As a galaxy of global energy leaders, from virtually all across, assembled for the formal inauguration of the International Energy Forum Secretariat (IEFS), in the diplomatic enclave of Riyadh last week, the issue of “oil prices and energy security,” and which now, “are at the top of international agenda,” could not have escaped attention, discussion and deliberation — indeed behind closed doors.
And so when Ambassador Arne Walther, the secretary general of the IEFS says it is one of the most important issues facing the world today, he is not at all off the mark. Such important is the issue now that the G-7 summit earlier this year not only discussed the impact of the rising energy costs on the industrialized economies of the world but also appreciated, in its official communiqué, the significant role of the Riyadh-based IEFS in handling this issue.
After the Riyadh meeting, Walther emphasized that the basic facts were getting clearer now. Both the sides “are approaching consensus on the state of affair and how the issue has to be dealt with,” he insisted. Definitely a win-win scenario is being targeted. Indeed what better could have been expected? However, as the producers and consumers nudged toward some sort of “dialogue rather than confrontation — as was the norm in past,” both the sides are starting to define and fine tune their postures and positions. A battle of wits definitely seems to be on card in many, many respects. It is definitely absorbing to witness this posturing of the parties, the producers and the consumers, from sidelines. Over the last one year or so, as the crude prices started to surge, for a number of reasons, the pressure on oil producers — mainly from the OPEC — to invest heavily in facilities and open their taps has been growing, almost incessantly.
British Chancellor of the Exchequer Gordon Brown, a robust advocate of more action from the OPEC to prevent the global crude markets from touching new heights, in his presentation during the IEF meeting stressed on five issues — increased supply from OPEC, greater transparency over production and reserve volumes, an increase in infrastructure investment, improved energy efficiency and helping poorer countries cope with rising oil budgets.
In response to this growing pressure, and as the debate on the issue raged, the oil producers also finally laid bare their cards. None else than Custodian of the Two Holy Mosques King Abdullah himself in his presentation before the IEF raised the issue of taxes on oil in the importing countries. Vowing to continue to provide enough supplies, so as to keep the global economy well oiled, King Abdullah urged the consuming countries to look at their taxation policies too. “These (consuming) states should alleviate the ordeal of their citizens by cutting taxes on petroleum products when prices increase,” King Abdullah reiterated. The OPEC chief and the Kuwaiti Energy Minister Ahmad Fahd Al-Sabah also made the same point saying, “We will have many meetings and we will try” to seek tax cuts in consumer countries. In Europe, Ahmad reiterated some 80 percent of the price (the consumers pay) is government taxes.
And while the chorus in the developed world, including the important G-7 deepening, for the OPEC to be more transparent and open its taps further, Minister of Petroleum and Mineral Resources Ali Al-Naimi almost turned the tables on them by saying that Saudi Arabia was spending $50,000 million to raise its output capacity, but definitely needs a clearer picture of where the extra production was needed. A clear question of greater transparency on part of consumers too!
The producers too need a road map, he stressed. Seeking the road map for demand in consuming nations, he stressed, “as producers we do not want to build the facilities which will not be met by demand.”
In times when rigs and even skilled labor are in short supply pushing up the overall costs to bring on stream new wells, the oil producers can not afford to take a gamble and invest in facilities which not only may not be required, but could ultimately also floor the global crude markets. Oil producers are officially and strategically striving for “fair pricing” and should not be expected to floor the crude market prices.
