Wednesday, January 30, 2008

[PBN] EU emission targets pose long term worry for oil producers


01.23.08, 11:10 AM ET

LONDON (Thomson Financial) - The European Commission's revamped energy
programme, which aims to reduce greenhouse gas emissions and combat
climate change, has likely got oil producers fretting over their income
prospects and could end up softening demand for crude in the long run.

While the reworked programme, released earlier today, is having no
impact on the current oil price, producers will see the EC decision to
ramp up its battle against carbon emissions as a worrying development.

'The Middle East and OPEC are certainly concerned about any energy
legislation that will restrict carbon emissions,' Geoff Pyne, an analyst
at, told Thomson Financial News.

'As far as OPEC is concerned, that (the EC programme) puts downward
pressure on prices,' he said, qualifying the statement by adding: 'It's
a long-term worry.'

The EC today proposed a 20 pct cut in carbon dioxide emissions so that
by 2020 they are 20 pct lower than in 1990. If a wider international
agreement is reached, the target could be increased to 30 pct by 2020.

EC president Jose Manuel Barroso has called for a 50 pct cut in global
carbon dioxide emissions by 2050.

The EC also set binding carbon emission cut targets for the bloc's
member states as part of its climate action and renewable energy package.

In its latest report, OPEC, which pumps around 40 pct of the world's
fuel, showed some concern about the renewable fuel industry.

'High (crude) oil prices are helping the alternative fuel industry to
become economically feasible and, in turn, reduced governmental
subsidies,' it said in its monthly report yesterday.

However, the cartel's team of analysts added that the biofuel industry
is being struck by setbacks.

'Increasing biofuel production has caused food prices to accelerate and
led to massive deforestation worldwide. It has also become questionable
as to whether ethanol can be considered 'green' since it may not cut
carbon dioxide emissions as was believed,' it said.

Oil is currently trading around the 88 usd per barrel mark and is over
10 pct lower than the 100 usd record set in the first week of January.

Veronica Smart, an analyst at the Energy Information Centre, said
investors are selling oil because the demand outlook is wavering amid
fears of a recession in the US, the world's biggest energy consumer and
not longer term concerns over energy efficiency.

But she added that the case for alternative fuels could be strengthened
amid such fears and especially in light of the EC's new programme.

The market would eventually see 'an offsetting of crude oil demand
because of energy efficiency measures,' she said.

Like OPEC analysts, Smart said she was concerned, however, about the
extent to which biofuels are helpful for the environment considering the
amount of land that is deforested to plant crops and oilseeds.

'They can be good, but the quantities involved would be detrimental to
the environment,' she said.;



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