela, Brazil and Cuba to increase production. Similarly, as British PM Gordon Brown said in his address to energy conference in Jeddah world needs to invest in non-oil energy options including alternate energy with maximum emphasis on zero carbon homes. http://www.guardian.co.uk/environment/energyefficiency.
Saudi Arabia like rest of the world including Gulf States is keen to bring down oil prices to help reduce adverse effects of inflation on domestic economy. Riyadh wants low fuel prices to reduce cost of imports so that country´s economic managers control poverty. It is only possible if fuel prices drop. Therefore, those who are blaming OPEC members for rising fuel prices and raking huge profits are misleading the world. The Saudi officials are on record seeking ´just price´ of barrel of oil.
The rising oil prices cannot be solely blamed on inadequate supply and rising consumption only. The developed world has to recognize negative role of Wall Street speculators moping profits at the cost of Main Street, loopholes in trans-Atlantic trading rules and handful of critical shortcomings on domestic fronts including lack of investment in refineries and allied infrastructure and weakening dollar. Similarly, global platforms should play their role to improve geo-political situations including peace in ME by helping resolve Palestine issue, end Iraq and Afghan wars and lifting of sanctions against Iran to help end growing fuel prices.
Finally, oil-producing states cannot be solely blamed for rising fuel prices. The consumers and global players need to address critical underlying issues to end rising fuel prices including speculative investments and hedge funding backed by international banks and organizations trying to recoup subprime, credit card losses or supporting wars. King Abdullah has called the conference to help the rest of the world to understand these causes and extent of challenge. It is therefore hoped that following Jeddah conference sense will prevail not politics. PM Brown´s call for spending on alternate energy is a practical proposal provided world capitals could break free from international energy nexus.
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