|
September 8, 2000-8
Copyright © 2001 Earth Policy Institute
OPEC Has World Over a Barrel Again
Lester R. Brown
On Thursday, September 7, oil prices on the spot
market climbed to $35.39 per barrel, their highest since November
1990, just before the Gulf War. This latest oil price escalation
not only threatens a worldwide recession, it also marks another
adverse shift in the international terms of trade for the United
States, one that will widen further the already huge trade deficit.
On Sunday, OPEC (Organization of Petroleum Exporting
Countries) ministers will meet at OPEC headquarters in Vienna to
consider a request from oil importing countries to boost daily oil
output by at least 500,000 barrels. But it may be too little too
late. With the East Asian economies, including that of China, booming
again, and with U.S. oil production falling for eight years in a
row, even a production increase of 500,000 barrels may not restore
lower oil prices.
For the United States, which pays for its oil imports
in part with grain exports, this is not good news. Exports of grain
and oil are each concentrated in a handful of countries, with grain
coming largely from North America and oil mostly from the Middle
East. The United States, which dominates grain exports even more
than Saudi Arabia does oil, is both the world’s leading grain
exporter and its biggest oil importer. Ironically, all 11 members
of OPEC are grain importers.
Using the price of wheat as a surrogate for grain
prices, shifts in the grain/oil exchange rate can be easily monitored.
From 1950 through 1972, both wheat and oil prices were remarkably
stable. In 1950, when wheat was priced at $1.89 a bushel and oil
at $1.71 a barrel, a bushel of wheat could be exchanged for 1.1
barrels of oil. At any time during this 22-year span, a bushel of
wheat could be traded for a barrel of oil on the world market. (See
attached table.)
With the 1973 oil price hike, this began to change.
By 1979, the year of the second oil price increase, OPEC’s
strength had pushed the exchange rate to roughly 4 to 1. By 1982,
when the price of oil had climbed past $33 a barrel, the wheat/oil
ratio had climbed to 8 to 1. This steep rise in the purchasing power
of oil led to one of the greatest international transfers of wealth
ever recorded.
Today, 27 years after the first oil price hike,
the terms of trade are again shifting in favor of OPEC. With grain
prices at their lowest level in two decades and oil prices at the
highest level in a decade, the wheat/oil ratio has shifted to an
estimated 10 to 1 this year. OPEC has the United States over a barrel
once again. With its fast-growing fleet of gas-guzzling SUVs (sport
utility vehicles) and falling oil production, the United States
is now dependent on imports for a record 57 percent of its oil,
making it even more vulnerable to oil price hikes and supply disruptions
than it was in 1973.
But this is not the only threat to international
security. Climate change from burning oil and other fossil fuels
may be an even greater threat to long-term world economic and political
stability. Last month’s discovery of open water at the North
Pole by an ice breaker cruise ship is only one of many recent indications
that human activities are altering the Earth’s climate. The
Arctic Ocean ice has thinned by 40 percent in some 35 years. Scientists
now believe that summer ice in the Arctic Ocean could disappear
entirely within the next 50 years. (See Worldwatch
Issue Alert #7)
Greenland’s ice sheet is also starting to
melt. If all the ice on this huge island, which is three times the
size of Texas and measures 10,000 feet thick (over 3,000 meters)
in some places, were eventually to melt, sea level would rise by
a staggering 23 feet (7 meters). In addition to ice melting and
rising sea level, global climate change can bring more extreme weather
events-more intense heat waves, more destructive storms, and more
severe flooding.
The world is beginning to move beyond oil and coal
toward energy sources that do not disrupt climate. Widely varying
growth rates of various sources of energy from 1990-99 give a sense
of the energy transition underway. Worldwide, wind power generation
grew by 24 percent per year, solar cell production by 17 percent,
and geothermal power by 4 percent. By contrast, world oil use expanded
at 1 percent a year and coal use actually declined by nearly 1 percent.
Even oil company CEOs are talking about shifting
from a carbon-based to a solar/hydrogen-based energy economy. British
Petroleum is now the world’s leading manufacturer of solar
cells. Shell is pioneering the new hydrogen economy. All the major
automobile companies are working on fuel cell engines for which
the fuel of choice is hydrogen. The Japanese have developed a photovoltaic
roofing material that allows the rooftop to become the power plant
for the building.
Denmark now gets 10 percent of its electricity
from wind. For Schleswig-Holstein, the northernmost state in Germany,
it is 14 percent. For the industrial province of Navarra in Spain,
it is 22 percent. We are now getting glimpses of the new energy
economy in the solar rooftops in Japan and in the wind turbines
scattered across the European countryside.
A nationwide wind resources survey by the U.S.
Department of Energy indicates that three states — North Dakota,
Kansas and Texas — have enough harnessable wind energy to satisfy
national electricity needs. With new wind farms coming online over
the last year or two in Minnesota, Iowa, Texas, and Wyoming, U.S.
wind-generation jumped by 29 percent in 1999. (See Worldwatch
Issue Alert #3)
The generation of electricity from wind is exciting
because money spent for this electricity typically stays in the
community, whereas money spent for electricity generated by oil
may end up in the Middle East. Moreover, with cheap wind-generated
electricity, hydrogen, the preferred fuel for fuel cell engines,
can be produced during the night when electricity demand is low.
As these examples indicate, the transition to a
new energy economy has begun, but it is not moving fast enough.
The time has come to restructure the tax system both to reduce the
threat of soaring oil prices and to stabilize climate. We can restructure
our tax system by lowering the personal and corporate income tax
and offsetting it with an increase in a tax on gasoline. OPEC members
know that the cost of producing oil in Saudi Arabia, which has the
lion’s share of world oil reserves, is roughly $2 a barrel.
They also know that if they push the price of oil too high, they
will trigger a global recession. This is not in their interest.
If there is a world price for petroleum products
beyond which a further rise would be disruptive, then the issue
is who gets the difference between the low production cost of oil
and this much higher market price. If importing countries push prices
of gasoline, fuel oil, jet fuel, and other oil products close to
that limit by imposing stiff taxes, then the potential for raising
prices by OPEC is lessened. This is why, in a meeting with President
Clinton in New York earlier this week, Saudi Crown Prince Abdullah
urged importing countries to lower their taxes on gasoline and other
oil products.
If we take the initiative and raise gasoline taxes
while lowering income taxes, the increase in the gasoline tax will
end up in our treasury and individuals will benefit from lower income
taxes. But if we don’t restructure and let OPEC countries keep
increasing the price of oil, and hence of gasoline, the equivalent
of the gasoline tax increase will end up in OPEC treasuries. We
will eventually pay the same higher price for gasoline, but not
get the income tax reduction.
(46k, approx. 11 sec at 33.6 speed)
Copyright
© 2000 Earth Policy Institute
|
|
Email this Alert to a friend
Printer friendly format
FOR ADDITIONAL INFORMATION
From Earth Policy Institute
Lester R. Brown, “U.S. Farmers Double Cropping
Corn and Wind Energy,” Earth
Policy Alert 3, 7 June 2000.
Lester R. Brown, “Climate Change Has World Skating on Thin
Ice,” Earth
Policy Alert 7, 29 August 2000.
From Worldwatch Institute
Seth Dunn, “Fossil Fuel Use in Flux” and “Carbon
Emissions Fall Again,” in Lester R. Brown, et al., Vital
Signs 2000: The Environmental Trends that are Shaping Our Future
(New York: W.W. Norton & Co., 2000).
Christopher Flavin, “Wind Power Booms” and “Solar
Power Market Jumps,” in Lester R. Brown, et al., Vital Signs
2000: The Environmental Trends that are Shaping Our Future (New
York: W.W. Norton & Co., 2000).
Lisa Mastny, “Melting of Earth's Ice Cover Reaches New High,”
Worldwatch News Brief, 6 March 2000. http:/www.worldwatch.org/
alerts/000306.html
From Other Sources
BP Amoco, Statistical Review of World Energy
(London: Group Media & Publications, June 2000).
Dorthe Dahl-Jensen, “The Greenland Ice Sheet Reacts,”
Science, 21 July 2000.
W. Krabill et al., “Greenland Ice Sheet: High-Elevation Balance
and Peripheral Thinning,” Science, 21 July 2000.
Lars H. Smedsrud and Tore Furevik, “Towards an Ice-Free Arctic?”
Cicerone 2/2000
http:/www.cicero.uio.no/
cicerone /00/2/en/smedsrud.pdf
LINKS
|
