Is this a 'good thing'?
December 2, 2014 7:17 pm
Of course, OPEC would like oil production to continue to grow, as noted by the Telegraph:
Opec: Oil demand to hit 111m barrels by 2040 despite climate change
World's leading oil producing group sees crude remaining as the world's economy life blood through to 2040 as Asian demand grows
Opec: Oil demand to hit 111m barrels by 2040 despite climate change - Telegraph
Although OPEC's interests need not be 'bad for climate change', as this comment on Al Jazeera points out:
OPEC in the age of climate change
What is good for the climate can be good for OPEC, too.
Last updated: 28 Nov 2014 13:02
OPEC produces 40 percent of the world's oil [AP]
Thursday's OPEC meeting in Vienna was widely billed as the most important in years. OPEC ministers decided to resist calls to cut their oil production in response to the fall in oil prices since June. After three years of holding steady around $110 a barrel, oil had dropped below $80. Within minutes of their decision, the price fell by another $5.
This was in large part a contest between OPEC and US frackers for power over the oil market. With the new technology of hydraulic fracturing, US oil production has increased by nearly 50 percent since 2008, after more than three decades of decline. By pushing prices lower OPEC hopes to restrain the growth of the costlier production.
What does this mean for climate change? OPEC's decision comes just four days before a climate summit opens in Peru, the last before a 2015 deadline to agree on post-2020 climate measures in Paris. In Vienna, the ministers agreed their plans for negotiations in Peru.
On Monday, US President Barack Obama's climate envoy admitted that a lot of the world's oil, gas and coal would have to stay in the ground in order to limit climate change. Scientists put the proportion that must be left in the ground at 80 percent of known reserves. Nearly three quarters of global oil is located in OPEC countries.
What oil price is 'fair'?
The unspoken issue in Vienna was how much of the remaining carbon budget will come from state oil companies and how much from private oil companies. How much from conventional, cheaper oil and how much from "extreme oil" sources such as shale and tar sands?
Venezuela and Saudi Arabia were at the two poles of the debate. Venezuela made the loudest calls to cut production, with the government of Nicolas Maduro struggling to contain popular discontent in light of the country's economic woes. Before the meeting, Foreign Minister Rafael Ramirez said the market ultimately needed cuts of 2 million barrels a day, and a price of $100 a barrel would be "fair". Venezuela's current budget assumes a price at least this high.
Iran, too, wanted a higher oil price, especially following the failure to strike a deal this week to lift the economic sanctions against the country.
Saudi Arabia, on the other hand, had earlier signalled a willingness to accept lower prices, supported by Kuwait and its other Gulf allies. With lower budgetary needs and large external reserves, they could afford it. And they worried that if OPEC cut production, the higher price would help sustain the current boom in costly, extreme oil production, especially fracked "tight oil" in the US. So, they feared, US expansion would compensate for any OPEC cut.
OPEC's choice was thus between lower oil prices or a lower share of world oil production. Both sides lobbied hard in the run-up to the meeting.
The very fact of having to make this choice shows OPEC's fundamental weakness. If it asserts its power to increase prices, it thereby reduces its power over the longer term. So it is not quite the cartel most people imagine. After all, despite possessing over 70 percent of the world's oil reserves, it accounts for only 40 percent of its oil production.
Thursday's result is that OPEC clings to its limited market power, but to questionable purpose as it fails to use it to stave off economic crises in some of its largest members.
In other words, Saudi Arabia wins. (In OPEC matters, it usually does.)
If the oil price now continues to fall, that will test the producers of US tight oil, Canadian tar sands and other costly sources. Some may become uneconomic to extract, though analysts debate the real break-even prices.
What oil price is good for the climate?
On the face of it, shutting down some of the extreme oil, which adds to the world's excess of reserves, could be seen as good news for the climate. Venezuela's Minister Ramirez told Al Jazeera that expanded US production was "a disaster for climate change". (However, he did not comment on how OPEC's reserves square with climate limits.)
The trouble is that any such reprieve from a fracking cutback will be temporary, as those reserves will not disappear. Whenever the oil price increases again, companies will come back to extract them.
A reduction in US production could only become more permanent if there were active government regulation to restrict demand for fossil fuels. Ironically then, OPEC and Saudi Arabia - generally seen as obstructive in international climate negotiations - might best be able to protect their market share with a meaningful global deal on climate.
So far that's not on OPEC's agenda. At UN Secretary-General Ban Ki-moon's climate meeting in New York in September, Saudi Oil Minister Ali al-Naimi argued against any climate action that would "destabilise the global energy market". He opposed any climate taxes or carbon pricing, even if only applied in developed countries.
Lower oil prices will also encourage OPEC members to talk more about diversifying their economies away from oil. But history tells us that such talk usually evaporates once the price rises again.
In the absence of a global deal, a higher oil price might have been better news for the climate, as that would make the alternatives to oil look relatively more attractive to consumers.
The vast majority of oil is used in transport, where one of the most promising alternatives is electric vehicles. The largest hurdle for their development is storage of the power. A report by investment bank UBS in August found that battery costs are falling fast. It forecast that running a battery-powered car, combined with solar panels on the roof at home, could be cheaper than a conventional oil-fuelled car by 2025, even without subsidies.
If this is right, it could imply that oil's days are numbered. Countries like Venezuela might then argue that OPEC members should get the maximum revenue from the last decades of oil extraction - and use that revenue to invest in diversifying their economies.
Whether fossil fuels stay in the ground due to low prices or high prices, OPEC has a role to play. To try, Canute-like, to hold back climate action would be as futile as trying to control the oil market.
OPEC started out in 1960 as a forum to coordinate member countries' actions in their battle for a fair deal from the "seven sisters" that then ran their oil industries: Exxon, Shell, BP, Mobil, Chevron, Gulf, and Texaco. Via a 1968 "declaratory statement of petroleum policy", and with the help of rising prices, OPEC ultimately facilitated the nationalisation of most members' oil during the 1970s.
Compared to its limited role as a cartel, where a short-term boost to price could only have come at the expense of longer-term market share, it was in coordinating that transition that OPEC really proved itself effective.
If OPEC is to make itself relevant again, perhaps it should start helping its members think beyond oil.
Greg Muttitt is the author of Fuel on the Fire: Oil and Politics in Occupied Iraq.
The views expressed in this article are the author's own and do not necessarily reflect Al Jazeera's editorial policy.
OPEC in the age of climate change - Opinion - Al Jazeera English
However, in view of climate change talks in Peru this week, the UN is concerned:
At climate talks, UN calls fossil fuels 'high risk' investment
(Reuters) - Falling oil prices show the "high risk" of fossil fuel investments compared with renewable energies, the U.N.'s climate chief said on Monday at the start of 190-nation talks on a deal to slow global warming.
The Dec. 1-12 meeting in Lima opened with hopes that a U.N. deal to slow climate change is in reach for 2015, helped by goals set by China, the United States and the European Union to cut greenhouse emissions, mainly from burning fossil fuels.
Christiana Figueres, head of the U.N.'s Climate Change Secretariat, dismissed suggestions that a tumble in the price of oil to a five-year low on Monday could brake hopes for a shift to renewable energies as a cornerstone of the climate deal.
Oil price volatility "is exactly one of the main reasons why we must move to renewable energy which has a completely predictable cost of zero for fuel" once wind turbines or solar panels were built, she told a news conference.
"We are seeing more and more the realization that investment in fossil fuel is actually a high risk, is getting more and more risky," she said, welcoming a decision by Germany's top utility E.ON to spin off power plants to focus on renewable energy and power grids.
Still, other experts said the oil price fall could slow some investments in renewables and may make fossil fuel exporters such as Russia and Saudi Arabia reluctant to make concessions at the climate talks, fearing they could undermine their earnings.
"It's hard to tell what the total net impact will be here," Alden Meyer, of the Union of Concerned Scientists, said after Brent crude fell as low as $67.53 a barrel, its lowest level since October 2009, before rebounding to settle at $72.54.
Delegates in Lima are due to work out elements of a deal due to be agreed at a U.N. summit in Paris next year as part of a U.N. goal to limit average world temperature rises to 2 degrees (3.6 Fahrenheit) above pre-industrial times.
Temperatures have already risen by about 0.9 C (1.5F) and a U.N. panel of climate scientists says there are risks of irreversible impacts, ranging from damage to coral reefs to a meltdown of Greenland's ice that would raise sea levels.
"The window for action is rapidly closing," Rajendra Pachauri, head of the U.N.'s Intergovernmental Panel on Climate Change, told delegates, warning of worsening disruptions to food and water supplies.
His panel says it is 95 percent probable that man-made emissions are the main cause of warming. And 2014 may eclipse 2010 as the warmest year on record.
The talks have been boosted after the United States last month agreed to cut emissions by 26 to 28 percent below 2005 levels and China agreed to set a cap on its soaring emissions by around 2030.
The European Union also aims to cut emissions by 40 percent below 1990 levels. That means that nations accounting for more than half of world emissions have set already goals.
"There is probably more of an opportunity here than there has been in a very long time," U.S. Climate Envoy Todd Stern told a briefing in Washington.
(Reporting by Alister Doyle, Environment Correspondent, extra reporting by Valerie Volcovici in Washington,; Editing by Tom Brown, Bernard Orr)At climate talks, UN calls fossil fuels 'high risk' investment | Reuters
With similar comments on the relationship between oil and renewable prices:
What does oil at $70 a barrel mean for the green economy? - 05 Dec 2014 - Analysis from BusinessGreen
A final comment comes from the latest New Yorker on our addiction to oil:
The Trouble With Cheap Oil
Just before the turn of the millennium, I met a man who had recently invested a fortune in wind power. He said he wanted to do all that he could to slow the course of climate change. He was also convinced that, as the world began to run out of oil, alternative sources of energy would offer a unique entrepreneurial opportunity. “Oil prices will fluctuate for a while,” he told me. “But, eventually, they can only move in one direction. Up. Oil is a finite resource and, as supplies dwindle, the costs will have to rise. That will make alternatives like wind power much more attractive.”
That sounded sensible, and, for the many people who have long argued that our addiction to oil and gas is destroying the planet, so did the much discussed concept of “peak oil’’—the theoretical moment when half the world’s oil reserves had been consumed and fossil fuels began to become scarce. The date of peak oil is hard to pin down, but most suggest we passed that point a decade ago. In a Times column titled “The Finite World,’’ Paul Krugman said that the magic moment had arrived in 2010.
High oil prices would force governments, corporations, and consumers to find another way to power the world. It was a nice dream, but it’s over now. We are awash in cheap oil. Propelled largely by a boom in domestic production, due to hydraulic fracturing, or “fracking,’’ and horizontal drilling, oil prices fell below $70 a barrel on Thursday—from a high in June of $112.12. Prices have fallen nearly every day for the past two months, and some economists predict that we will soon see oil selling for less than fifty dollars a barrel.
That’s good news for consumers; it means that they will have more disposable income. More gas means more travel and more spending, which our sluggish economy clearly needs. But the costs may be enormous. In 2008, a barrel of oil cost $147, more than twice today’s price.
Many economists and geologists predict that prices are unlikely to rise again soon. Fracking technology has transformed the United States from an importer of gas and oil to an exporter. In fact, the International Energy Agency has predicted that the United States will produce more oil next year than Saudi Arabia; we might even pass Russia, which, at ten million barrels a day, is the world’s biggest producer. (We already produce more natural gas than Russia.)
Fracking is not a magic fix, or even a benign one: the technology poses clear risks to the environment. It would be hard to make the case that it would be better to rely on Syria, Russia, Iraq, or Saudi Arabia to fuel the nation, as we have in the past. We have endured unpredictable oil prices since OPEC imposed an embargo on the U.S. soon after the 1973 Arab-Israeli war. That punishment led to the first oil “shock,’’ and, since then, prices have been influenced by politics as much as by demand. But the cheaper fossil fuels become, the more challenging it will be for cleaner forms of energy—like solar and wind power—to become competitive.
Many environmentalists had assumed that if neither fear nor reason helped us to lessen our reliance on oil, then at least we could count on scarcity. But scarcity is not an economic or environmental policy. Humans have long had a habit of expecting the sky to fall. Yet from Malthus to Paul Ehrlich, predictions that the planet was on the verge of starvation have never come to pass (or at least not as broadly as expected). Nonetheless, the drop in oil prices comes at a terrible moment. Last month the Intergovernmental Panel on Climate Change reported that our only chance to halt the rising temperature of the Earth, and to prevent the calamity that rise will cause, would be to eliminate fossil-fuel emissions by the end of the century.
A plan to end U.S. fossil-fuel dependence would be an unlikely goal in any case, but, if oil remains easily accessible, it becomes politically impossible. “It is technically feasible to transition to a low-carbon economy,” Youba Sokona, the co-chair of one of the I.P.C.C.’s working groups, says. “But what is lacking are appropriate policies and institutions. The longer we wait to take action, the more it will cost to adapt and mitigate climate change.”
It seems churlish, at best, to lament easy access to one of the world’s most vital commodities. But cheap gas has become like an industrial form of crack. It doesn’t really matter how much damage it causes, because we simply don’t have the power to walk away.
The Trouble With Cheap Oil - The New Yorker