'SUICIDAL' OIL CONSUMPTION COULD DRAIN RESERVES BY 2030

by Humberto Marquez

(IPS) -- While this year's record high oil prices are unlikely to fall in the near future, analysts are warning the world's traditional and emerging economic powers to curb consumption.

Without conservation, proven reserves will only meet demand up to 2030, they say.

"The current model (of consumption) is suicidal," Venezuelan Energy Minister Rafael Ramirez recently told journalists. "The United States, for example, will use up its oil reserves in 10 years, and after that it will go after its rivers, lakes and forests."

Last month, Senate Democrats narrowly blocked a Republican-led bill that would have allowed drilling for oil in Alaska's Arctic National Wildlife Refuge, which has an estimated 10 billion barrels in reserves.

The United States devours one out of four of the 84 million barrels of oil consumed daily around the world, and one out of two liters of gasoline.

But the emerging powers are steadily closing the consumption gap. In India, less than 200,000 new cars were sold annually two decades ago, compared to 802,000 in 2004.

"Since oil began to be drilled in 1859, the world has consumed 900 billion barrels -- nearly half of the planet's reserves (according to an oil industry expert quoted by the Wall Street Journal), which means we'll have oil for another 50 years at the most," said Francisco Mieres, a professor of postgraduate studies on the oil economy at Venezuela's Central University.

But because consumption is increasing every year, driven by economic growth rates like those of China -- which have ranged between 7 percent and 11 percent a year -- "oil will perhaps only last until 2030, even including reserves like Alaska's and the Athabasca tar sands" in Alberta, Canada, Mieres told IPS.

That long-term outlook will also be affected by more immediate political factors, "like the difficulties faced by the United States in the Middle East, rebellious governments like those of Venezuela and (the future administration of leftist president-elect Evo Morales in) Bolivia, or the radicalization of Iran's leadership," he added.

On the economic front, Mieres said these developments would discourage investment by large corporations.

He also mentioned the competition between China, India and other emerging powers to get their hands on the available oil resources, and the real or expected decline in deposits in the North Sea, the Caspian Sea, Mexico and Russia's Siberia.

"The era of cheap oil is over," is a phrase repeated over and over by experts like Ramirez, Mieres or Colin Campbell, the founder of the Association for the Study of Peak Oil & Gas (ASPO).

U.S. benchmark West Texas Intermediate (WTI) crude soared to $70.85 per barrel on Aug. 30, when Hurricane Katrina devastated New Orleans and much of the U.S. Gulf Coast oil-producing region.

The Organization of Petroleum Exporting Countries (OPEC) basket of crudes averaged $50 a barrel this year, bringing the members of the oil cartel more than $500 billion in revenues. By comparison, the average price stood at $36 a barrel in 2004, and $28 in 2003.

And the year is coming to an end with international oil prices ranging between $50 and $60 a barrel.

Nevertheless, the late January OPEC ministerial meeting "should decide to reduce output to keep prices from dropping," said Ramirez.

The members of OPEC -- Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, the United Arab Emirates and Venezuela -- pump a combined total of 30 million barrels a day.

And OPEC president Sheikh Ahmad al-Fahd al-Sabah visited Moscow this week to persuade Russia, the world's second biggest oil producer after Saudi Arabia -- it produces 9 million barrels a day -- to cooperate with the cartel, in order to avoid flooding the market.

OPEC, according to al-Sabah, would be willing to withdraw up to 2 million barrels a day from the market if springtime is warm as forecast, which would lead to a drop in demand in the second quarter of 2006.

But Ramirez asserted that "the responsibility for supplies and prices cannot only fall on the shoulders of producers."

"Importer countries, whether industrialized or emerging economies, should rationalize consumption," he argued.

In addition, "the burden of internal taxes is overwhelming," he said. "In Europe, for example, taxes account for 70 percent of the final price for energy paid by consumers."

Venezuelan Foreign Minister Ali Rodriguez, a former OPEC secretary-general, said that "in this respect, France is more of an 'oil country' than those of the Persian Gulf, because the French state obtains more revenues from oil than the countries in that region."

And in small countries like those of Central America, whose oil bill has doubled over the past three years to nearly $5 billion a year, one out of every three dollars paid by consumers in gas stations goes to taxes.

Ramirez also stated that "the markets cannot be stabilized if political instability is provoked in producer countries, because that gives rise to high costs and uncertainty." He pointed to the U.S. invasion of Iraq, and the Bush administration's pressure on Iran and open hostility toward the Venezuelan government of Hugo Chavez.

This year, international oil relations shifted after the Chavez administration reached cooperation agreements based on oil supplies. Mexico also took steps in that direction.

Chavez launched Petrocaribe, an alliance under which Venezuela will provide 198,000 barrels a day of oil to 13 Caribbean nations, with financing for up to 40 percent of the bill. In addition, Caracas will accept payment in the form of products or services.

Mexico, meanwhile, reached an agreement with its Central American neighbors to build a new refinery and gas pipeline in that region.

Since 1980, Venezuela and Mexico, Latin America's biggest oil producers, have sold 160,000 barrels a day, divided in equal parts, to nations in Central America and the Caribbean on preferential terms, with financing for up to 20 percent of the total cost, under the San Jose Pact.

But the pact has sometimes faced difficulties in implementation because the beneficiaries must in exchange purchase products from Mexico and Venezuela.

Caracas also promoted the creation of Petrosur, based on alliances among South American nations that began with supplies of heating oil and fuel oil to Argentina, to be paid for with agricultural and manufactured goods, as well as a contract with shipyards in Argentina to manufacture and repair vessels for Venezuela's oil fleet.

Paraguay and Uruguay will also receive Venezuelan oil shipments under terms similar to those offered through Petrocaribe. In addition, the state-owned oil companies Petroleos de Venezuela (PDVSA) and Brazil's Petrobras signed agreements and will begin construction of a refinery in northeastern Brazil.

Furthermore, Venezuela set aside deposits in the southeastern Faja del Orinoco -- considered the world's biggest reserve of extra heavy crude oil, with 230 billion barrels -- for joint ventures with state-owned firms from Argentina, Brazil and Uruguay.

South American countries also foresee the construction of a gas pipeline running from Venezuela's Caribbean coast to the Rio de la Plata (River Plate, located between Argentina and Uruguay). The project will involve Bolivia, whose president-elect, Morales, is a political ally of Chavez and other left-leaning leaders in the region.

Even Colombia, which is governed by right-wing President Alvaro Uribe, has entered into an association with Venezuela to build a binational oil pipeline connecting Venezuela's oilfields with the Pacific coast.

Oil producers Ecuador and Peru, and Chile, an oil importer, have also expressed interest in taking part in the new energy integration schemes, which differ from the traditional commercial relations of the past.

The need to ensure supplies of energy, which will soon become scarce, in a context of sustained high prices, has fueled the new forms of cooperation that have been emerging in the developing South.

China, which will purchase 5.4 million barrels of Venezuelan oil this month, hopes to receive a total of 300,000 barrels a day from this country starting in 2006, and has explored with OPEC the possibility of long-term cooperation mechanisms.