OPEC Strategy

If OPEC is restricting supply all the peak oil hysteria may be unfounded.

What if their strategy is to keep production restricted encouraging alternatives and then open the valve wide to cause the alternatives to fail economically?

I wouldn't put it past them.

Prompted by the discussion at Top Ten Oil Stories Of 2007.

Cross Posted at Power and Control

posted by Simon on 12.24.07 at 04:10 AM










Comments

I can't buy that - the Middle East has never struck me as a place where they play the long game, but one where they throw everything into the present battle. I don't believe that the rulers of Saudi Arabia would limit production for a strategic advantage. I think it's far more likely that the oil fields are reaching the end of their productive life, and the owners of those countries have been remiss about finding new supplies.

The Saudis (among others) have acted more like renters than owners - they have spread money around in an attempt to keep the "good times" going. In the process, they have created the Islamic fanatic menace. Now, the House of Saud is in disrepair, there's little spare cash to fix it up, and they may vacate the premises if the situation gets personally uncomfortable (i.e., if the neighborhood goes to hell).

Linda F   ·  December 24, 2007 7:09 AM

Linda,

Thanks for the comment. I put the bit up as idle speculation hoping to get some informed comment. Appreciate your thoughts.

M. Simon   ·  December 24, 2007 7:19 AM

First we must remember that Iran is not meeting its export quota from OPEC. At this rate I don't expect OPEC to want them around as the 'E' is very important to the consortium.

Second, KSA announced a couple of years back when Iran was no longer able to meet its quota that it would pick up the slack. For OPEC to be successful they prefer steady income rather than spikes and dips, that means steady export quotas.

Third, Iraq is shifting behind Iran and possibly up to the #2 spot due to the re-analysis of the oil bearing structures in the region. Most of that is in Western Iraq and the amount expected looks to add almost 50% on to its reserves... the problem is there has been no active exploration and expansion of petro-systems there for nearly 20 years.

Fourth, most US oil comes from Canada and Mexico. Canada is now investing heavily in the oil sands as they are now price competative and their reserves dwarf that of KSA. OPEC, as an entity, is trying to shift its pricing structure before Canada puts a ceiling on oil prices. Even more fun is the US oil shales from Colorado to Montana becoming price competative and those reserves are huge. Also in this line some Nations, like Israel, will utilize this technology to extract oil from their shales.

Fifth, Gazprom has proven to be a difficult venture based on its funding sources being at least 1/3 organized crime in the form of Mogilevich. By taking over a number of smaller companies that got incorporated into Gazprom, he is holding a controlling interest in it. OPEC has a hard time dealing with a *real* mafioso. Also the Ivankov Gang that Mogilovich is a part of is dealing with nuclear material and sending it to folks like al Qaeda. What will KSA do when al Qaeda can threaten the oil fields in a credible way?

Sixth, Venezuela is going the route of Iran for upkeep of its petro industry, except faster. In three years Venezuela has gone from dependable to undependable based on its ability to sustain exports. KSA is already near max. on its utilization and marginal expansion will not come online for five years or so. Iran being unreliable they could deal with as they saw it coming... Venezuela?

All 'Peak Oil' analysis I have seen deals with the easy to get to, pump it out of the ground material. Changing that to oil sands and oil shales shifts the resource percentages of oil away from the ME and current major producers and to the US and Canada. Throw the new sources into the analysis and 'Peak Oil' is no longer pertinent until sometime after 2100. What does matter are the needs of the modern economy shifting towards the more useful areas of electricity generation and storage, and these areas are now starting to see some major changes in both storage density and time to recharge for batteries, and actual production. Amorphous silicon gets you 10% of sunlight converted to useful power per sq. m., while *plants* hit under that. Throw in Nanoscale solar able to coat rooftops and buildings using roll-to-roll printing on flexible substrates and you get a huge shift in solar availability and higher yield per sq. m. as there is no silica to absorb energy. Still needed are high density high temperature superconductors as a material. Either that or SPS on the cheap from JP Aerospace or other new concerns for cheap space access will change that, and *with* even lower mass Nanoscale materials.

Expect oil price volatility to keep on happening while North America comes online for production, say 15 years or so. At that point the cybertech revolution will look at the Polywell, Nanoscale solar, SPS, nuclear and other platforms for electrical generation as individual needs with higher storage density will remove petro-based production just on air quality standards alone. That IS where most of it goes: power plants. Throw in 20 years to slowly shift from petroleum to electric and by 2035 or so we will be seeing a very different power infrastructure... just have to keep the lid on things until then.

ajacksonian   ·  December 24, 2007 4:03 PM

I've thought this for years. We develop/invent new fuels/energy sources that can replace oil and be economically sound in doing so, and the Saudis- for instance- go back to being the royalty of the world's biggest litterbox.

And they know it.

Firehand   ·  December 24, 2007 8:26 PM

How I wish we would stack the west with nuclear generating capacity. We could kill so many birds with that single stone. It would be a great way of flipping the bird to the enviro-nazis who want to take us back to the dark ages. And the saudis would have to contemplate working for a living, or going hungry. I think their jihad export capacity would fall faster than the oil prices. Imagine them all having to go cap in hand to the Israelis for regional trade and technology concessions....

Monty   ·  December 25, 2007 11:57 AM

This doesn't have to be their "strategy" for them to be doing it.

It makes sense in the short run for them to restrict output (to charge more per gallon).

If alternatives emerge, they may have to cut prices in order to undercut those alternatives. They will want to destroy those alternatives at that point in time.

Daryl Herbert   ·  December 25, 2007 1:20 PM

Well this strategy works for Wal-Mart.

"I'm pro human rights, but I'm also pro human responsibilities too!"

Andrew Dawson   ·  December 26, 2007 4:32 AM

I have a hard time seeing Arab countries which are a big chunk of open having much of a stragegy. Sooner or later they WILL run out of oil.

ryan   ·  December 30, 2007 3:00 AM

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