Book reviews

Jorge Sabato on Latin America. Two important points in these papers were the sheer impossibility of meeting the future energy needs of the populace of underdeveloped countries without some major new energy source, and the unacceptability of the 'big brother' attitude that these countries are unfitted to have nuclear energy except in a black box which they must not peer into (the final report supported the developing countries' attitude on this).

Jan Prawitz's analysis of the relationship between nuclear energy and nuclear weapons was very sensible, practical and commendably succinct. The papers by the two ethical philosophers, Shinn and Siegwalt, were also good of their kind.

The one paper that stood out like a sore thumb was by Hannes Alfven. It appeared in the section 'Alternative energy sources', but was largely a typical attack on nuclear energy, with the usual tendentious asides and innuendo - 'big industries ... switched ... to the development and manufacture of reactors, a profitable area because the US Government paid and took all the risks', and 'Energy policy decisions were distorted because the primary goal was not how to cover the energy need of the country but how to find an application for a tomic energy' . Accuracy took second place to effect, and there was the customary use of monster a d j e c t i v e s - 'an enormous increase in the production of plutonium', 'huge amount of waste products'. As one might expect, plutonium and strontium are described as 'the most poisonous elements we know' - they are not, of course. There was also an example of a frequent anti-nuke ploy of making a vaguely attributable statement in the hope that it will be taken as a fact: 'It has been claimed that fission energy is much cleaner (than burning coal) and hence ... is preferable. Some ecologists call fission energy "the most dirty of all energy sources". ' Does that in fact make it so? Would it make Hannes Alfven the most inaccurate commentator on nuclear energy if I were to say that some nuclear engineers say he is? In the middle of the paper there were some rather hurried paragraphs on the alternative sources - giving the impression that they were simply waiting in the wings and have no

defects. One had to look to the other papers to discover that exploiting the high thermal gradient of hot rocks might cause earthquakes - which really do kill people by the thousand. It is a pity that this paper and the somewhat unbalanced introductory chapter had to spoil an otherwise excellent book.

The biters bit

In The Health Hazards o f Not Going Nuclear Beckmann provides a field day for those of us in the nuclear business. Most of us are so disenchanted with our o p p o n e n t s ' e x a g g e r a t i o n s and misrepresentations that it does our morale a power of good to see an independent like Beckmann - he has no connection with the nuclear industry - laying into the critics with the same lack of restraint that they show to us. But behind it all lies much more respect for the facts. His style is colloquial and very readable, and despite its 190 pages, the book can be read in one sitting. It is also full of good platform quotes for pro- nukes. Behind the fireworks, however, there is some very sound philosophy, and the author makes two important general points. Firstly, the nuclear spokesmen have been wrong to argue the case for nuclear energy in terms of absolute quantities and on the basis that the benefits outweigh the risks. According to Beckmann, they should have stuck strictly to a relative case, comparing nuclear energy with the al ternat ive ways of producing electricity. Secondly, the nuclear debate has been frustrating because there is no scope for debate. According to Beckmann, nuclear energy is superior to the alternatives on every count - safety, other environmental impact, and cost - and the margins of superiority are wide.

This is the whole theme of his book: he does not say that nuclear energy is safe (nothing is completely safe), or that the benefits outweigh the risks (which is a matter of personal opinion); he says simply that, of all the ways of producing electricity, nuclear energy is the safest, cleanest and cheapest and with the least environmental impact in terms of such factors as land despoilation. Further, he claims to demonstrate that the problems of nuclear proliferation and the risk of terrorists misusing nuclear materials will not be removed - or indeed be

significantly reduced - by banning civil nuclear energy. ' I f the • Palestine Liberation Organisation plants a nuclear bomb in Manhattan, what difference would it make what percentage of US electrical capacity is nuclear and what percentage is coal- fired?' he asks.

It is all good stirring stuff, some of which is very funny in a cutting way. The pro-nukes will love it; the anti- nukes will foam at the mouth. But, as I said earlier, it may have less effect on the uncommitted than Facing up to Nuclear Power. Mohamed Ali almost certainly is the greatest, but the public would love him more if he acted as if he thought there might be a little room for improvement.

Len Brookes, United Kingdom Atomic Energy

Authority, London, UK

THE FUTURE OF WORLD OIL

by P.L. Eckbo, Ballinger Publishing Company, Cambridge, Mass, 142 + xiv pp, £ 10.65, $16.50

The first part of this book, which was originally an MIT PhD thesis, is a very brief review of the world petroleum market and of experience with commodity cartels other than OPEC. The criterion used to evaluate the success of previous cartels is somewhat arbitrary - cartel efficiency is defined as the ability to raise prices to at least three times unit costs and to maintain such prices for a 'significant period of time'. Moreover, the author's conclusions appear to be at variance with his own findings in at least one case. His investigation of previous cartels shows that the price elasticity of demand for the product tends to be little different as between efficient and inefficient cartels (if anything, somewhat higher for the former), which hardly fits with the conclusion, 'Demand conditions also strongly affected the chances that the cartel agreement worked well and lasted for a reasonable period of time'. Eckbo concludes, as others have done, that the principal characteristics which OPEC

170 ENERGY POLICY June 1977

shares with previously successful cartels are the short-term price inelasticity of demand for oil, the high degree of con- centration of world oil exports, and the substantial cost differences among members. The main point of interest in the early part of the book is the suggestion that, if OPEC were to follow the pattern of earlier efficient cartels, it would be likely to last 4-6 years initially, although after any breakdown other cartel-like organisat ions would probably re-emerge.

Chapters 4-7 contain some original modelling work on the international petroleum market. Eckbo argues, quite rightly, that formal oligopoly models are not very helpful in analysing real oligopolistic markets and that simulation is more useful. His basic hypothesis about cartel management is that the optimum cartel price is what would have been charged by a monopolist. The task of a cartel, given this joint profit-maximising price, is to design a production/profits allocation system which removes incentives for members to break away from this price.

Eckbo's model is of the MIT 'bathtub' variety - it ignores the oil transportation system, the heterogeneity of crude oils and the locations of oil exporters and importers. The heroic assumption is made that world oil exporters face a 'residual' demand - this seems to be the common assumption that net oil imports into the industrial countries are what is left over after subtracting indigenous supplies and non-oil imports from total energy demands. In this book, as in other studies which assume oil is a residual, it is by no means clear what the assumption really means. Eckbo states that the 'international price of petroleum determines the price that can be charged for all fuels, and thus the quantity supplied of all other fuels', from which one might just as reasonably conclude that the other fuels are the residual element in the market!

Readers, part icularly those unfamiliar with simulation models, would do well to examine carefully the assumptions set out in Chapters 5 and 6. Inevitably, in this kind of modelling, some debatable assumptions have to be made. The Eckbo model includes the following: oil's energy market share appears to be a function simply of the

price of oil rather than the price of oil relative to other fuels; the indigenous oil supply function similarly includes only the oil price. It is rather arbitrarily assumed that the adjustment to a price change in both the demand for and the supply of energy can be approximated by a ten year moving average. 1979 proved recoverable reserves are used as a proxy for ultimately recoverable reserves. In constructing a 'base case' to assess how various oil exporter strategies may influence world oil prices, Eckbo uses scaled-down versions of price elasticities taken from the 1974 OECD Energy Prospects to 1985 and the FEA Project Independence Report. One should bear in mind that the OECD report has now been superseded by the 1977 Worm Energy Outlook and that the FEA report is very dated.

In the final chapter, Eckbo explains the results of various simulations which are of considerable interest, provided one bears in mind the assumptions made. Two versions of the bathtub model are used. A simple one assumes that there is just one oil exporting unit shipping its product to four import units (Western Europe, the USA, Japan, and the rest of the non-communist world). Indigenous suppliers in the importing units are price-takers and countries can transfer from the exporting unit to the indigenous suppliers. Results from the simple version are compared with the 1974 OECD projections at a Persian Gulf (1972) price of $9/bbl. OPEC production is estimated as about 2 million bbl/day lower than the OECD figure in 1980, and about 2½ million bbl/day higher than OECD in 1985. OPEC price and production time-paths are also estimated for an 'OPEC breakdown' in the 1979 case (which yields a 1980 oil price of just over $3/bbl in 1975 prices); for a joint profit- maximising strategy ($9.65/bbl in 1980); and for two cases in which only some of the present OPEC members follow the monopoly strategy. A very simplified analysis of the effects of uncertainty over future prices is made by assuming that the expected price of oil is a weighted average of the actual price and a $6 price.

The cartel version of the model explores various types of collusive agreements within OPEC, grouping members into three categories - ' h a r d

Book reviews

core', 'price pushers' and 'expansionist fringe'. Investigations are made of the implications of imposing output quotas based on 1973 production, of financial quotas which would allow the OPEC countries with greatest requirements for extra income to increase their output at the expense of the hard core (Saudi Arabia, UAE, Kuwait, and somewhat surprisingly, Libya), and of other pro- rationing systems. Eckbo says that none of his scenarios allows the expansionist fringe (Indonesia, Nigeria, Iraq, Gabon) to cover their import bills beyond 1978, and so it is possible that these countries will produce to full capacity, either bringing down the price or forcing the other countries into sharp output reductions. If the price pushers (Iran, Venezuela, Algeria, Ecuador) were also to produce to full capacity the impact on the cartel core would be so large that a price war might ensue. Even from the limited number of cartel scenarios considered by Eckbo, a wide range of possible 1980 oil prices emerges, from $5.58 to $11.70 in 1975 p r i c e s - presumably for Light Arabian fob Persian Gulf, though in one table Eckbo refers mistakenly to Arabian Medium, and he is generally not very explicit about what he means by 'oil prices'. After 1980, prices increase on all the scenarios.

The book represents a brave effort to make progress by quantifying the future of a very uncertain market. It has some of the failings frequently associated with a doctoral thesis, in particular the occasional failure to be explicit about methods and assumptions, a shortage of cross-references so that readers can easily identify the clarifications and the symbols used, and less willingness than one would like to comment on how robust are the conclusions. Nevertheless, Dr Eckbo has drawn attention to a number of significant elements in the world oil market - perhaps, above all, the shortage of regulatory instruments in the OPEC organisation - even if he has not fulfilled the exaggerated expectations which are bound to arise from a title such as The Future of Worm Oil.

Colin Robinson, University of Surrey,

Guildford, UK

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