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Real Business : Issue 3 2008
The world’s first oil shock The Organization of Petroleum Countries (OPEC) was set up in 1960 to protect the oil revenue interests of its founding member states: Saudi Arabia, Iran, Kuwait, Iraq and Venezuela. Such distortions might partly explain why so many doomsday prophecies foretelling the demise of the “oil age” made during the past six decades have simply failed to come true: their assumptions were based on inaccurate data. Perhaps the greatest unknown quantity in the current debate is where the world’s remaining untapped oil reserves may be found. Some argue that Saudi Arabia and Iran are yet to achieve their full oil-extrac- tion potential, while others say that the next big oil strikes will be made in central Asia or in the coastal waters off central western Africa. Yet just as a medical scare can shock a patient into adopting a healthier lifestyle, the current oil “crisis” might be good for some nations in the long run. “A rising oil price will also encourage, via competition, the entry of cheaper, more effi- cient and, hopefully, environmentally friendly alternative energy sources,” Pontikis says. But for every solution comes a new set of problems, as Burg points out: “Ethanol- based fuels, to take just one example, nega- tively impact the environment through land clearing, which in turn adversely affects the prices of fuel crops and requires fossil fuel inputs from fertilisers. “Electricity may become our most important ‘alternative fuel’,” he suggests, “particularly through the development of plug-in hybrid vehicles, such as the high-profile Chevy Volt, along with other automakers, such as Toyota, Nissan and Volkswagen, who are also explor- ing this route.” Is the Earth running out of oil? No one can say for sure, or at what rate, but climate change means that this might very well be a moot point. Whether or not the resource is diminishing, our oil addiction is harming the planet. So the search for alternatives is not just an economic reality, it’s an ecological necessity. ¦ The 1973 Arab-Israeli war not only saw OPEC raise its posted oil price by 17 per cent, but also impose an embargo on oil exports to the US, which supported Israel during the conflict. This saw a sharp increase in global oil prices and sparked fears – later proven to be unfounded – that the world’s oil supplies would soon dry up, prompting motorists to queue for miles at petrol stations. THE WORLD’S TOP 10 OIL-PRODUCING NATIONS Each country’s share of the world’s total 12.6% SAUDI ARABIA 12.6% RUSSIAN FEDERATION 8.0% USA 5.4% IRAN 4.8% CHINA 4.4% MEXICO 4.1% CANADA 3.5% UAE 3.4% VENEZUELA 3.3% KUWAIT Source:www.ft.com REAL BUSINESS ISSUE 3, 2008 Buoyed by growing worldwide demand for oil throughout the 1960s, OPEC members not only steadily increased their listed oil price but, in 1971, raised the tax rate paid by foreign oil companies operating on their soil to 55 per cent. $ Dividing the petrol dollar This is the average breakdown of how revenue is shared between the oil industry and the Australian federal government for each litre of fuel sold. 44.0% 40.1% Oil refinery 9.1% 5.0% GST Retailer/distributor costs and profit 1.1% 0.7% Freight Source: IBIS World Australia, Automotive Fuel Retailing in Australia (2004) NET GAINS For more information, check out www.worldoil.com, www.peak-oil-news.info or www.eia.doe.gov/ipm Has the Middle East reached peak production? And what effect will China’s inexorable growth have on oil consumption? Check out http://au.youtube.com/ watch?v=4nyMZ2jIcmQ 31 Wholesaler costs and profit Federal government fuel excise ISTOCK
Issue 1 2009