Concerns about rising resource nationalism add to the geopolitical uncertainties in the oil and gas sector, already suffering from a lack of spare capacity in crude oil production as well as petroleum refining. With high oil prices, the issue of nationalism takes on added emphasis.
Since international crude oil price surged by 300% to more than $75 per barrel between January 2004 and August 2006, Asian oil importers started paying closer attention to their energy needs. At the same time, some of their diversified oil supply sources are playing the game of nationalizing hydrocarbon resources.
The ongoing problems in Nigeria, Chad, Venezuela, Ecuador, Algeria, Kazakhstan, and Bolivia provide little relief to the oil consumers.
Mexico and Russia continue to maintain a tighter control on their national hydrocarbon assets.
In a recent industry address, Singapore’s Deputy Prime Minister Prof. S. Jayakumar echoed the global concern by underlining the need to understand how the competition for energy sources influences the policies and strategies of major energy suppliers.
The International Energy Agency (IEA) warned that unless governments set up pro-investment policies and frameworks, the world would face further shortage of oil and gas. Nevertheless, fiscal terms essential for attracting new private sector led investments for the oil and gas industries are not getting any better. According to an IEA scenario in the World Economic Outlook 2006, the world needs $20.2 trillion cumulative investment in 2005 dollars to develop the energy sector during 2005-2030. The electricity generation sector would require $11.3 trillion or 56%, oil $4.3 trillion or 21%, gas $3.9 trillion or 19%, coal $0.6 trillion or 3%, and bio-fuels 1%.
Also, many oil producing countries benchmarked national budgets on $60 per barrel price. Pressured by cash-strapped national budgets, some of the governments in these oil producing countries tried taxing the oil and gas companies. As a result, many companies chose to abandon their contracts and projects.
The multiple, chronic, and politically driven supply disruptions do not help improve export revenues, despite the higher oil prices. Such geopolitical threats could lead to more clashes between governments and the governed, said Antoine Halff, vice president and head of energy at Paris-based FIMAT and a former principal analyst with the IEA. Voters in strife-torn countries are more aware of the benefits of the oil and gas sector than before, and acknowledged that very little of this national wealth was shared with the man on the street.
Markets are watching these developments and fear contagious effects.
OPEC’s decision to cut production in support of oil prices in the $60-range speaks for itself as the type of approach OEPC would take to help the world back to reasonably affordable oil.
A more ambitious approach is seen for building up national foreign exchange reserves through hefty oil profits.
“Since the 1970s (oil shocks), we have been accustomed to cheap energy. Even as our consumption of energy has risen steadily with our rapidly growing economies, we have concurrently taken for granted that the supply of energy will continue to be cheap and sustainable. Recently, however, this idyllic state of affairs has been disrupted,” said Jayakumar.
Asia, led by China’s and India’s strong energy appetites, increasingly depends on the Middle East oil and gas exports, and looks to new supplies from Africa, Latin America, and Central Asia. But any drastic change in governments in these new supply regions would slow Asia’s bubbly economic growth.
“We have seen this happen within the region,” an energy analyst in Singapore said. Since the removal of President Soeharto, Indonesia’s oil production has dropped to just below 1 MMb/d from an average of 1.3 MMb/d before that. In the past, Indonesia had the capacity to produce l.6 MMb/d of oil, a large portion for exports. But today, the country is a net importer of petroleum products, and even cut back on its liquefied natural gas export contracts. The follow-up governments of Indonesia changed the oil and gas law and introduced new reforms into the industry.
One IEA scenario shows that political stable Saudi Arabia, Iraq with its still uncertain outlook, and Iran which is demanding to be allowed a freer hand in developing nuclear, would be the three main suppliers within the OPEC, while production outside OPEC declines.
Gurdip Singh
Offshore Correspondent
This page reflects viewpoints on the political, economic, cultural, technological, and environmental issues that shape the future of the petroleum industry. Offshore Magazine invites you to share your thoughts. Email your Beyond the Horizon manuscript to Eldon Ball at[email protected].
