Move to biofuels must be done with caution
OPEC said that the rush in the West to develop the biofuel energy alternative would force it to reconsider its future investment plans.
The OPEC cartel accounts for 40% of global oil production and if it decides to do anything to damage future production the fear is that this would drive oil prices above where they are at present.
Oil price concerns have started to dominate the headlines again with the price per barrel going above $72pb on Monday.
At the start of the year the price had slipped to $50pb and it looked as if oil prices had settled back to more acceptable levels.
Perspective is everything of course and it is forgotten that before the invasion of Iraq oil per barrel stood at $28.
Experts say we are never going back to those price levels and many thought when oil fell to $50pb at the start of the year it would be a long time again before the global economy was faced with oil above $70pb.
One of the difficulties however, is that the balance between supply and demand is close to knife edge and any interference with oil and gas output immediately pushes prices up.
While an element of speculation is responsible for the gyration in prices in the last few years it would be too convenient to blame the price spiral on that alone.
We have a number of real issues here. One is that oil supplies are starting to run out.
The bottom line is that we are burning more fuel on a daily basis than is being discovered and that fact alone has put huge focus on security of supplies.
It’s been said a thousand times, and again on RTÉ last night, that all of the big gushers are gone and there is a concern that OPEC’s reserves are significantly smaller than has been publicly acknowledged by the cartel.
Looked at in that context and taking the ability of acts of God such as hurricanes and terrorist attacks to interrupt crucial supply lines, then it is fair to say we are dealing with a heady cocktail that will keep the world on edge over energy supplies for a long time to come.
By the sound of things it looks as if OPEC is pretty angry with the West and its rush to find alternatives to oil.
OPEC’s secretary general, Abdalla El-Badri, has warned that the move to embrace biofuels could have serious implications for food prices.
Sugar and corn are used in large amounts to make ethanol and has resulted in commodity prices rising, and are set to rise by a further 30% this year.
This situation has the capacity to deliver a double whammy to the food sector as higher prices hit sales and high energy charges add to that dilemma.
Concern is emerging also that for farmers across the world, the rush to produce crops for biofuels could backfire if the experiment proves to be short-lived.
At present biofuels account for about 1% of all transport fuel, but that is set to rise sharply as more producers come on stream.
Whether it will be replaced with other alternatives is hard to say, but one analysts warned the move to this form of energy production could be the next dotcom fiasco.
The problem is that this fuel issue is only at the early stages of evolution.
Wind energy isn’t that profitable for those who have become involved and the problem is that in a volatile market, as fuel prices vacillate, the alternative energy sector could do more harm than good to the global economy, if the entire process is not managed properly.
