OPEC cuts output to prop up prices

 CaliforniaGeo 12-5-16

As reported by the Associated Press, OPEC will cut production for the first time in eight years as a step to prop up prices.  In theory, less supply raises prices if demand is otherwise steady.  But skeptics forecast that individual OPEC producers will cheat, exporting more than their assigned allotment.

Why?

The reasons for OPEC’s plight are two.  Major production increases from non-OPEC countries with lots of hydraulic fracturing to squeeze heretofore inaccessible oil from porous rock, and big cuts in consumption.  Both are especially true in  the USA.

Fracking helped beat up on OPEC

Since the oil embargo of 1973 when OPEC came to prominence amid unbridled consumption gluttony in the developed world, there has been a reversal of sorts.  OPEC became addicted to easy and cheap revenue from its oil exports to support modernization and heightened living standards.  Often in the poorer OPEC nations, such revenue was used to underpin weak economies and government price supports for food and other basic staples.  The efficiency of crude extraction also varies between OPEC nations and affects the breakeven price that must be sought from exported oil.

Sale prices to avoid net losses

The worldwide threat of climate change by continued generation of greenhouse gases has curbed the appetite of some nations for oil-based energy.  This will continue as a result of the Paris Climate Agreement of December, 2015.  The transportation sector is becoming greener with increasing hybrids, pure electric cars and hydrogen fuel-celled vehicles.  All these actions reduce demand and threaten OPEC’s former cash pipeline.

Although bountiful domestic US oil production from fracking has threatened OPEC, it has come at significant environmental and societal cost from water consumption/pollution and earthquake swarms and damage in places formerly with few such events.

This serves as a reminder that renewable energy such as electricity from sun, water, and wind and thermal energy from underground via geothermal heat pumps are the ticket.  There’s no pollution to endure. and because renewable energy is free, no one can put us “over a barrel.”

Geo heat pumps run on increasingly renewable electricity and are the most efficient HVAC equipment on the planet.  There’s no import—export process or tax levy because the energy is all produced on the building site.  What could be greener, or more sustainable?

—Bill Martin