Restrained oil investment seen in biofuel push

Bob Tippee

When the head of the Organization of Petroleum Exporting Countries warns that a global rush toward biofuels might push oil prices "through the roof," is he issuing a calculated threat or a serious warning?

According to a June 5 report in the Financial Times of London, OPEC Sec. Gen. Abdalla El-Badri said OPEC members might trim their investment plans in response to efforts by industrial countries to raise production of biofuels.

OPEC's most important exporters face huge investment requirements as rising global consumption and limits on production elsewhere raise demand for their crude.

Their problem is determining how much to invest now in order to meet demand years from now, which requires knowing what demand will be, which is impossible.

The difficulty is of course complicated when governments of the largest consuming countries orient policy to using less OPEC oil and more of costly alternatives.

Claude Mandil, head of the International Energy Agency, was quick to point out that the biofuels contribution to total energy supply will remain small and that requirements for OPEC oil will continue to grow.

He should know. But he doesn't have to risk the hundreds of billions of dollars that the world needs OPEC members to invest in production capacity if energy needs are to be met a decade or two from now.

A seemingly unrelated but similar threat—or warning, as the case may be—cannot have raised the confidence of OPEC's investors.

The statement came June 7 from Charlie Drevna, executive vice-president of the National Petrochemical & Refiners Association, at a US House subcommittee hearing on alternative fuels.

"The domestic refining industry is likely to look upon rapidly rising ethanol and other biofuels requirements in the coming years as adding significantly more risk to investments in capacity expansions," he said. In the past year, he noted, projections of US refining-capacity additions during 2006-10 have fallen to "well below 1 million b/d" from 1.5 million b/d.

OPEC members know from painful experience that US refiners don't buy crude they can't process.

Manipulative threats or serious warnings? Check this space 25 years from now.

(Online June 8, 2007; author's e-mail:

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