IEA Chief: biofuels not a threat to OPEC

Reacting to OPEC's recent statement on biofuels, Claude Mandil, the head of the International Energy Agency (IEA), told the Financial Times that, even in the worst-case scenario for the oil cartel, there would be a "dramatic" need for an increase in production by the Organisation of the Petroleum Exporting Countries. "OPEC has nothing to fear. Even in the most optimistic scenarios, the contribution from biofuels would be very small," Mr Mandil said.

The oil producers’ group has become increasingly concerned about efforts in the US and the European Union to cut oil imports. Recently, Abdalla el-Badri, secretary-general of the oil cartel warned that booming biofuels activities may threaten investments in oil production and cause petroleum prices to "go through the roof". Analysts have suspected some tactical move behind the statement. OPEC ministers were however genuinely appalled by the State of the Union address by President George W. Bush in January, in which he said he wanted to "dramatically reduce our dependence on foreign oil."

Mr Mandil now says that even in the worst case for OPEC, in which consuming countries implemented policies to curb oil consumption, the IEA forecast that global oil demand in 2015 would rise by close to 10 million barrels a day, to 94.8 million bpd.

Demand for OPEC oil would be 38.8 million bpd in 2015, up from about 31 million bpd today, while biofuels would provide just 3 million bpd. If the oil-consuming countries did not put in place those further policies to encourage biofuel production and fuel efficiency, OPEC oil demand would be 42 million bpd.

OPEC's historic mistake
In the late 1970s western powers urged OPEC to increase urgently its production capacity as oil prices soared. But the same countries invested in energy alternatives, including nuclear power and natural gas, and energy-saving measures. The result, according to Frédéric Lasserre, of Société Générale in Paris, was that "OPEC invested huge amounts of resources in new oil production capacity, just to realise that when it came on line, in the mid 1980s, the demand had evaporated." OPEC is worried now about repeating this historic mistake:
bioenergy :: biofuels :: energy :: sustainability :: ethanol :: biodiesel :: petroleum :: oil :: OPEC :: IEA ::

The cartel is committed to increase its oil production through more investment. But it has warned: "As the world needs a security of supply, we need a security of demand."

OPEC argues that it is misleading to think the world can wean itself off its need for oil. Abdalla el-Badri, Opec secretary-general, said: "We have no objection to changes in the energy mix but there is not a magic solution for oil."

OPEC’s initial investment of about US$120 billion (€89 billion, £60 billion) to 2012 is already on the way, but a second wave of about US$500 billion will depend on new demand trends. With consuming countries devoting more resources to nuclear power, biofuels, clean coal and energy efficiency, some observers say OPEC is right to be concerned.

"Climate warming will play a key role in the future discussion of western countries’ energy mix and, in there, oil is not well placed," said Mr Lasserre.

The potential of the current generation of biofuels is severely constrained by the competition with the food industry for feed stocks such as corn and wheat. "As the biofuel industry is set up today, there are pretty clear limits to it," said Andrew Shepherd-Barron, an alternative energy expert at KBC Peel Hunt.

"In about five years you have the possibility that we could make biofuels in a completely different way, from cellulosic ethanol or algae. But those technologies are unproven."

Even if there is a breakthrough to those 'second-generation' biofuels, Wood Mackenzie, the consultancy, estimates they might displace only up to 4 per cent of world oil demand in the next decade. But even a marginal change could have a powerful impact on the oil price.

On the other hand biofuels become competitive only when oil prices are very high. This also implies OPEC members are making unprecedented profits that become available for much needed investments.