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The New Oil Cartel Threatening OPEC

By Irina Slav for Oilprice.com.

When reports emerged that India and China are in talks about forming an oil buyers’ club, OPEC was probably too busy with its upcoming June 22 meeting to concern itself with that dangerous alliance. Now, it may be time for it to start worrying.

“The timing is right. The boom in U.S. oil and gas production gives us greater leverage against OPEC,” the Times of India quoted an Indian official as saying last month after the formal start of said talks. The two countries, after all, account for a combined 17 percent of global oil consumption and they are the ones that would be the hardest hit if prices rise as a result of OPEC’s actions.

What’s more, they might not be alone in this attempt to curb OPEC’s clout on the global oil market. According to Bloomberg’s Carl Pope, Europe and Japan, previously reluctant to take part in any anti-OPEC projects, may now join in. The reason they are likely to join in is that unlike in previous oil price cycles, now there are alternatives to fossil fuels.

Electrification is where OPEC may have to face off with a future oil buyers’ cartel.

India, China, and Europe are all very big on EV adoption. Japan is a leader in battery manufacturing. If they set their minds to it, these four players could upend the oil market and effectively cripple OPEC. Of course, this is a best-case scenario of the kind that rarely unfolds in reality.

Let’s take India, for example. A recent survey suggested that as many as 90 percent of Indian drivers were willing to switch to EVs if the government built the necessary charging infrastructure, reduced road taxes, and increased subsidies. Another survey identified price and range as additional roadblocks towards the mass adoption of EVs in India. Because of these challenges, New Delhi recently amended its ambitious goal of having an all-EV fleet on the roads of the country by 2030 to having 30 percent of the fleet electric.

China, for its part, is the undisputed leader in global EV adoption: the country accounted for more than 50 percent of global EV sales last year in case you were thinking, “Wait, wasn’t that Norway?” However, this was in large part made possible by generous government subsidies for EV manufacturing. These subsidies are due to be wound down to 0 by 2020, and carmakers are already beginning to brace for a future without the support of the state. It’s safe to say it remains uncertain if the EV boom will continue after 2020.

This precarious situation with EVs is reason enough for China and India to seek more clout on international oil markets dominated by OPEC and would justify the formation of a “buyers’ club.” Europe, for its part, is, as a whole, a top performer in EV adoption and it is also very big on environmentalism. At the same time, it still imports crude and quite a lot of it, so it cares about oil prices as a large buyer.

China and India are facing challenges in EV adoption. Europe could help and benefit from it. After all, taken together, Europe, China, India, and Japan account for the manufacturing of as much as 65 percent of the world’s cars, and a lot of these are manufactured in Europe. These four also consume 35 percent of the world’s crude oil and would like to reduce this number.

According to Pope, if they get together, they would be able to negotiate either a more gradual or a faster shift to EVs. It would all depend on whether OPEC would agree to maintain lower prices or not.

A more skeptical view would note the challenges in EV adoption such as subsidies and infrastructure. These would take time to be overcome even if everyone played together. Yet long-term, an oil buyers’ alliance could be a force to be reckoned with by the oil producers, and the latter need to start paying attention now.

Link to original article: https://oilprice.com/Energy/Crude-Oil/The-New-Oil-Cartel-Threatening-OPEC.html

Comments

SJC

China needs to promote EVs massively, they are the major growth that is causing the rise of world oil consumption to 100 million barrels per day.

Engineer-Poet

This is silly.  You can get between 2/3 and 4/5 of the fuel consumption cut by going PHEV, using between 1/5 and 1/10 of the battery capacity.  If the goal is to kill OPEC in the near term, BEV is not the way to go.  PHEV is.

Jeffgreen54

It is silly to burn gas at all. Leap frog over gas and get the job done right. This also puts demand on for more clean energy.

Engineer-Poet
Leap frog over gas and get the job done right.

Exactly what an oil-company shill would say.  500k BEVs per year is only a minor hit to them.  5 million PHEVs per year with 1/10 as much battery apiece is an existential peril.

Paroway

500k BEVs per year

Where did you get that? 2017 saw over 1.2 million in EV sales and growth is exponential.

Engineer-Poet
Where did you get that?
Number for discussion purposes.
2017 saw over 1.2 million in EV sales and growth is exponential.
You cite no source for that number, even whether it's worldwide vs. national.  Tesla only delivered maybe 100k.


The USA purchases about 15 million LDVs per year.  If each one going forward was a PHEV with an average of 10 kWh of battery capacity, 150 GWh/yr of batteries would have to be produced.  This is just 3 Gigafactories-worth.

CAFE of the new US vehicle fleet hovers around 26 MPG; at 13000 mi/yr that's 500 gallons/yr fuel consumption.  Cut 2/3 off of this by going PHEV and the figure is cut to 167 gallons/yr, a reduction of 333 gallons.  Multiply by 15 million new vehicles and each year's new production would cut annual gasoline consumption by 5 billion gallons; over 10 years this would come to 50 billion gallons/yr, about 3.3 million barrels/day.  Full penetration would cut fuel demand by ~100 billion gal/yr, about 6.5 million bbl/d.  Net US crude imports are bumping along at just under 4 million bbl/day.  We can do this.

SJC

I agree, PHEV can do more to reduce oil consumption, a better use of batteries.

HarveyD

An alternative way to reduce Oil consumption is to drop large gas guzzling Pick-ups and SUVs in favour of smaller ICEVs, PHEVs and HEVs cars.

That return to normal would also save 6,000 lives/year in USA alone. Vehicles with larger/higher front end killed 46% more (or 6,000) pedestrians in USA last year and 25% more in Canada.

A return to HUMMERS and/or other similar monsters could do more damage and killing.

Stevet321

"This is silly. You can get between 2/3 and 4/5 of the fuel consumption cut by going PHEV, using between 1/5 and 1/10 of the battery capacity. If the goal is to kill OPEC in the near term, BEV is not the way to go. PHEV is."

Very interesting and compelling argument! ......8 years ago

SJC

Americans don't want to give up their SUVs, give them something like the Pacifica hybrid that gets 30 mpg city then they take notice.

Engineer-Poet
Very interesting and compelling argument! ......8 years ago

I first wrote it over 20 years ago.  We still haven't done it all the way yet, but maybe this is finally in motion.

HarveyD

I don't know if 'this is finally in motion' or is completely offset (and more) with many more million large Pick-Ups & SUVs gas guzzlers on the roads in the fast few years.

For every new electrified vehicle it seems that we are buying 5 to 10 new Pick-Ups and/or SUVs. The net result is greatly negative. and major changes are required to make a noticeable difference.

The road to more electrified vehicles may come from ASIA (mainly from China) and soon from Japan, India and So-Korea?

Engineer-Poet

There's a pretty simple way to fix the truck problem:  when the law requires them to become PHEVs, set a minimum all-electric range and a tax penalty for not meeting it.  Either batteries get cheap or people downsize to avoid the cost/tax.  Either way, no big deal.

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