What a difference a year makes.
At this time last year, the oil industry was discussing something called "producer-consumer cooperation." An international meeting on the subject had just concluded in Iran. A follow-up meeting was planned in Paris. But the effort all but died after that. Objectives never became clear. No one ever produced a coherent vision of what international cooperation in the oil market would mean or how it might work.
The initiative still represented a breakthrough. It demonstrated concern on all sides about the political conflict that so often characterizes the oil market. It showed hope in a role for international cooperation.
CONTRIVING SHORTAGE
Last month the Organization of Petroleum Exporting Countries decided not to produce enough oil to meet anticipated demand in the second half of 1992. The group rolled over its second quarter production quota of 23 million b/d at a time when demand for OPEC crude was projected to exceed 24 million b/d later in the year. Simply put, OPEC has contrived shortage expectations to drive up the price of crude.
So much for producer-consumer cooperation. Don't blame OPEC, though. Producer-consumer cooperation was history before Saudi Arabia gave OPEC its essential assent to raise crude prices. There's a new focus for international cooperation: saving the world from economic progress. Representatives from 180 nations began cooperating themselves into a fever over the environment last week in Rio de Janeiro. Even before the Earth Summit began, environmental groups were whining about a premeeting absence of acclamation for their extremist agenda, the centerpiece of which was a carbon tax of as much as $10/bbl of oil equivalent.
The carbon tax proposal aims at reducing emissions of carbon dioxide in order to delay or prevent catastrophic global warming, the environmentalist fear of the moment. And it enjoys special political charm: To be effective, all industrial countries must tax combustion of carbon-emitting fuels. International cooperation is essential.
But not everyone likes the idea. A growing body of scientific thought considers it a costly and excessive response to a minor or nonexistent phenomenon. And Saudi Arabia and other key OPEC members-most of them single product economies-view the carbon tax as an act of economic aggression.
So the extremists went to Rio seeking higher oil prices, and now, one way or another, they will have them. OPEC has abandoned the strategy of price moderation it has followed since the mid-1980s in the interest of global economic health and oil market growth. And why not? The consuming world is all but volunteering for higher prices, sacrificing prosperity to environmental politics. Consuming nation governments that openly rebuke every effort of OPEC to raise crude prices now pursue the economic equivalent of higher prices in the form of a stiff carbon tax. By preemptively hoisting crude prices, OPEC has shined welcome light on the core issue of what appears to be an inevitable increase in oil prices: Who gets the money-the people who produce oil or the people who consume it?
A NEW GAME
Suddenly, it's a new game. A carbon tax hurts more with $21/bbl crude than it would have with prices at $18. Maybe governments will have to settle for a smaller tax than they first envisioned-call it the cost of ignoring science-or none at all. And where does that leave the developing countries now claiming a share of the environmental tax take?
International cooperation is a wonderful thing-until someone asks the tough questions. Who, indeed, gets the money?
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
