Middle-east Arab News Opinion | Asharq Al-awsat

Surging fuel prices: Realistically; a capacity challenge | ASHARQ AL-AWSAT English Archive 2005 -2017
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London, Asharq Al-Awsat- It might be easier for British Finance minister Gordon Brown to blame OPEC for the high fuel prices than to tackle the issue with a realistic sense and find solutions for it.

This is not the seventies of previous century and the reasons for high fuel prices are not due to shortage in supply of crude oil, but rather to an unprecedented surge in demand of it along with the fact that most producers around the world have reached the sealing of their production capacity. Natural and manmade disasters, such as &#34Katrina&#34 and the war in Iraq, in addition to China coming into the market as a very large consumer in 2004 all contributed to the high prices of crude.

OPEC is not to blame because the organization has held prices at stable levels for the past quarter of a century and continues to pump more oil into the market in order to stabilize prices when need be. Saudi Arabia, already being the largest producer in the world, is still working to increase its production capacity by almost two million bpd by 2009. The Saudi Arabian oil Company; Saudi Aramco announced last week that they have completed 70 percent of the third stage of an increase of production from their Haradh field (eastern Saudi Arabia) comprising a total increase in production by 900,000 bpd of Arab Light.

It is also widely anticipated that the OPEC meeting, which is to take place in Vienna next week, will discuss a proposal to increase the output from the organization”s members by 500, 000 bpd.

That is the issue of crude prices; however, the issue of inflating fuel prices is a little more complex in each country in Europe and the United States. &#34Katrina&#34 has demonstrated that the issue in America is a refining problem not a crude supply, or for that matter price issue. The prices of fuel skyrocketed when five oil refineries producing only five percent of the total American production had been affected. Nevertheless, America already exports about five percent of its consumption of refined products from abroad even before &#34Katrina&#34. The United States hasn”t built an oil refinery since 1976, and any disturbance in the operation of any for maintenance or otherwise would have the same effect. Another reason is that motor fuel specifications in almost every state is different, which means refineries with access production (if any) can”t assist other areas with different fuel specifications.

America however has spent less on fuel than Europe because it has invested largely in updating its operating oil refineries with complex and costly technologies that would eventually permit these refineries the ability to process heavy sour lower-price crude. Northern Europe has only converted 45 percent of its refineries towards that capacity where the US has reached over 70 percent resulting in savings that would mean spending 10 percent more for Europe during the first half of 2005.

The UK, home of Mr. Brown, has spent more than the rest of Europe (12.5 percent) due to the same reasons as light North Sea oil becomes scarcer and dependency shifts towards importing high-priced light oil instead of investing in costly refinery technology.

This problem is most likely to be highlighted in the prestigious Oil and Money conference, which is known to be attended by influential figures from the energy industry around the world. The conference will be held here next week under the title: &#34The Capacity Challenge&#34. That capacity could be a crude production, or a refining and technological capacity. In all cases, the solution choices with regard to fuel in industrialized countries seem clear: encourage investment in refineries and refinery technology; increase production capacity; decrease taxes on fuel or deal with protests.