14-02-08 The development of high-cost alternative energy sources will make petroleum products more expensive, says OPEC president and Algerian oil minister Chakib Khelil.
“In the longer term, crude prices will rise further dragged up by higher-priced fuel substitutes as demand continues to expand in a constrained oil market,” says Khelil. He argues that alternatives such as biofuels are raising the marginal cost of production along the forward price curve. “The long-term marginal cost which gives the signal to the market is not $ 100/bbl, it is much higher,” he says.

Long-dated WTI crude futures have traded above $ 80/bbl for the past three months, compared with about $ 20/bbl in the 1990s. In an oversupplied market, low-cost oil from the Middle East Gulf would anchor long-dated futures at lower levels. But production capacity constraints are keeping the forward curve at higher levels. Long-dated values reflect expectations that marginal supply will come from high-cost unconventional production such as oil sands and gas-to-liquids and non-petroleum sources.
“The price is reflecting the signal that we are getting from consuming nations when they say, ‘We are going to go to nuclear, solar, or bioethanol. Should we actually invest to supply a market that is disappearing?’” Khelil asks.

This argument takes OPEC’s calls for a demand roadmap from consumer nations a stage further, suggesting that some members are now committed to a deferred investment policy to keep oil prices high by limiting capacity growth upstream and downstream regardless of the risk that this will further boost alternative energy investment.
“The price of biofuels is much higher than the gasoline I get out of my oil, which means I need to get that price,” Khelil says. “If not, I am not going to develop that oil.” The price of biodiesel barges from rapeseed, among the highest-quality biofuels, was above $ 1,400/t in Rotterdam in January. This compares with just over $ 820/t for high-quality diesel barges in northwest Europe in the same period.

Sustainable development
Other OPEC officials are playing down the effect of any growth in biofuels.
“It is not really a threat,” OPEC secretary-general Abdullah al-Badri says. “We encourage mixed sources of energy. We are not really worried about alternative sources of energy. We are first asking whether they are sustainable or not.”
“It is important to realise that the world needs to rationalise consumption, from an environmental, social and productive perspective,” Ecuadorean oil minister Galo Chiriboga tells. “Oil reserves will not last forever, so the world must be more conscious that the use of its resources should be more reasonable.”