Wrong

OPEC says biofuels will push up oil price

Opec secretary general Abdalla El-Badri said moves to use biofuels would make his members consider cutting investment in new oil production, the FT said.

This is a nice, empty threat. Oil is already priced high, and it is the main source of revenue for the OPEC nations. There was investment when oil was under $20/barrel in the late 1990’s, and I don’t think there is a risk of it ever falling to those levels again no matter how much biofuel is produced.

Mr El-Badri said that while Opec members had so far maintained their investment plans, he added: “If we are unable to see a security of demand… we may revisit investment in the long term.”

Security of demand? Biofuels can only replace a fraction of energy consumption at best, and you have an entire developing world adding to demand as long as prices stay reasonably priced. Mr. El-Badri knows that the OPEC members will sell every barrel of oil they can get out of the ground, but he’d like it they cost $200 each when they finally are drilled.

So, let’s look at the options, according to Mr. El-Badri.

More biofuel is produced, replacing petroleum. Demand for petroleum decreases. Prices decrease. Investment decreases (unlikely). Prices increase in the long run due to lack of investment when biofuel has replaced a large share of petroleum consumption.

OR

We maintain current consumption patterns, with increasing demand. Prices increase. Investment increases, but can’t keep up with demand (Peak Oil). Prices remain even higher for petroleum on which we are completely dependent.

Which would you prefer?

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