Casting blame for high gas prices? Think OPEC
I enjoyed listening to Anne Korin, co-director of the Institute for the Analysis of Global Security, speak during a July 15 media briefing about high gas prices. During that event, which was organized by Fuels America, a coalition of organizations working to protect the renewable fuel standard, Korin made it clear that OPEC is the driver for oil prices. Korin said that in the last 40 years the number of automobiles on the road has quadrupled, the global population has nearly doubled and oil demand has increased drastically—and still OPEC countries, which account for three-fourths of the world’s oil reserves, are producing almost exactly the same amount of oil. “This fundamentally, is the reason why oil prices are very high,” she said.
In other words, critics can blame ethanol or other factors for high gas prices all they want, but they are barking up the wrong tree. As Geoff Cooper, vice president of research and analysis for the Renewable Fuels Association, pointed out during the same media briefing, multiple analyses from a variety of sources have showed that ethanol reduces gas prices, saving consumers money at the pump.
Gas prices actually have nothing to do with the breakeven price of private oil companies, Korin went on to say. Instead, it’s about the price required to balance the budget of the OPEC regime. The Arab Spring, a series of demonstrations and protests in the Arab world that began at the end of 2010, has had a profound impact on the fiscal breakeven price of oil. After these events, OPEC had a choice—sell more oil at a lower price or sell less oil at a higher price. “Being an oil cartel, OPEC will always choose to sell fewer barrels at a higher price,” she said.
And, she pointed out, that break-even price to meet OPEC’s budget has continued to grow over the years. In the 1990s OPEC said $20 a barrel of oil was a fair price. Today, it’s $90 or $100 a barrel and more for certain OPEC countries. “And it will simply go higher and higher,” she said.
She then addressed domestic drilling for oil and engine efficiency measures. “We’ve been told in the U.S. by politicians on both sides of the aisle that if what we do is drill more or conversely use less oil, if we reduce our imports, especially from the Middle East then that will reduce prices at the pump,” she said. “We have been told that over and over and it’s simply a lie. This is the energy security paradox.”
Drilling for more oil in the U.S. is a good thing for the people that live in those areas, yes, she said. But the oil market is a global market. Increasing the supply of oil domestically doesn’t mean the international supply of oil will increase. “At the end of the day this has been offset by an increase in demand from the developing world and it has not been matched by an increase in supply from the places where it is cheapest to … discover more oil, mainly OPEC countries,” she said.
And, cutting back on oil imports doesn’t cut it either. In 2005, 60 percent of the U.S. oil supply was imported. Today, that number has dropped to less than 40 percent. “And yet, prices have steadily increased,” she said.
The U.S. has never imported more than 15 percent of its oil needs from the Persian Gulf. Instead, what’s being imported from that region is the price of oil. “That will be the case as long as oil is essentially the sole fuel in the transportation sector,” she said. “As long as oil holds a monopoly on transportation fuel and most cars can run on nothing but oil then there is no competition in the market and no competition means that OPEC as a collective acts as a monopolist not just in the global oil market, but much more importantly in the global transportation fuel market. Fuel competition is absolutely critical to break this monopoly and lower prices at the fuel pump.”
In case you missed it, Korin is a tireless advocate for the Open Fuel Standard, which, unfortunately has been repeatedly introduced in Congress without becoming law. In early July, the bill was introduced in the U.S. House of Representatives and would require that by 2017 and onward, 50 percent of new automobiles operate on non-petroleum fuels such as ethanol and other fuels. The RFA and other ethanol industry supporters have come out in support of the bill in the past. If you haven’t done so already I encourage you to contact your U.S. Representative and encourage him or her to co-sponsor the bill.
As a side note, this is not the first time I’ve heard Korin speak on this topic. My first exposure to Korin was back in 2010, at the American Coalition for Ethanol Conference. I was impressed with her passion and knowledge and, after she spoke, I received a signed copy of her book, "Turning Oil into Salt,” which she co-authored with Gal Luft. I then interviewed Korin and Luft for “Fuel Choice: Turn Oil into Salt,” a feature story I wrote for the June 2011 issue of Ethanol Producer Magazine. In 2012, they wrote that book’s sequel, “Petropoly,” which I reviewed in a previous blog. If you haven’t read her books or read about her, I highly recommend you do.