Interesting, fascinating and even stunning news for those who have heard of the simple, yet elegant First Law of Petropolitics.
According to Inside Fuels and Vehicles, a report from the Organization of Petroleum Exporting Countries (OPEC) shows that a 'most likely' long-term scenario for its future as a cartel is based on alternative fuels entirely displacing oil by 2050. Apparently, the strategy think tanks of one of the world's most powerful organisations are beginning to take the potential of biofuels extremely serious. At least, and we must stress this, if we can believe 'Inside Fuels and Vehicles', an industry magazine. The claim about the existence of this report containing such a prediction is repeated in Ethanol Producer Magazine.
According to the report, an official with the cartel's long-range planning group predicts that "the value of a barrel of oil in 2050 will be zero." This obviously contradicts all common economic sense, since the scarcer this essential commodity, with its very low demand elasticity, the higher its price should become - unless of course the prediction of biofuels displacing all oil were to be true. But as prices for oil decline, incentives to invest in biofuels decline as well, which would have a stabilizing effect on oil prices.
The official adds: "The trend to alternative fuels will begin to be felt by OPEC around 2020". And most importantly, the report says, a rapid and steep reduction in oil demand would reduce the effectiveness of a potential oil embargo.
Given the huge importance of petroleum in the history of the 20th century and the ever present threat of an Arab or Iranian oil embargo - on which the 'First Law of Petropolitics' is based - this is an absolutely strange and even bizarre statement made by the OPEC. Since, according to the 'First Law', the less oil available or the higher the demand and the scarcer the resource (with consequently more geopolitical tensions), the more likely the possibility of an embargo should be. But again, if the substitution theory holds true, then the strategist is right, and the 'First Law' becomes obsolete.
We are as confused as you may be. And we find the existence of such a report or this dubious admission hard to believe. Why would OPEC play such an open game? It has no interest in predicting or projecting its own decline, and certainly not in such radical terms. OPEC, known for its discreetness and opacity, would never publicly state what the report claims one of its strategist has said, - the organisation is simply too important and each single word or comma that comes out of it, is carefully scrutinized by an army of hyper-sensitive investors, businesses and policy makers. Even such a long-term prediction as the one supposedly made by one of the strategists, would have serious consequences for the long-term investment strategies of other energy players and investors.
Anyway, as long as we don't have any confirmation of this bizarre statement by OPEC, we remain skeptical about it - even if we are only talking about 'scenarios' and 'projections'. This story is certainly to be continued [we are in the process of ordering the report after which we can shed more light on the subject.]
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