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1-10 of 41 items listed
Ills of Indian Energy Sector and Strategies to Overcome
Article Viewed 842 Times | 10 Comments
Future Perspectives for Renewable Energy in India
Article Viewed 1271 Times | 7 Comments
10 Changes That Are Transforming The Energy Markets For Industrial and Commercial Energy Users In Brazil
Article Viewed 496 Times | 8 Comments
It's Time We Took a New Look at the Sun
According to the International Energy Agency (IEA), the world will need almost 60 percent more energy by 2030 than what it had consumed three decades ago, and fossil fuels are expected to meet most of our energy needs. We depend on oil for 90 percent of our transport, food, pharmaceuticals, chemicals and the entire bedrock of modern life. But oil industry experts estimate that current reserves will only last for about 40 years and will become very expensive. No wonder, recently a barrel of crude oil had hit a price of around US$145. more...
Article Viewed 747 Times | 17 Comments
The Elephant's Great Thirst
By Michael Kugelman, Program Associate, Woodrow Wilson International Center for Scholars, December, 26, 2008 - This is a story about a nation with a voracious appetite for energy. more...Article Viewed 477 Times | 16 Comments
Sovereign energy of Kosovo and non secure energy of the Balkan region
By Zorana Mihajlovic, Advisor for energy sector, , June, 16, 2008 - Till year 1999 Kosovo declared unilateral energy independency from the Serbian energy sector. From that year, Serbia has no rights or opportunities to dispose as with energy resources as with energy generations within Kosovo. more...Article Viewed 1131 Times | 2 Comments
About the Development of Renewable Energies in Germany in 2007.
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Article Viewed 562 Times | 19 Comments
Glamour and Misery of Serbian Energy Sector - Which changes within the energy sector are critical development points?
By Zorana Mihajlovic, Advisor for energy sector, , June, 09, 2008 - Is Serbia the only country in the world, or does it belong to the last group of the countries in transition, where energy is determined by governing political parties instead of being determined by clear targets and rules accepted and implemented in all developed countries?Is the occurrence of dodgy stories and business in this sector a reality or dream? Does the energy sector of Serbia act as a brake on sustainable social development? more...
Article Viewed 362 Times | 1 Comments
The Sum of Many Hopes and Fears About the Energy Resources of the Middle East
By Ferdinand E. Banks, Professor, , May, 21, 2008 - Some years ago I wrote a paper called ‘A ‘New’ World Oil Market’ (2004), which I presented at a conference somewhere, and then published. The point of that paper was that the world oil market was in the process of a rapid transition, and the combination of resource scarcity and accelerating demand (relative to supply) would cause a fundamental shift in the market. I said in that paper essentially what I am going to say here, only at that time I couldn’t prove a few of the things that needed proving. All that has changed: it changed when the price of oil reached $100/b and continued to rise, because with that price and the present movements of global oil supply and demand, proofs are no longer necessary. In the American Navy there was once a saying that ‘On every ship there is someone who doesn’t get the message’, however on this ship everyone has finally gotten the message, where everyone includes a former head of the Petroleum Industry Research Foundation in New York, who once claimed that OPEC is “on its way into a stagnant volume environment at best”. This misleading statement can be translated as ‘OPEC’s oil is increasingly unimportant’.For me OPEC is – and has always been – the oil producing countries of the Middle East. I’ve never concerned myself with the others because, as Matt Damon said in the film Syriana: “It” – meaning oil – “is running out, and most of what is left is in the Middle East”. As I note later, some people find this difficult to accept, however some people specialize in being wrong. The Cambridge Energy Research Associates (CERA) once said that OPEC’s fate was not in its own hands, although the truth is that it has always been in its own hands, with the difference being that now that organization is fully aware of this very dramatic fact.
Unfortunately, or fortunately as the case may be, dealing with Middle Eastern energy resources also involves issues far outside that part of the world, because it happens to be true that it is no longer advisable to discuss Middle Eastern prospects without considering the actions and/or goals of other energy producers, and vice versa. Here we have a perfect example of what in game theory is called ‘strategic interaction’.
Hopefully this will become at least partially clear in the sequel, but to begin I want to emphasize that as a teacher of economics and finance, I have been fully occupied with trying to convince students that I have something useful to say about what has and is taking place on the global energy front. Note what I said: has and is taking place on the energy front, because many observers, students, experts and decision-makers are in total or partial denial about crucial developments in recent energy history.
I also believe that I can offer a valuable insight into one phenomenon that will characterize the future oil market, which I will provide now, because it should be confronted and thought about as soon as possible. Regardless of what you have heard or will hear, read or will read, thought or will think and regardless of the assurances that the oil and gas exporters in the Middle East give or will give, it is doubtful whether those exporters are able or for that matter willing to provide the energy resources that their customers desire or will come to desire, at prices resembling those of the recent past.
And here I ask my favourite question: would you supply these resources if you were in their place?
Some years ago in Rome, at a meeting of the International Association for Energy Economics (IAEE), I was attending a lecture given by a young lady who enjoys a certain status in the energy economics world. After her talk there was an exchange of comments, during which – out of a clear blue Roman sky – she informed her audience that Professor Banks was totally and completely mistaken about the oil market in general, and prospects for oil producers of the Middle East in particular.
Naturally, when I received this negative evaluation of my research abilities I protested mildly, and later approached her for the purpose of making her acquainted with two long articles that were related to her talk and research, both of which were United States (U.S.) government publications, both of which are relevant to this presentation, and both of which are almost completely unknown to the great world of academic energy economics. In one of these there was a map showing possible landing zones for marines and paratroopers in the Gulf in case exports of oil fell to a level that governments of the oil importing countries felt were intolerable. I didn’t have that article with me at the time, however it didn’t make any difference, because after describing its contents, I saw from the look on her face that she considered me a tiresome know-nothing, and somehow unbalanced for bothering her with my reference to some boring document, assuming that it actually existed.
The second article (1979), which – for obvious reasons – I chose not to mention, began with a long passage on the intended production program of the foreign companies that managed oil facilities in Saudi Arabia (and elsewhere in the Middle East), before the governments in that region decided that despite rumours that had been spread far and wide by Big Oil and others, they were just as qualified to manage the resources located within the borders of their countries as the ‘Seven Sisters’, as ‘Big Oil’ was known at the time.
This climactic transfer of ownership took place shortly after the October War in the Middle East, in l973, and I have discussed that event at great length in my work, to include my new energy economics textbook (2007), but unfortunately insufficient attention has been paid to my humble efforts. To my way of thinking, had the decision makers in the oil importing countries been more alert, then it is possible that the price of oil would not be at its present level – which happens to be a level that, if sustained and eventually augmented, poses a clear and present danger to the international macroeconomy, due to the presence of various other macroeconomic and financial stresses. There is also the danger that this price could spike to an extreme value in the event of what is sometimes called an ‘anomalous event’ in or close to one of the major oil producers, where ‘anomalous event’ is a polite way of describing gunfire or extensive property damage caused by high explosives.
The agenda of the foreign producers in Saudi Arabia ostensibly featured a progressive raising of oil production to twenty million barrels of oil per day (= 20mb/d), and keeping it there as long as it made economic sense – i.e. was profitable. The thing to be understood is that the strategy underlying this production profile turned on maximizing profits over a limited time horizon, and here I want to emphasize that the choice of a time horizon was as important or even more important than other components of their production strategy, which is an observation that you did not encounter in Economics 101. You didn’t encounter it because the teachers of Economics 101 do not know how to handle the production of exhaustible resources like oil. However, after the assets of these companies were confiscated by their previous hosts, a very different agenda was introduced
The apparent intentions of the confiscating governments, and especially Saudi Arabia, also turned on maximizing profits, although over a much longer time horizon. In addition, when the opportunity presented itself, these profits were to be used to diversify their economies in such a way that the main source of prosperity would be reproducible capital – i.e. structures and machines – rather than exhaustible natural resources such as oil and gas. The opportunity arrived in full bloom when the price of oil suddenly exceeded 40 or 50 dollars per barrel, because those prices gave the governments of many oil producing countries the kind of freedom that President Bush and his colleagues believe only comes about by living or trying to live the American Dream. Everyone who has watched CNN or the U.S. program ‘60 Minutes’ has probably seen a brilliant example of this process in that lucky and superbly managed country Dubai. Returning to the agenda for Saudi Arabia, ‘sustainable’ oil production over an indefinite future was envisaged at about 10 mb/d, or less, while an additional 1-2 million barrels per day were to constitute surge capacity (which is capacity intended for use over a short period).
Notice the or less in the above, because the present King Abdullah of Saudi Arabia recently said that the world cannot count on large increases in the output of his country after 2010, which is interesting because some observers think that today’s oil production is less than Saudi production a year ago.
Needless to say, this kind of thinking and acting on the part of Middle Eastern governments did not win approval everywhere, although I want to confess that it made all the sense in the world to me. By way of contrast, the position taken by an outspoken Nobel (Prize) Laureate, the late Professor Milton Friedman of the University of Chicago, was that the general welfare was always best served by unambiguous profit maximizing behaviour, supervised by hard-core capitalists. When the assets of the short-run profit maximizers throughout the Middle East were confiscated, and formal production quotas for oil established by OPEC, Friedman predicted that the price of oil would collapse and OPEC would fall apart. Friedman’s irrational forecast is best forgotten, but even so I want to present and comment on a similar vision of the Middle East oil scene that was put together by another University of Chicago Nobel Prize Winner, Professor Gary Becker. Writing in Business Week (March 17, 2003) he presented his audience with the following soap-opera:
“Middle Eastern nations are far less important to world oil production than they were immediately after the formation of OPEC. Their share of world oil production has fallen from almost 40% to less than 30% now. In order to raise the global price of oil the OPEC cartel, led by Saudi Arabia, had to restrict its members’ production. This raised prices, encouraging non-OPEC nations, including Russia, to expand production. Also, oil companies have made greater efforts to find new deposits deep in ocean waters, in the frozen tundra of Siberia, and in China and elsewhere.”
This statement is completely without any scientific value, and will be touched on later, but a comment is in order now. Becker’s twisted faith in deep water deposits, as well as large new deposits becoming available in Russia and China is best described as bizarre. Although a few years ago the best energy economist in Russia said that his country could raise its oil production to 30 mb/d of oil and keep it there, the truth is that oil production in Russia has now roughly flattened at about 10 mb/d. According to Leonid Fedun, vice-president of the largest independent company in the Russian oil sector, it is unlikely that output will ever exceed that amount. He could be slightly wrong of course, but it would hardly increase by enough to result in Professor Becker being nominated for another Nobel. Something that needs to be appreciated by all oil importers is that Russia is potentially a very rich country, and an increasing fraction of Russian energy production is going to be consumed domestically.
China is already a country with a large oil deficit and where the growth in oil consumption is much larger than the growth in domestic supply. These deficiencies are probably increasing faster than anywhere else in the world, to include the United States. Oil companies are making great efforts to find new deposits “deep in ocean waters”, are drilling boreholes everywhere, exploiting deposits in remote locations in the far north of Alaska, and perhaps far up in the Arctic Ocean, and desire greater access to coastal waters. Regardless of how much desiring and drilling and exploiting they do however, it will not suffice to replace Middle Eastern resources, nor greatly depress the oil price. Only a new energy technology in conjunction with a reduction in demand growth for conventional oil is likely to do that! This unpleasant truth has escaped Professor Becker, but it is well known in the executive suites of both ‘Big and Little Oil’.
Finally, attention can be directed to the decline in OPEC production that was mentioned by Becker, and which that scholar interpreted as a misfortune for those nations. The earlier decline in OPEC production, and its present slow increase, is the key source of the new economic strength of the Middle East, as well as some of the other OPEC countries. If they had maintained their output at 40% of the total, they might still be trying to raise the price of oil to $28/b.
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Article Viewed 1757 Times | 79 Comments
From the Soviet Union to Putin's Russia
Article Viewed 428 Times | 30 Comments
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