Breaking OPEC Monopoly on Oil Price

[ashwal]

Energy Victory: Winning the War on Terror by Breaking Free of Oil. : By Robert Zubrin ...

Here is a simple solution suggested by this auther ..




"The key thing is to break the oil cartel, which is the instrument that the enemy has used to fix prices and fabulously multiply their profits, and thus their power. This cannot be done through US conservation, for two reasons; first because with demand growing elsewhere, no conceivable conservation effort here could effect the global oil price. Secondly, even if we could hypothetically somehow create global conservation, the OPEC could deal with it simply by cutting production to match.
However there is a way to break OPEC, and it is surprisingly simple. What is needed is for the US congress to pass a law mandating that all new cars SOLD (not made, but sold) in the USA be flex fueled -- which is to say able to run on any combination of alcohol or gasoline fuel. These cars are existing technology -- in fact about 24 different models of flex fuel cars are being produced by the Detroit big three this year, and they only cost about $100 more than the same car in a gasoline-only version. But they only command about 3% of the new car market, because there is little upside to a consumer in owning one, since alcohol fuel pumps (such as E85, a fuel mix that is 85% ethanol, 15% gasoline) are nearly are rare as unicorns. And the reason, of course, why E85 pumps are not to be found is that gas station owners don't want to dedicate one of their pumps to a kind of fuel that only a few percent of the cars can use. But if we had a flex fuel mandate, then within three years of enactment there would be 50 million cars on the road in the USA capable of running on high-alcohol fuels, and under those conditions, E85 and M50 (a 50% methanol, 50% gasoline fuel mix -- flex fuel cars can use any alcohol, including methanol) pumps would start appearing everywhere.
But most importantly, this would not just be happening here in the USA, but worldwide, since by mandating that all new cars sold here had to be flex fuelled, we would be forcing all the foreign car manufacturers to switch their lines to flex fuel as well, effectively making flex fuel the international standard. So not only would there 50 million cars in the USA within 3 years capable of running on alcohol, there would be hundreds of millions worldwide, forcing gasoline to compete everywhere against alcohol fuels that can be produced from numerous sources. This would effectively break the vertical monopoly that the oil cartel currently holds on the world's fuel supply, constraining prices to the ~$50/barrel range, because that is where alcohol fuels become competitive. It would also create a market that would mobilize tens of billions of dollars of private investment into areas such as cellulosic ethanol and other advanced alcohol production techniques that will cheapen alcohols further and radically expand their potential resource base (although methanol already can be produced from any kind of biomass, without exception, as well as coal, natural gas, and urban trash.)
Then, with such a production and distribution infrastructure in place, we could proceed to not merely contain the petrotyrranies, but wipe them out by implementing tax and tariff policies that favor alcohols over petroleum. Effectively we could take over a trillion dollars a year that is now going to the oil cartel, and direct it towards the world agricultural sector instead. This would not only be of great benefit to farmers here, but an enormous boon to the third world, which otherwise faces brutal looting through the extremely regressive tax imposed on them by continued unconstrained OPEC price hikes. Thus there is not just a strategic and economic case for breaking OPEC, but a very strong humanitarian case as well."

 

[sumeetmalik]

Energy Victory: Winning the War on Terror by Breaking Free of Oil. : By Robert Zubrin ...

Here is a simple solution suggested by this auther ..




"The key thing is to break the oil cartel, which is the instrument that the enemy has used to fix prices and fabulously multiply their profits, and thus their power. This cannot be done through US conservation, for two reasons; first because with demand growing elsewhere, no conceivable conservation effort here could effect the global oil price. Secondly, even if we could hypothetically somehow create global conservation, the OPEC could deal with it simply by cutting production to match.
However there is a way to break OPEC, and it is surprisingly simple. What is needed is for the US congress to pass a law mandating that all new cars SOLD (not made, but sold) in the USA be flex fueled -- which is to say able to run on any combination of alcohol or gasoline fuel. These cars are existing technology -- in fact about 24 different models of flex fuel cars are being produced by the Detroit big three this year, and they only cost about $100 more than the same car in a gasoline-only version. But they only command about 3% of the new car market, because there is little upside to a consumer in owning one, since alcohol fuel pumps (such as E85, a fuel mix that is 85% ethanol, 15% gasoline) are nearly are rare as unicorns. And the reason, of course, why E85 pumps are not to be found is that gas station owners don't want to dedicate one of their pumps to a kind of fuel that only a few percent of the cars can use. But if we had a flex fuel mandate, then within three years of enactment there would be 50 million cars on the road in the USA capable of running on high-alcohol fuels, and under those conditions, E85 and M50 (a 50% methanol, 50% gasoline fuel mix -- flex fuel cars can use any alcohol, including methanol) pumps would start appearing everywhere.
But most importantly, this would not just be happening here in the USA, but worldwide, since by mandating that all new cars sold here had to be flex fuelled, we would be forcing all the foreign car manufacturers to switch their lines to flex fuel as well, effectively making flex fuel the international standard. So not only would there 50 million cars in the USA within 3 years capable of running on alcohol, there would be hundreds of millions worldwide, forcing gasoline to compete everywhere against alcohol fuels that can be produced from numerous sources. This would effectively break the vertical monopoly that the oil cartel currently holds on the world's fuel supply, constraining prices to the ~$50/barrel range, because that is where alcohol fuels become competitive. It would also create a market that would mobilize tens of billions of dollars of private investment into areas such as cellulosic ethanol and other advanced alcohol production techniques that will cheapen alcohols further and radically expand their potential resource base (although methanol already can be produced from any kind of biomass, without exception, as well as coal, natural gas, and urban trash.)
Then, with such a production and distribution infrastructure in place, we could proceed to not merely contain the petrotyrranies, but wipe them out by implementing tax and tariff policies that favor alcohols over petroleum. Effectively we could take over a trillion dollars a year that is now going to the oil cartel, and direct it towards the world agricultural sector instead. This would not only be of great benefit to farmers here, but an enormous boon to the third world, which otherwise faces brutal looting through the extremely regressive tax imposed on them by continued unconstrained OPEC price hikes. Thus there is not just a strategic and economic case for breaking OPEC, but a very strong humanitarian case as well."

Good point there Ashwal. The hinderance is the oligopoly practice of the oil companies here in US. They dont want flex fuels for obvious reasons and they are too strong to oppose major developments.

 

[sumitsehrawat]

The Plan To Destroy OPEC

Hey Ashish thanks a lot for starting this.
Here's another interesting one:
http://www.energy-daily.com/reports/The_Plan_To_Destroy_OPEC_999.html


The Plan To Destroy OPEC

Los Angeles CA (SPX) Nov 27, 2007
Venezuela's Hugo Chavez says he wants to send oil to $200 a barrel. Robert Zubrin has a plan to stop him. In his just released book, Energy Victory: Winning the War on Terror by Breaking Free of Oil, Zubrin, an American aerospace engineer known previously primarily for his inventive approach to Mars exploration, lays out the strategy.

To say the book is remarkable, would be a severe understatement. Combining soaring idealism, incisive thinking, and a viscous go-for-throat killer instinct in a single package, Energy Victory is the first book I have ever read that actually lays out a credible plan to turn around the world energy situation.

Let's talk about the killer instinct first. Zubrin wants to destroy the oil cartel. In fact, I think a better title for this book would have been "The Plan to Destroy OPEC", and "Why We Must". He has Saudi Arabia and Iran dead center in his sights (he even provides an aerial photograph and targeting information of the Iranian oil export terminal on Kharg Island.) The second and third chapters of the book are entitled Terrorism: Your Gas Dollars at Work (Part 1), and Corrupting Washington: Your Gas Dollars at Work (Part 2), respectively.

Backed up by no less than 84 footnotes, the dossiers presented in these two chapters, particularly of Saudi involvement in the promotion of international terrorism and influence peddling in Washington, are forceful and convincing. He also alludes to Iranian bribery of Moscow officialdom, but unfortunately is rather more sketchy in that department. Suffice to say, however, that there are plenty of people in Riyadh and in both parties of the American political establishment who are not going to be happy when they read this book.

Having thus established that there is considerably more at stake in the energy battle than the pump price of gasoline, Zubrin gets down to the matter of how to win it. This is where the incisive thinking comes in, and is, in my view, the best and most valuable part of the book. You see, Zubrin really does have an answer, and as surprisingly simple as it is, I think it just might work.

In a nutshell, his proposal is this: that the American congress should pass a law mandating that all new cars sold in the United States be flex-fueled, which is to say able to run on any combination of gasoline or alcohol fuels. Flex fuel is proven technology which only adds a few hundred dollars to the cost of a car.

In 2007, roughly 90 percent of all cars sold in Brazil were flex-fueled, but outside of that country, their market share was quite low - comprising about 3 percent of US auto sales, for example. However, as Zubrin argues convincingly, if it were mandated that every new car sold in the USA had to be flex fueled as a standard feature, then practically every auto manufacturer in the world would be forced to switch their lines over to flex fuel.

Thus the effect of a US flex fuel mandate would be global, and within a few years, put hundreds of millions of cars on the road worldwide capable of running indifferently on either methanol, ethanol, or gasoline. With such a market available, alcohol fuel pumps and associated infrastructure would quickly appear, and the vertical monopoly that the oil cartel holds on the world's vehicular fuel supply would be broken, as gasoline would be forced to compete everywhere against alcohol produced from multiple sources, including biomass, coal, stranded natural gas, recycled urban trash, and so forth.

To be sure, such a development would not quite destroy OPEC. Alcohol fuels are only competitive against oil when the price exceeds about $50 per barrel. So in a free market, the best Zubrin's plan could accomplish would be to send oil prices back down to that level. Still, in the face of current oil prices of $100 per barrel, and much worse potentially in the offing, forcing the price back to $50/bbl and containing it at that level would certainly be an enormous accomplishment.

Which brings us to Zubrin's idealism. He doesn't just want to take away the Saudi's treasure. He wants to use it to end world poverty. He says: "Instead of financing terrorism, our energy dollars could be used to fund world development. Instead of selling blocks of our media to Saudi princes, we could be selling tractors to Africa. Instead of paying for death, we could be helping to spread life. Instead of buying arms for our enemies and chains for ourselves, we could be building a world of prosperity and freedom."

I think he goes a bit over the top here, but there is substance to his case. His points are threefold.

First, that OPEC's jacked up oil prices represent a massive regressive tax on the world's poorest nations. Of this there can be no doubt - it's one thing to pay $100/bbl when you make $200/day, it's quite another when you make $2/day.

Second, he says that by going to alcohol fuels, which can be produced by many kinds of resources, including biomass readily producible by tropical agricultural nations, a substantial fraction of the revenue that is now going to the OPEC petrotyrannies could be much more widely distributed.

As Zubrin points out, in 2005, Saudi Arabia, with a population of 24 million received $150 billion in foreign exchange revenues from oil, while Kenya, with 36 million inhabitants, took in $2.5 billion in foreign exchange earnings from all sources. So distributed more equitably, the Saudi's profits could double the foreign exchange earnings of 60 countries the size of Kenya. That's quite a thought.

Having been to Africa, I have my doubts as to how much of that money would actually reach the poor, but still, one must concede that some probably would, at least indirectly, by providing revenue for national development.

Thirdly, Zubrin makes a strong point by showing how redirecting petroleum dollars towards biomass-based fuels could expand the market for farm products to the point where advanced sector nations might be induced to drop their trade barriers against third world agricultural imports. This certainly would be good all the way around.

For the rest, Energy Victory, contains further chapters backing up Zubrin's main thesis with charts, tables, figures, and footnotes, as well as informative digressions discussing the successful Brazilian experience in achieving energy independence, ways in which biofuels can act in the long term to mitigate global warming, and a fascinating oil-centered analysis of the geopolitical history of the Twentieth Century, especially World War II, in which he shows how the very destiny of humanity hinged on who controlled the fuel supplies.

As Zubrin puts it: "So the crux of the matter comes down to this: Do we want to win or lose? The issue at stake in energy security is not a matter of whether the price of gasoline will be $2 per gallon or $3 per gallon; it is who will determine the human future. Do we want to have the enemy's fate in our hands, or do we want to have ours in theirs?"

Indeed. That is the issue at stake, and finally, someone has published a book that really lays it on the line. Energy Victory is a knock out. It should be read by everyone concerned with policy in this vital area, and its central recommendation implemented as rapidly as feasible.

Mr. Chavez, you could be in for trouble.



Thanks,
Sumit

 

[sumeetmalik]

'In 2007, roughly 90 percent of all cars sold in Brazil were flex-fueled, but outside of that country, their market share was quite low - comprising about 3 percent of US auto sales, for example. However, as Zubrin argues convincingly, if it were mandated that every new car sold in the USA had to be flex fueled as a standard feature, then practically every auto manufacturer in the world would be forced to switch their lines over to flex fuel.'
I didnt know that Brazil is so ahead of the world in applying Flex-fueled cars! I knew about its ethanol producing and exporting capabilities but not this.
Something should be done to control the rising fuel costs. My fellow American mates are also facing the brunt. In the last five months that I've been here the prices have risen by half a dollar per gallon.
I was speaking with a friend recently about Tesla Motors. If Silicon Valley gets into alternative fueled cars, Detriot will have to do something about it.
Of course, the oil company nexus has also to be dealt in some way. It is too strong. The senate is on their payroll.