Why low oil will not last long

ROBERT EBEL INTERVIEW: full transcript

http://www.di-ve.com/Default.aspx?ID=72&Action=1&NewsID=55122&newscategory=36


by Paul Cachia - pcachia@di-ve.com
Local News -- 17 October 2008 -- 14:40CEST


In the midst of the financial markets’ turmoil, there was one piece of good news. Oil prices, which neared the $150 mark just few weeks ago, fell back below $70, mainly due to fears of slower global growth as the financial crisis deepens.
Is $90 per barrel acceptable to the American people? Of course it is compared to the $147 dollars in July. That is very acceptable.


Robert Ebel, a senior advisor to the US government on oil and energy issues, is holding firm to his prediction that oil could go back to $90 by the next few weeks.

He believes that $90 a barrel is a ‘fair and acceptable’ oil price for consumers. “Is $90 per barrel acceptable to the American people? Of course it is compared to the $147 dollars in July. That is very acceptable,” he argues.

“OPEC [the Organisation of Petroleum Exporting Countries] will be meeting soon. The easiest thing is to cut down production, which means that the supply will go down and the price will go up,” he noted but the fundamentals of the oil market remain the same.

“OPEC understands how the market price works. If they raise the price too much, alternative forms of energy come into play , people will grab their car less and as demand for oil decreases, the price comes down,” he explained.

Mr Ebel is convinced that the problems of the oil industry are not below the ground.

“The world’s oil is not running out fast. The oil age will remain with us for decades to come,” he asserted. Ebel’s recommendation? Buy large stocks of fuels now.

Contrary to popular belief, the world still needs to achieve a technical breakthrough that might make oil independence more than a political wish.

If we were sitting here 22 years from now, we will be talking about basically the same kind of fuels that we consume today.


“If we were sitting here 22 years from now, we will be talking about basically the same kind of fuels that we consume today - coal, oil, natural gas - and in the roughly same percentages. Not much will have changed,” he is predicting.




There’s no magic solution. The only way to solve these problems is to encourage people to consume less.

“The consumption of gasoline has come down in the US because of the high price. People were forced to use their cars less than they were accustomed to. So, we have probably reduced our oil consumption by a million barrels a day this year. That’s a lot of oil. We consume about 20 million barrels a day.

"One out of four barrels of oil consumed worldwide is consumed in the US. So, if we save the whole world benefits,” he claimed.



Pressure is mounting in the US to reduce dependence on Middle East oil. But will the change in president and administration after the November elections make a real difference to US energy policy?

“Whoever wins next month’s presidential election, whether it is Barack Obama or John McCain, is bound to want to shape a new national policy,” Mr Ebel added.

“I do not like it when we see our senior executives travelling to Saudi Arabia saying please Mr Saudi Arabia sell us more oil.

"They are the producers; we are the consumers. We need each other. If they do not have us as their market what would they do with the oil? From where would they get the income to develop their economy?” he said.

Mr Ebel has travelled widely, offering his views on world oil and energy issues to the US government with particular emphasis on the former Soviet Union and the Persian Gulf. He led various US oil expeditions to the former Soviet Union, Siberia, Turkmenistan, Sudan and Uzbekistan. So, he knows the market well.

www.di-ve.com caught up with Mr. Ebel in Malta where he was a guest of the US Embassy.


ROBERT EBEL INTERVIEW: full transcript







Q. In the midst of last week’s market turmoil, at least there was one piece of good news – oil price which had neared $150 per barrel just few weeks ago fell back below $80 per barrel [at the time of the interview]. But some analysts are saying that low oil will not last with predictions that oil could go back to $140 per barrel by next year. What’s your opinion?

A. I am not sure that it will go back to $140 per barrel. OPEC will be meeting soon to decide what should they do? The easiest thing that they can do is to cut production, which means that supply will go down and the price goes up. Well, we can only guess as to what they will do but I guess that what will they do.

Q. It was reported that the OPEC countries are meeting to discuss cutting production if prices continue to fall...I think countries like Saudi Arabia has learnt their lesson from the 1990s when they pumped more for cash but the Asia economic crisis struck and oil prices fell below $10 dollars a barrel...

A. That is a lesson that they still remember. They do not want to get caught like that again when oil fell under $11 per barrel. So, they do not want it to fall below $80 so let see what kind of approach they will take. It will go slightly into a worldwide recession that will bring the price of oil down because the demand for oil will go down, so let see how they read not only the oil price but how they read the financial crisis.

Q. I know that you are not a supporter of the ‘peak oil theory’. You were quoted as saying in 2005 that ‘the oil age will remain with us for decades to come’ but given this gloom and doom scenario, are you still sure?

A. I am still convinced that the problems that the oil industry has worldwide is not below ground. The problems are above ground. That means that there is plenty of oil below ground. That’s the issues of getting to that oil and getting it market.

Q. The Oil crisis was often used by in the run-up of the upcoming US electoral with both contenders promising short-term solutions to fire up the crowds. John McCain is using his three-word solution to the gasoline prices – drill baby drill, insisting on the opening of more offshore waters to oil development whereas Obama wants to tax away oil companies’ profits. Do you see these policies as doable?

A. Well you know politicians say things that they believe will help them get re-elected or get elected. Now I am not sure which one will eventually be elected president. But whoever it is, when he gets in office he will surround himself by experts and people will coming knocking on their door telling him what he should be doing, so what they are saying today and the program that may put in force in the next March or April are two different things. Obama takes this soft approach that is let us develop alternative forms of energy. McCain would take a harder approach which is let us build 40 nuclear power stations, that is the difference between the two gentlemen.

Q. The largest hydrocarbon reserves at least in terms of conventional fuels sources are found in the Middle East, Russia and Venezuela all led by colourful leaders to put it mildly. Very often, critics charged on the US government that US foreign policy is shaped on the need for affordable oil rather than peace-keeping missions. During her tenure Condoleezza Rice visited 65 countries, including seven trips to Russia, not to mention the US war in Iraq...

A. I do not like it when we see our government representatives; senior government representatives travelling to Saudi Arabia and say please Mr. Saudi Arabia sell us more oil. You know I do not like to see that at all. They are the producers we are the consumers, we need each other. If they do not have us as their market what would they do with the oil? From where they would have their income to develop their economy?

I do not like Venezuela, I do not like the president of Venezuela but I tell my audiences do not pay attention to what he says, watch what he does. He may say we are going to cut off oil to the United States but that is not doing to happen. We are too valuable as a market to him to walk away from the US. Russia got lots of oil, Iran has lots of oil, Canada has lots of oil but it’s mostly unconventionally oil...plenty of oil but it takes much the incentives to produce unconventionally oil around the world, that’s the price because these are expensive forms of oil to produce...price degrading incentives.

Q. In Europe for example, the Norwegians who get their electricity from a wide range of sources, pay some of the most expensive electricity bills in Europe. In fact the only source of electricity which is cheaper than fossil fuel is nuclear energy. In fact, France produces their electricity in nuclear power and it is cheaper compared to the rest of Europe. So, alternative energy will not come cheap? Does this mean that we still need to achieve a technical breakthrough that might make oil independence more than political wish?

A. That is a good point...Let’s take the issue of ethanol which is the alternative form of energy made from corn. It is protected, protected against imports of ethanol by 51 cent import charge. It means that the producers can really pocket that 51 cents and he also gets a subsidiary of 54 cents, together it’s a dollar per gallon for ethanol. But what’s happening in the ethanol markets? It is plateau.

New plants are being built in part because of current financial situation. So the bloom has sort of gone off the ethanol market and now we are waiting for the technology to develop which allow us to make ethanol from cellulosic materials and forget corn because we think corn is a food for animals and humans and we think it we should be kept that way.

Q. A Californian company is claiming that it has developed a new technique for recycling carbon dioxide, or CO2, and turning it back into fuel. Is this just a pie in the sky?

A. You know I have to see it to believe it. You get so many of these when you have a problem in a particular source of fuel. Somebody said I can take water and burn it in this car. Let’s see it work. Let’s see how it works before we buy into it.

Q. In Malta, we have the idea of building these huge offshore wind turbines but can we harness enough of its strength to solve our power crisis and light very home?

A. Two questions with regards to offshore wind. One is these wind mills be acceptable to the local people? Or will they spoil their view? Two, how about the water depths? You cannot them in areas where water depths are too great. If you cannot those two questions then you have it you have the possibilities...

Q. Or is hedging fuel prices using politics or using markets the only possible solution in the current circumstances?

A. You have got to look at the various forms of alternative forms of energy, where it is bio-fuel, ethanol or wind or solar. But are they going to make a major contribution to the supply of energy? No, there are not going to, there are just limits to it, so we get some, may be 10 per cent, at the most but I am not convinced it is going to be greater than that.

Q. So, we still have to depend on the same kind of fuels?

A. Yes, I think if we were sitting here 22 years from now and we were going about the consumption of energy worldwide we would be talking about basically about the same kinds of fuels that we consume today coal, oil, natural gas and roughly in the same percentages. Not much will be changed.

Q. The situation is very serious there’s no question about that...The sharply higher prices for oil have changed the landscape of the countries and global corporations as they are launching more green initiatives. Environment concerns have suddenly emerged as a dominant driver of global corporations. Are they being driven by an old impulse to be good stewards of the planets or are they being directed from an equally ancient desire to make money?

A. Depends on who you’re talking to? I take for the average citizen who understands there is a problem and we need to do something about it. And there are people who think that here is an opportunity for me to make some money. And what the free market is all about for the entrepreneur who sees an opportunity and responds for it. I cannot say that is wrong to do that.

Q. So, we still have to depend on the same kind of fuels...

A. Yes, I think if we were sitting here 22 years from now and we were going about the consumption of energy worldwide we would be talking about basically about the same kinds of fuels that we consume today coal, oil, natural gas and roughly in the same percentages. Not much will be changed.

Q. A year ago, you said that “that high prices are acceptable to the American consumer since people want the house with a yard and they are moving further and further out of the cities. They were willing to get up early and drive further. But now the trend is changing, it is beginning to hurt with the US changing lifestyle. In fact, according to Reuters 10 per cent of Americans are considering moving closer to work while roughly the same percentage said they were thinking about getting a job closer to home...

A. Well that was when the price of gas got up to $4 per gallon and you saw more people grab a bus to go to work, use the subway to go to work, the train if it is possible rather than spend the money to fill up their cars because if you commute an hour and a half from your home to your job, an hour and a half coming in and a hour and half coming...that is three hours, your car would consume a lot of gasoline and if you do that five days a week it is going to be very very expensive..I tell what has happened the consumption of gasoline has come down in the US because of the high price because people were forced to make this change and to use their cars less than what they were accustomed to.

So we probably reduced our oil consumption by a million barrels a day this year. That’s a lot of oil. We consume about 20 million barrels a day. One out of four barrels of oil consumed worldwide is consumed in the US. So, if we save the whole world benefits.

Q. So are you envisaging a scenario where people will be more aware of their consumption but at the same time still having these oil prices?

A. Well, the price is $80 per barrel is that acceptable for the American people? Of course it is compared to the $147 dollars in July. That is very acceptable. Is it acceptable to the people who sell us the oil? I am not so sure and we will find out when OPEC meets next month to see what they are going to do. They might think that since the oil price has dropped they are going to cut back on the supply and therefore the price will rise again. We have to see.

Q. So more people will fall under the poverty line...

A. Poverty line begins when oil price hits $100 a barrel. I think OPEC understands how the market price works. They raise the price too much, alternative forms of energy come into play, the people grab their cars less, and demand for oil is less, price comes down. So they understand that. What they have to understand is now who far will they want to raise the price above the $80 per barrel. If that’s their base price for a barrel of crude so let’s see what else gone work.

Q. Will the price of oil stabilise at around $85-$90 dollars?

A. That’s right...yeah...That’s what I would like to see. If they agree with me I do not know but that’s what I would like to see...The producing governments cannot be seen as bowing to the wishes of the consumer of the importing countries. They cannot do that. That’s not politically acceptable in their county. They have to find a way how to keep the importer happy and keep the people in their country happy. That’s an issue and that is the problem.