Oil prices spooked by the crisis in Libya fall back slightly as Saudi Arabia increases exports, but one analyst tells Channel 4 News the industry may be under-estimating the threat in Saudi itself.
Oil prices, which have been rising steadily towards $120 a barrel because of the fall in output from Libya, fell slightly on Friday to $111 a barrel.
Global markets had been reacting to fears that the unrest in Libya could spread to other oil-producing countries, in particular the Gulf states such as Saudi Arabia. Libya accounts for just two per cent of the world's oil exports, although is provides larger amounts to nearby countries such as Italy.
There are reports that rebels are in control of nearly all oilfields east of the Libyan town of Ras Lanuf, with terminals working at 25 per cent capacity.
Saudi Arabia has announced that it will produce more oil to fill the shortfall caused by Libya's political crisis, but experts say Saudi Arabia cannot directly replace Libyan output. Saudi oil is heavy and Libyan is lighter and more suitable for petrol - and Libyan oil goes mainly to Italy and France, a long way from the Saudi pipelines.
According to Paul Roberts, author of The End of Oil, this matters. He told Channel 4 News: "This mismatch is real and it's one reason why prices are going up. The oil that Libya exports is unique, it's suited to European refineries to make diesel."
He said that no-one could predict what would happen.
"The larger question is what happens if the unrest spreads at all," he said. "Iran, Iraq, Saudi Arabia and Kuwait are all repressive Governments. Up until two weeks ago the oil community was not building in a risk premium for Libyan oil, which meant that they had vastly underestimated the political instability under the surface in Libya. Are they doing the same in Saudi and Iran?"
Will 'strategic stocks' get us through a crisis?
John Mitchell - an Associate Fellow at Chatham House and an expert on energy economics - told Channel 4 News that there was no immediate threat to oil supplies at a global level.
"Commercial oil stocks in Europe and North America are quite high and behind that are strategic stocks held under Government control and only released in a real emergency," he explained.
"All the oil producers have spare capacity and the International Energy Agency has the power to use 'flexible measures' which ensure that if one country is badly affected by problems with oil supplies, it can bring countries together to ensure it doesn't create a crisis. "
The US Government currently has 726 million barrels of oil stored in underground caverns around the Gulf Coast for use in emergencies. That would supply the United States for 80 days. But the world wouldn't need to turn to reserves simply because of a fall in exports from Libya. The OPEC countries have spare capacity, with Saudi Arabia alone having enough spare capacity to cover the whole of Libya's output.
'Forty years ago would have been a good time to start looking at alternatives to oil'
Michael Levi is a Fellow for Energy and the Environment at the US Council on Foreign Relations. He agrees that current price rises are based on what might happen in the future, not what is happening now.
"People are nervous and are protecting themselves and the reaction if they do lose some money," he said. "The odds of this spreading to Saudi Arabia are very low, but people are buying themselves insurance against this and it is about what might happen, not the issues so far."
Levi says that the world should have started looking at alternatives to oil a long time ago, telling Channel 4 News: "Forty years ago would have been a good time to start working on alternatives. Not enough is being done to drive down the cost of alternatives to oil, that is unquestioned."
But he doesn't believe that this crisis will mean a change of heart. "The problem is, there is so little agreement on what should be done that even greater urgency doesn't move us forward. Views are so divergent that it isn't a spur to action. This situation is just as likely to make everyone believe more strongly in their pre-existing ideas."
Paul Roberts says the only thing that is certain is uncertainty. He points out that all the oil reserves being discovered are in hard to reach or politically-unstable countries. "Most of the readily accessible oil is in politically-turbulent places. If the Middle East were to go through political transformation all bets are off in terms of what that could mean."
25 February 2011
01 February 2011
25 February 2011