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OPEC: Gas Prices Will Stay High

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Saudi Oil Minister Ali Naimi speaks during the 9th Oil Summit in Paris, Thursday, April 10, 2008. Michel Euler / AP 

Time Magazine: OPEC: Gas Prices Will Stay High

Friday, Apr. 11, 2008 By VIVIENNE WALT/PARIS

As gas prices heads for a possible $4 a gallon in the U.S. this summer, it’s tempting to blame Big Oil — as many in Congress did last week —for its bloated profits greased by generous tax breaks. But the players in the oil-producing world see things a little differently. OPEC officials, oil executives and oil-rich governments met Thursday in Paris at the International Oil Summit, to share their thoughts on the global energy crunch. Total chief executive Christophe de Margerie and Royal Dutch Shell’s exploration chief Malcolm Brinded told officials from oil-rich countries that they needed more access to easily accessible oil deposits, rather than the hugely expensive deep-sea drilling or ultra-deep underground reserves on which they are increasingly relying to expand production. Expanded drilling for less accessible oil has seen production costs double in about four years, according to a report by Cambridge Energy Research Associates. Added Brinded, “Costs are still rising and exploration is at record levels.”

But the oil companies’ pleas were largely ignored at the summit. As if to underscore Big Oil’s shrinking clout in the oil world, the summit’s most powerful delegate — Saudi oil minister Ali Al-Naimi — arrived after the big guns from the oil companies had left, and was mobbed by photographers and television reporters who waited for hours to catch him on camera. With Saudi Arabia sitting atop the world’s biggest known energy reserves — 264 billion barrels of oil and nearly 258 trillion cubic feet of gas — Naimi is OPEC’s leading figure, who can slash or boost world oil prices within minutes by a turn of phrase.

Naimi had no good news for those hoping for some relief from sky-high prices. He said it could take “at least 50 years” for the world to comprehensively adopt alternatives to the oil and gas that today account for about 90% of world energy consumption. Naimi castigated Western governments that have pushed biofuels as the major energy alternative, which has ravaged forests and agricultural land. Biofuels, he said, “will produce just 6% of energy consumption by 2010, and has not even reduced greenhouse gases.” Instead, the world’s most powerful oilman advocated “truly renewable sources of energy, like solar power.” Saudi Arabia this year committed $300 million to researching alternative energies, even though they plan within the next year to boost their oil output from 11 million barrels a day to 12.5 million barrels a day.

The major cause of current high oil prices, of course, is record demand, fueled first and foremost by China’s booming economy. “China is the major factor in demand,” says OPEC research director Hasan Qabazard. He predicts that world oil demand will increase about 30% to 118 million barrels a day by 2030.

Then, there’s the question of speculation and exchange rates: Investors have poured billions into oil futures, in part because oil is priced in dollars, meaning that its price soars as the dollar sinks. “There’s only so much OPEC can do, because we have no influence over those factors,” says Qabazard.

Oil analysts also complain that the industry has failed, because of negative public perceptions, to attract a new generation of petroleum engineers whose skill and innovation would be essential to future oil supplies.

Analysts don’t absolve OPEC of blame for keeping prices sky-high. They have voted three times since last fall against raising production, despite direct appeals for relief to Naimi from President George W. Bush and Vice President Dick Cheney. That’s partly because they fear they could some day run dry of oil, leaving future generations without the key source of Arab wealth. “It’s understandable,” says Fatih Birol, chief economist of the International Energy Agency, a Paris-based watchdog organization for big oil-consuming countries. “Oil-producing countries have policies not to run down their reserves.” And that, of course, will keep oil companies very profitable for decades to come.

http://www.time.com/time/world/article/0,8599,1730117,00.html?xid=rss-topstories

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