In a freak coincidence that thriller writers might imagine the price of oil hit an all-time record yesterday exactly at the time that the Kyoto Protocols came into effect. The protocols needed the signature of Russia to bring the number of adherents to 120, which makes them binding on nations that have already signed it. At the same time the price of oil, having hovered around the $50 mark per barrel for a week, touched an all-time high of $56 in spot markets across the globe.
The coincidence meant that many, especially in the West, saw the coming into effect of Kyoto as the good news of the day while the oil price hike was cast as bad news. Normally, however, a strong price for oil should be regarded as good news because high demand for energy is one of the surest signs of economic growth. By all accounts at least part of the recent rise in demand is due to the success of several new economic powers, notably China, India and Brazil. Also yesterday, as Kyoto was coming into effect and oil prices were rising, IMF chief Rodrigo de Rato was in Saudi Arabia as part of a regional tour to persuade OPEC members to increase investment aimed at raising oil production. (See interview with Rato on page 1). Rato’s argument is that cheaper oil is essential for maintaining global economic growth.
But should oil producers heed his advice? The short answer is: No. OPEC and other producers have no interest in sinking vast sums of money into an industry targeted by the ideology that has produced the Kyoto accords. Nor is there any reason why they should increase supply to bring down prices, and thus reduce the return on their investment. More importantly, the amount of oil available in the planet is ultimately finite. It makes little sense for countries with substantial oil reserves to sell their irreplaceable assets faster and cheaper.
Logically, the Kyoto lobby should also be opposed to increasing global oil production and consumption. If the Kyoto targets concerning reductions in greenhouse gases are to be met, fossil fuel consumption should be reduced rather than increased. If global warming is a real threat, something that is a matter of scientific dispute, the best way to deal with it is not to make oil cheap thus encouraging its greater use.
The truth is that the Kyoto system is partly driven by fashionable environmentalist ideologies and electoral calculations in several major Western European countries. These ideologies portray oil as an evil substance to be worked out of human existence. The more fanatical Kyotoists are prepared to take direct action to disrupt oil exploration and production across the globe.
The major industrial powers cannot have it both ways. They cannot demand more oil while brandishing the slogan of “No more oil.” If they want more oil they should assume a part of the burden of investment. There are plenty of undeveloped oilfields across the globe, including in our region. But developing them requires a strategic understanding between producers and consumers that, sadly, appears to be remoter than ever.
