OPEC Sabre Rattling: Biofuel Backlash

OPEC is getting sick of developed countries working on alternative energy. Why, the cartel asks, should it invest more in oil exploration, if it is to eventually be replaced by technologies like windmills and electric cars? The head of OPEC said that efforts to find oil alternatives could risk driving oil prices "through the roof". No reason to be subtle. Use direct threats. “If we are unable to see a security of demand…we may revisit investment in the long-term,” the chief of OPEC stated.

The cartel is planning to spend $130 billion through 2012 to raise oil output.

But, OPEC did offer some hope, especially to the large oil companies. The organization said it would need outside investment to improve its ability to produce oil. State-run oil companies in the OPEC nations may not be able to provide all of the capital to expand production.

OPEC’s plan to add nine million barrels a day to its current 30 million between now and 2020 could be a major lift to international exploration and production companies like Exxon (XOM). In exchange for infrastructure investment, multi-national oil companies could gain access to special rights to refine and sell the products of the exploration that they fund.

Unless, of course, the green interests promoting biofuels have their way. In that case, OPEC may not want outside money. It may just raise the prices on the oil it already produces.

The cartel has decided to use the stick of raising prices and the carrot of allowing large oil companies the chance to make more profit. Who can blame them?

Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.