Transcript Geopolitics Of Energy - The Swiss Global Economics

July 7, 2011
Geopolitics Of Energy
The Globalized Energy Market
I. The Big Picture
II. Lessons, Patterns, and Takeaways
III. Implications for New Factors in the Equation
The Big Picture: Facts and Implications
The persistent increase in oil prices over the past decade suggests that
global oil markets have entered a period of increased scarcity. Given the
expected rapid growth in oil demand in emerging market economies and
a downshift in the trend growth of oil supply, a return to abundance is
unlikely in the near term. We believe that gradual and moderate
increases in oil scarcity may not present a major constraint on global
growth in the medium to long term, although the wealth transfer from oil
importers to exporters would increase capital flows and widen current
account imbalances. Adverse effects could be much larger, depending on
the extent and evolution of oil scarcity and the ability of the world
economy to cope with increased scarcity. Sudden surges in oil prices
could trigger large global output losses, redistribution, and sectoral
shifts. There are two broad areas for policy action. First, given the
potential for unexpected increases in the scarcity of oil and other
resources, policymakers should review whether the current policy
frameworks facilitate adjustment to unexpected changes in oil scarcity.
Second, consideration should be given to policies aimed at lowering the
risk of oil scarcity.
Lessons, Patterns, and Takeaways
from Historical Section
•
Diversification is essential to security – in terms of supply and transportation/infrastructure
•
Security often depends on the existence of a “cushion” – extra supplies to replace supplies taken off line for
any sort of disruption
•
The commercial and strategic realms have more often than not been interwoven.
•
Each price trough has general brought with it some reorganization of petroleum industry
•
A stable, unified, global oil market is the cornerstone of security.
•
It takes a crisis to galvanize responses; and a crisis that make people feel livelihood is at stake
•
Security is generally enhanced when governments resist the temptation to micromanage oil market
•
Cooperation, not confrontation, is the path to security.
•
Fear and panic can dramatically exacerbate an already tight market, driving prices skyward when market
realities may not warrant it.
•
Much of history of oil price, not a function purely of the market balancing supply and demand.
In sum,
need to look at a multitude of factors :
– Market dynamics – supply and demand, spare
capacity
– Political realities and the nature of geopolitical
disruptions
– Cast of characters – number of actors and orientation
– Institutional structures; mechanisms for cooperation
– Nature of the interaction between the public and
private spheres
– Policy parameters and policy responses
– Technologies
– Existence of feasible alternatives at competitive prices
– Psychology, emotions
All have implications for understanding
the situation today…….
• Helpful to look to 2008 price rise, which
reveals many of the new important dynamics
Globalization of Demand
• Immediate term, recession has dramatically
reduced demand for energy
• But demand will increase with economic recovery
• More than half of demand growth will come from
emerging economies
– Bulk of this growth in the transportation sector
• OECD demand growth for oil is likely to stagnate
– Switches to other fuels
– Increases in energy efficiency
Future Conventional Energy Needs Will
Largely Be Met by OPEC
Supply: Resources are there, but…..
……Slower Supply Growth Still Seems
Likely
– Below ground
» Complex reservoirs
» Accelerating decline rates in some countries
– Host government behavior:
» Resource nationalism
» Cash flow constraints
» OPEC output policies
» Contract changes
– Industry factors:
» Demand downturn
» Drilling, equipment and labor costs and availability
» Credit squeeze
– Geopolitical issues:
» Geopolitical threats to supply are no longer primarily the oil weapons….
• War-related rebuilding
• Rebel attacks
• Internal political turmoil
• Terrorism
» Threats are proliferating – and vulnerabilities are rising
• More energy trade
• Chokepoints
• Pipleines
Supply threats are no longer primarily
about the oil weapon…..
New Industry Structure: NOCs
New Factors in the Equation
• Globalization of demand
• Constrained Supply
• New cast of characters: NOCs
• Emergence of new technologies – emergence of alternatives, energy
efficiency
• Greater integration of financial and energy markets
•
Climate change; warrants/invites government intervention in energy
markets; creates uncertainty in the markets
•
Government policies – especially those to grapple with/affect climate
change/emissions;
• Multitude of interests in Middle East post-9/11