With OPEC insisting in Vienna last Friday not to open up its taps further - as demanded by major crude consumers, including the US — the cartel is in for a fair bit of criticism by Western pundits. And almost simultaneously a report on earnings of the major Gulf oil producers is also making rounds.
And the report is interesting in many ways. To some here in Dhahran, the virtual global energy capital, the timing of the report was interesting in some ways. OPEC looks at it rather differently.
They blame the taxes as the prime cause of high petrol prices on the gas stations. The OPEC secretary general lambasted G-7 governments for the amount of tax they put on oil, while continuing to ask the cartel to cool prices, saying: “The income the G-7 get from the oil we export is more than the income we are getting for our oil. We are willing to exchange. We take their taxes and we give them our oil,” he argued. Let’s have a close and impassionate look at the arguments.
The report released last week said the six Middle East oil exporters stand to earn more than $6 trillion by 2022. With oil at $70 a barrel, the six Gulf Cooperation Council countries would reap export revenues of $6.2 trillion over the next 14 years, triple the amount earned during the previous 14, the McKinsey Global Institute said.
At $100 a barrel, earnings would approach $9 trillion, while even a pullback in crude prices to $50 would bring in a cumulative $4.7 trillion; the report said. Huge indeed — one has to concede.
The US Energy Information Administration (EIA) in another report released late in January estimated that OPEC members earned $675 billion in net oil export revenues in 2007 — a 10% increase from 2006 — and in 2007 this figure was expected to go up $850 billion.
Net oil export earnings from the Organization of the Petroleum Exporting Countries should jump 26 percent from last year’s record $675 billion and then fall to $783 billion in 2009 on lower oil prices, the US Energy Information Administration said in the report.
On a per-capita basis, OPEC’s oil export revenue reached $1,147 last year and is forecast to increase 24 percent in 2008 to $1,424, said the EIA.
As per EIA, the OPEC is expected to account for 32.6 million barrels of the 87.7 million barrels of average daily global oil output this year.
The EIA however, did not make public its oil export earning estimates for individual OPEC members during 2008. But for last year, the EIA said the six largest OPEC oil export earners were: Saudi Arabia ($194 billion), United Arab Emirates ($63 billion), Iran ($57 billion), Nigeria ($55 billion), Kuwait ($54 billion) and Algeria ($51 billion).
When the reports were released, eyebrows were raised in concerned quarters especially since OPEC continued insisting that the output policy decision of the cartel depended on how much crude oil stocks have been drawn down - and not on their earnings from crude. Many felt that with crude prices languishing at around $90, the OPEC intransigence was perplexing. The connotation was despite professing to take into account the concerns of both the producers and the consumers; the OPEC was preferred guarding its own interests only.
OPEC however, has another — and an interesting - story to tell. There are still many misconceptions surrounding crude oil prices and the prices of products made from oil, such as gasoline, the cartel insists. However, the money that a buyer pays at the gas stations does not necessarily all goes into the pocket of the producer. The wide country wide and regional variations in petroleum product price, that the end consumers virtually pays are not necessarily due to differences in crude prices, but to the widely varying levels of taxation in the consuming nations of the G-7 (Canada, France, Germany, Italy, Japan, the UK and the USA), an OPEC report said.
Indeed most of the consuming governments have various reasons for levying high levels of taxes on oil and petroleum products, yet the fact remains this is one of the easiest ways to generate income of the governments, even the bureaucrats agree.
These (taxes) can range from relatively modest taxes (although by no means insignificant) in the US and Canada, to very high levels in many European countries. In the UK, for example, the government receives around 1.7 times more from taxation than OPEC gets from the sale of its oil, the OPEC report underlines. And the figures are revealing in many senses.
Hence the report reveals that over a period 2002-2006, the G-7 nations made a total of $2,310 billion from oil taxation only as compared to just $2,045 billion for the OPEC members over the same period.
The reports then goes on to clarify that while the $2,310 billion in oil taxation by the G-7 was pure profit, that was not the case for the OPEC nations, who must meet the cost of finding, producing and transporting that oil from their $2,045 billion gross income.
The OPEC report insisted that while the OPEC nations averaged $410 billion per year during the period, in sales revenue, the G-7 countries raked in $460 billion per year in taxes - around $50 billion per year more than OPEC during the same period.
In another report covering the 2000-2004 period, the G-7 nations made a total of $1,600 billion from oil taxation, as compared to $1,300 billion by the OPEC member states.
Thus OPEC insists that despite the high oil prices, the real cause of burden on the consumers is the high level of taxation in consuming countries. If gasoline were not so heavily taxed in countries such as France, Germany, Italy, Japan and the UK, it would cost only a fraction of the current price, it argued.
And OPEC indeed has a point to prove, let’s concede!