Sections

Weather Forecast

Close

NOAA Special Weather Statement: Critical fire conditions

Who wields the power in the U.S. oil industry

By JAKE PFIEFER Forum News Service

 This past week, and the one upcoming, negotiators from over 190 countries will have gathered in Paris for the 21st conference on climate change led by the United Nations. The conference will particularly put the spotlight on the U.S., India, and China, which are the three largest carbon emitters in the world. The annual per capita carbon dioxide emissions per person for the U.S. are at 16.6 tons, while emissions are at 7.4 tons and 1.7 tons for China and India respectively.  Topics will be numerous, and undoubtedly there will be a push, especially by the Europeans, to enact a legally binding treaty. However, what has become clear in recent days is that the U.S. is unlikely to be a party to such a scenario. This is where it gets a little bit complicated. An international treaty that legally binds the U.S. would require the support of two-thirds of the Senate, which is likely improbable with current control residing with Republicans. What’s much more likely in an international agreement would be President Obama using executive authority to sign what agreements he can while avoiding anything legally binding that Congress would have to process.  While at first glance this would look like the U.S. is distancing itself from the international system, it shouldn’t necessarily be seen like that. Nor should it be seen as a bad thing. Although coal consumption and production has been reduced, the U.S. maintains infrastructure commitments in other key energy sectors. With major oil producing fields in Texas and North Dakota, it’s doubtful that will end soon, and the U.S. should protect its domestic enterprises. That being said, oil is not going anywhere in the near future, and the climate conference in Paris is not supporting that goal. Rather, the U.S. oil industry is more or less under the mercy of the Organization of the Petroleum Exporting Countries (OPEC).  In last year’s OPEC meeting Saudi Arabia, which holds primary power in the organization, made the radical decision to keep pumping oil into a market that was already overflowing. This year, in the midst of the Paris Climate Conference, on Dec. 4 OPEC held a meeting between its members, which could also have a huge impact on climate change policy. To the demise of many OPEC members, Saudi Arabia and its Gulf partners are expected to stay the course and keep producing oil at record numbers, according to a Reuters report. Meanwhile, countries such as Iran, Iraq, Russia (not an OPEC member), and Venezuela are struggling to pay for basic services and desperately want to see oil production reduced and prices to rise again.  

The problem with reducing production in the eyes of the Saudis is that if OPEC cuts production it would lose market share and revenue to places like the United States. However, if it continues production, it loses revenue directly as prices continue to come down as the supply of oil remains higher than the demand. In essence, if OPEC reverses course and limits production, it would throw a lifeline to oil producers in North Dakota and Texas. It’s a die if you do, die if you don’t situation for OPEC in the lens of Saudi Arabia.  The other significant issue facing Saudi Arabia is within OPEC itself. With world oil stockpiles at an all-time record according to the International Energy Agency, members such as Venezuela are pushing for a 5 percent output cut. However, many members aligned with Venezuela, and those outside of OPEC as well, do not want to reduce production themselves. They would rather have Saudi Arabia and its Gulf partners deal with the burden alone.  With the general consensus that oil prices will likely remain relatively low and highly volatile for the next few years, it presents an interesting situation for alternative energy sources.

 Common economic sense suggests that expensive oil makes substitutes more appealing, while cheap oil makes alternatives less so. As of this past Tuesday, oil had settled at $41.85 a barrel in the United States.    Crude supplies rose to 489.4 million barrels last week in the U.S., the most of this time of year since 1930 according to government data. In Russia, records were set as oil production reached 10.782 million barrels a day in October and 10.779 million in November. This is hardly a case where leaders will seek out alternative energy sources to replace heavy pollutants such as oil, making the success of the Paris Climate Conference a little more limited than perhaps some had hoped.

Advertisement
randomness