OPEC Needs Low Oil Prices Because it Keeps Alternative Energy Down


Photo: Wikimedia, CC
Low Enough to Keep Competition Away
The Atlantic has a good piece about OPEC, everybody's least-favorite cartel. It shows pretty clearly why OPEC is probably the most effective enemy of renewable energy. The way they do it is by going against their short-term interests and keeping oil prices relatively low (at least low compared to the kind of prices they could create if they choked off supply more) to assure their long-term market-share and keep alternatives to oil down.Stephen Schork, an energy industry analyst, had this to say about the situation:

OPEC is more concerned about long-term market share than they are about short-term price gains. Therefore with lower oil prices, what you're actually doing is raising the entry barrier for alternative fuels. I speak with OPEC regularly, and this is consistently their main concern is about the political shift of the sentiment in the U.S. especially towards alternative fuels. The cheaper you make OPEC oil, the harder you make it to bring alternative fuels to bring on. So no, I don't think OPEC is that concerned. (source)

It's simple economics. If oil is more expensive, hybrids, plug-in hybrids, electric cars, buses, trains, walking, biking, etc.. All seem more attractive. But since OPEC has a lot of control on oil prices, they can see the threats coming and try to squash them, or at least keep them in check as much as possible. They won't always be able to increase supply enough to drop prices dramatically, but they certain have enough control to shape the market.

And from their point of view, it's not even a total loss. If oil prices are lower, people will consume more, meaning that they'll sell a higher volume, partly making up for the low prices.

Peak oil could change all that and reduce the cartel's margins, but OPEC's market manipulations will have left us less prepared to face peak oil than we would otherwise have been.

Via The Atlantic

For more, see our Minus Oil series.

Tags: Alternative Energy