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OPEC and the IEA have to get it right this
time
David Howell and Carole Nakhle International Herald Tribune
FRIDAY, SEPTEMBER 30, 2005
LONDON This time OPEC and the International Energy Agency must get together. The
last time world oil prices really exploded, at the time of the fall of the Shah
of Iran in 1979, pious hopes were expressed in both camps - the major consuming
nations and the main producing nations - that a sustained high oil price would
prove a blessing. Policy makers argued that once the initial panic subsided, big
benefits could emerge.
Included in these benefits would be reduced global oil consumption, reduced
dependence on the unstable Middle East, reduced oil imports for the West, major
increases in energy efficiency and conservation techniques, smaller cars with
much less thirsty engines, safer nuclear power and a big push for renewable
energy alternatives.
Equally, among the producers the hope was that sustained high prices would
greatly boost exploration for new oil and its development, open up entirely new
oil and gas provinces, help in due course to stabilize oil markets and above all
allow the main oil producers in the Gulf and elsewhere to diversify, modernize
and develop in a socially balanced way.
All that was needed was for exporters and importers to develop a sensible and
mutually respectful dialogue on policy. A gentle rebalancing of supply and
demand would follow to everybody's advantage.
It did not happen. After the May 1979 meeting of the IEA in Paris, some informal
feelers were put out to key OPEC figures about policy cooperation. But it got no
further.
Within three years prices had plummeted below $10. Consumption, after a brief
pause, climbed on up even faster. Oil imports, especially by the United States,
kept swelling. Dependence on Middle East supplies grew more intense. After a
brief flirtation with compact cars, Detroit and carmakers elsewhere went back to
even greedier gas-guzzlers.
Meanwhile civil nuclear power programs slowed to a virtual halt, while Big Oil
around the world went into a nearly 15-year investment decline in new oil
developments, with no new refineries built anywhere. Research and investment in
alternatives languished. Oil markets remained extremely volatile, while most
Middle East producer governments, having budgeted on the assumption of continued
high prices, had to cut back sharply on public spending, leaving discontented
societies that created fertile soil for today's terrorism.
So scarcely one of the high hopes of either the oil producers or the oil-hungry
economies was realized. On the contrary the world emerged weaker, more dangerous
and more vulnerable. No one gained.
Now, a quarter of a century later, we are back in high price territory, with
gigantic funds flowing into oil producers' pockets. This time, policy makers in
both the exporting countries and in the consumer countries have to do what they
failed utterly to do before, namely, act in ways to assure people that the
current price range is here to stay and that both producing and consuming
countries intend to work together to keep the oil price high but stable.
This time around they can add conviction to their efforts by allying them with
determination to contain carbon-dioxide emissions, although far bigger and
better commitments than Kyoto will be needed.
Once established, this new policy climate then unlocks the gate to a whole
series of crucial decisions on both the demand and supply sides that will
prevent a repetition of the 1980s disappointments. Industrialists can
confidently put their muscle behind low-consumption vehicles and aircraft.
The civil nuclear industry can stop crouching in its corner and explain how it
is developing much safer nuclear stations with much less waste. Investors in
"green" alternatives can push ahead profitably - although they will have to do
better than dotting the countryside with monstrous wind pylons.
Even more important is the need for models to be developed for the emerging
economies, like the Indian and the Chinese giants, that give them some hope for
the low-energy age and moderate their almost frenzied, and ultimately
destructive, scramble for oil.
Meanwhile, on the supply side, the right and convincing signals about sustained
high prices - say in the $35 to $50 range - will accelerate investment decisions
for opening up new oil and gas regions and improving mature-province
performance. The new-region potential is colossal, with the prospect of vast
reserves in the North Barent Sea and talk of "five new North Seas" in the
Arctic, quite aside from huge prospects in Eastern Siberia.
The remaining potential from existing fields is also growing, as new technology
opens up possibilities previously denied. It seems strange to hear Britain's
chancellor of the Exchequer demanding more oil from OPEC when adjustment to his
own North Sea tax policies could encourage production right next door to him.
Consumer country ministers and OPEC ministers should be quietly talking
together, not bellowing lectures at each other.
This menu of carefully agreed, complementary policies and responses could do now
what the 1980 policy makers on both sides failed to do - to extract big
opportunities for a new energy environment, new lifestyles and a new degree of
geopolitical stability from the current era of high oil prices.
(Lord Howell is Conservative spokesman on foreign affairs in the House of Lords.
Carole Nakhle is an independent petroleum analyst.)
LONDON This time OPEC and the International Energy Agency must get together. The
last time world oil prices really exploded, at the time of the fall of the Shah
of Iran in 1979, pious hopes were expressed in both camps - the major consuming
nations and the main producing nations - that a sustained high oil price would
prove a blessing. Policy makers argued that once the initial panic subsided, big
benefits could emerge.
Included in these benefits would be reduced global oil consumption, reduced
dependence on the unstable Middle East, reduced oil imports for the West, major
increases in energy efficiency and conservation techniques, smaller cars with
much less thirsty engines, safer nuclear power and a big push for renewable
energy alternatives.
Equally, among the producers the hope was that sustained high prices would
greatly boost exploration for new oil and its development, open up entirely new
oil and gas provinces, help in due course to stabilize oil markets and above all
allow the main oil producers in the Gulf and elsewhere to diversify, modernize
and develop in a socially balanced way.
All that was needed was for exporters and importers to develop a sensible and
mutually respectful dialogue on policy. A gentle rebalancing of supply and
demand would follow to everybody's advantage.
It did not happen. After the May 1979 meeting of the IEA in Paris, some informal
feelers were put out to key OPEC figures about policy cooperation. But it got no
further.
Within three years prices had plummeted below $10. Consumption, after a brief
pause, climbed on up even faster. Oil imports, especially by the United States,
kept swelling. Dependence on Middle East supplies grew more intense. After a
brief flirtation with compact cars, Detroit and carmakers elsewhere went back to
even greedier gas-guzzlers.
Meanwhile civil nuclear power programs slowed to a virtual halt, while Big Oil
around the world went into a nearly 15-year investment decline in new oil
developments, with no new refineries built anywhere. Research and investment in
alternatives languished. Oil markets remained extremely volatile, while most
Middle East producer governments, having budgeted on the assumption of continued
high prices, had to cut back sharply on public spending, leaving discontented
societies that created fertile soil for today's terrorism.
So scarcely one of the high hopes of either the oil producers or the oil-hungry
economies was realized. On the contrary the world emerged weaker, more dangerous
and more vulnerable. No one gained.
Now, a quarter of a century later, we are back in high price territory, with
gigantic funds flowing into oil producers' pockets. This time, policy makers in
both the exporting countries and in the consumer countries have to do what they
failed utterly to do before, namely, act in ways to assure people that the
current price range is here to stay and that both producing and consuming
countries intend to work together to keep the oil price high but stable.
This time around they can add conviction to their efforts by allying them with
determination to contain carbon-dioxide emissions, although far bigger and
better commitments than Kyoto will be needed.
Once established, this new policy climate then unlocks the gate to a whole
series of crucial decisions on both the demand and supply sides that will
prevent a repetition of the 1980s disappointments. Industrialists can
confidently put their muscle behind low-consumption vehicles and aircraft.
The civil nuclear industry can stop crouching in its corner and explain how it
is developing much safer nuclear stations with much less waste. Investors in
"green" alternatives can push ahead profitably - although they will have to do
better than dotting the countryside with monstrous wind pylons.
Even more important is the need for models to be developed for the emerging
economies, like the Indian and the Chinese giants, that give them some hope for
the low-energy age and moderate their almost frenzied, and ultimately
destructive, scramble for oil.
Meanwhile, on the supply side, the right and convincing signals about sustained
high prices - say in the $35 to $50 range - will accelerate investment decisions
for opening up new oil and gas regions and improving mature-province
performance. The new-region potential is colossal, with the prospect of vast
reserves in the North Barent Sea and talk of "five new North Seas" in the
Arctic, quite aside from huge prospects in Eastern Siberia.
The remaining potential from existing fields is also growing, as new technology
opens up possibilities previously denied. It seems strange to hear Britain's
chancellor of the Exchequer demanding more oil from OPEC when adjustment to his
own North Sea tax policies could encourage production right next door to him.
Consumer country ministers and OPEC ministers should be quietly talking
together, not bellowing lectures at each other.
This menu of carefully agreed, complementary policies and responses could do now
what the 1980 policy makers on both sides failed to do - to extract big
opportunities for a new energy environment, new lifestyles and a new degree of
geopolitical stability from the current era of high oil prices.
(Lord Howell is Conservative spokesman on foreign affairs in the House of Lords.
Carole Nakhle is an independent petroleum analyst.)
LONDON This time OPEC and the International Energy Agency must get together. The
last time world oil prices really exploded, at the time of the fall of the Shah
of Iran in 1979, pious hopes were expressed in both camps - the major consuming
nations and the main producing nations - that a sustained high oil price would
prove a blessing. Policy makers argued that once the initial panic subsided, big
benefits could emerge.
Included in these benefits would be reduced global oil consumption, reduced
dependence on the unstable Middle East, reduced oil imports for the West, major
increases in energy efficiency and conservation techniques, smaller cars with
much less thirsty engines, safer nuclear power and a big push for renewable
energy alternatives.
Equally, among the producers the hope was that sustained high prices would
greatly boost exploration for new oil and its development, open up entirely new
oil and gas provinces, help in due course to stabilize oil markets and above all
allow the main oil producers in the Gulf and elsewhere to diversify, modernize
and develop in a socially balanced way.
All that was needed was for exporters and importers to develop a sensible and
mutually respectful dialogue on policy. A gentle rebalancing of supply and
demand would follow to everybody's advantage.
It did not happen. After the May 1979 meeting of the IEA in Paris, some informal
feelers were put out to key OPEC figures about policy cooperation. But it got no
further.
Within three years prices had plummeted below $10. Consumption, after a brief
pause, climbed on up even faster. Oil imports, especially by the United States,
kept swelling. Dependence on Middle East supplies grew more intense. After a
brief flirtation with compact cars, Detroit and carmakers elsewhere went back to
even greedier gas-guzzlers.
Meanwhile civil nuclear power programs slowed to a virtual halt, while Big Oil
around the world went into a nearly 15-year investment decline in new oil
developments, with no new refineries built anywhere. Research and investment in
alternatives languished. Oil markets remained extremely volatile, while most
Middle East producer governments, having budgeted on the assumption of continued
high prices, had to cut back sharply on public spending, leaving discontented
societies that created fertile soil for today's terrorism.
So scarcely one of the high hopes of either the oil producers or the oil-hungry
economies was realized. On the contrary the world emerged weaker, more dangerous
and more vulnerable. No one gained.
Now, a quarter of a century later, we are back in high price territory, with
gigantic funds flowing into oil producers' pockets. This time, policy makers in
both the exporting countries and in the consumer countries have to do what they
failed utterly to do before, namely, act in ways to assure people that the
current price range is here to stay and that both producing and consuming
countries intend to work together to keep the oil price high but stable.
This time around they can add conviction to their efforts by allying them with
determination to contain carbon-dioxide emissions, although far bigger and
better commitments than Kyoto will be needed.
Once established, this new policy climate then unlocks the gate to a whole
series of crucial decisions on both the demand and supply sides that will
prevent a repetition of the 1980s disappointments. Industrialists can
confidently put their muscle behind low-consumption vehicles and aircraft.
The civil nuclear industry can stop crouching in its corner and explain how it
is developing much safer nuclear stations with much less waste. Investors in
"green" alternatives can push ahead profitably - although they will have to do
better than dotting the countryside with monstrous wind pylons.
Even more important is the need for models to be developed for the emerging
economies, like the Indian and the Chinese giants, that give them some hope for
the low-energy age and moderate their almost frenzied, and ultimately
destructive, scramble for oil.
Meanwhile, on the supply side, the right and convincing signals about sustained
high prices - say in the $35 to $50 range - will accelerate investment decisions
for opening up new oil and gas regions and improving mature-province
performance. The new-region potential is colossal, with the prospect of vast
reserves in the North Barent Sea and talk of "five new North Seas" in the
Arctic, quite aside from huge prospects in Eastern Siberia.
The remaining potential from existing fields is also growing, as new technology
opens up possibilities previously denied. It seems strange to hear Britain's
chancellor of the Exchequer demanding more oil from OPEC when adjustment to his
own North Sea tax policies could encourage production right next door to him.
Consumer country ministers and OPEC ministers should be quietly talking
together, not bellowing lectures at each other.
This menu of carefully agreed, complementary policies and responses could do now
what the 1980 policy makers on both sides failed to do - to extract big
opportunities for a new energy environment, new lifestyles and a new degree of
geopolitical stability from the current era of high oil prices.
(Lord Howell is Conservative spokesman on foreign affairs in the House of Lords.
Carole Nakhle is an independent petroleum analyst.)
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