Geopolitics At $100 A Barrel
By Robert J. Samuelson
Wednesday, November 14, 2007; Page A19
Oil is flirting with $100 a barrel. Do not think this just another price spike.
It suggests a new geopolitical era when energy increasingly serves as a
political weapon. Producers (or some of them) will use it to advance national
agendas; consumers (or some of them) will seek preferential treatment. We
already see this in Hugo Chavez’s discounting of Venezuelan oil to favored
allies, China’s frantic efforts to secure guaranteed supplies, and Russia’s
veiled threats to use natural gas—it supplies much of Europe—to intimidate its
neighbors and customers.
Since World War II, the United States has sought to keep energy—mainly
oil—widely available on commercial terms. America’s foreign policy has been, in
effect, to prevent other nations from using oil to advance their foreign
policies. On the whole, this has minimized conflicts over natural resources and
favored global economic growth. Producing countries focused on maximizing their
wealth; consuming nations relied on the market to get their oil. But shifts in
supply and demand now threaten this system.
Just last week, the International Energy Agency in Paris projected that world
oil demand would grow to 116 million barrels a day by 2030, up from 86 million
in 2007. About two-fifths of the increase would come from China and India;
other developing countries would account for much of the rest. The number of
cars and trucks worldwide would more than double, to 2.1 billion. There’s only
one catch: Oil supply probably won’t satisfy projected demand.
The bottleneck is not scarcity of oil in the ground. Someday that will happen;
it hasn’t yet. Proven oil reserves—discovered oil, deemed recoverable—total
about 1.2 trillion barrels, says the National Petroleum Council, a U.S.
government advisory group of industry and academic experts. That’s 38 years of
supply at present consumption rates. Next is undiscovered oil; the NPC reckons
another trillion barrels. Finally, there’s about 1.5 trillion barrels of
“unconventional” reserves of heavy oil, tar sands and oil shale recoverable at
higher prices.
Producing this oil is another matter. Low prices in the past (1985-2002
average: $21 a barrel) discouraged exploration. Companies consolidated; Exxon
merged with Mobil, Chevron with Texaco. Cutbacks have left shortages of
drilling rigs, pipes, engineers, geologists and drilling crews. In the late
1990s, a deep-water rig could be leased for less than $200,000 a day, says
Peter Robertson, Chevron’s vice chairman; now the cost can run $600,000.
With time, these shortages should ease. A bigger obstacle is access to
reserves. Government-owned national oil companies control perhaps
three-quarters of proven oil reserves. But they often need private companies
(the world’s Exxons and BPs) to explore and develop. Perversely, high prices
make negotiations longer, harder. Governments already have more oil money than
expected. In 2007, OPEC nations are projected to have revenue of $658 billion,
up from about $195 billion in 2002. Governments can afford to be tough and
patient.
Indeed, higher prices have caused them to raise royalty rates and taxes on
private oil firms. Some companies have pulled out rather than accept tougher
terms. In the past year, Exxon Mobil and ConocoPhillips left Venezuela, reports
analyst Simon Wardell of Global Insight. All these problems suggest that world
oil output will advance slowly. For various reasons, Venezuela, Iran and Iraq
are all producing below previous peaks and below potential.
At some point, higher prices will dampen demand; changes in the weather and
business cycle could also lead to lower prices. Still, a major turning point
has been reached. Until now, oil’s main geopolitical threat lay in the
concentration of reserves in the unstable Persian Gulf. Supply disruptions
(1973, 1979-80, 1990) coincided with wars and revolutions. Otherwise, surplus
capacity cushioned losses from accidents and weather. Now, most of that surplus
has vanished. The pivotal year was 2004, when global demand, propelled by
China, rose about triple the expected rate, says Larry Goldstein of the Energy
Policy Research Foundation.
So the tightened gap between supply and demand has shifted power to producers.
“Will competition for scarce resources lead to political or even military
clashes among major powers?” asks a report by the National Petroleum Council.
“Will bilateral arrangements among nations become common as governments attempt
to ‘secure’ energy supplies outside of traditional market mechanisms?”
Here is what we might do: Raise fuel economy standards for new cars and trucks;
gradually increase the gas tax (possibly offset with tax cuts) to induce people
to buy those vehicles; expand oil and natural gas production in Alaska, the
Gulf of Mexico, and off the Atlantic and Pacific coasts. These steps would,
with time, temper the power of oil producers while also checking greenhouse
gases. But many liberals, conservatives and environmentalists oppose parts of a
sensible compromise. The stalemate hurts mainly us.
** Robert Samuelson Samuelson is a 1967 graduate of Harvard University. He
joined Newsweek as a contributing editor in 1984 and writes a biweekly column
which appears in The Washington Post, The Los Angeles Times, The Boston Globe
and other papers.
© 2007 The Washington Post Company
http://www.washingtonpost.com/wp-dyn/content/article/2007/11/13/AR2007111301830.html
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