World oil and gas concerns

Posted in Other | 05-Jun-06 | Author: Ioannis Michaletos

Ioannis Michaletos is WSN Editor South East Europe.

A major concern nowadays, especially in the Western world is the upcoming trend on hydrocarbon price in parallel with the continuous political strife in the states that provide the world with the oil and gas it needs. As it can bee seen in-Table A-three out of five top producer states have either hostile or unresolved issues with the USA and in a broader respect with the European states.Iran Russia and Saudi Arabia according to 2004 estimates, produce three times as much oil than USA alone. Furthermore important for future calculations are the overall estimated world reserves on oil. Four out of five nations with the largest reserves are Muslim-Table A(i)- and all situated in the most politically turbulent area of the world, the Gulf area of the Middle East.

Moreover as far as the estimated natural gas reserves are to be considered as an alternate source of energy to the West, similar findings as the aforementioned about oil can be made. Four out of five states with the largest reserves –Table B(i)- are to be found in the Gulf area of the Middle East. Since the world economy is heavily dependent on oil and gas that brings to surface the safe assumption that the world is also heavily dependent on the political strife and developments that occur in the area of the Middle East. It is ironic that in the so called era of globalization the world community is severely constrained for its economic stability by a particular geographical area that under certain circumstances could handicap the world’s economy in a matter of weeks due to a sadden increase in energy price indexes for instance.

The quest of alternative sources of energy that has been in numerous occasions addressed by the American administration and international bodies is of paramount importance for the economic and social well being of the West and in respect to the European Unions member states and their high energy dependency levels. As the world progresses well into the first decade of the 21st century any delay on the scheduled programs on wind, solar or hydrogen energy would have serious ramifications as far as energy security is concerned for the Western states. It would be incomprehensible to sustain the current models of economic progress based on the developments in one of the most volatile areas of the world that no one can make safe predictions of how it would evolve in the coming years; and which political forces would be in charge.

In this text statistics on oil and gas production, reserves and commerce can be found as well as information on shipping routes concerning transportation of energy worldwide.

KEY WORLD STATISTICS-OIL AND GAS EXPLOITATION AND TRANSPORTATION.

1. THE TOP 5 COUNTRIES IN OIL AND GAS PRODUCTION

A) OIL PRODUCTION bb/d (billion barrels per day)

(2004 figures)

1. Saudi Arabia

10.37

2. Russia

9.27

3. United States

8.69

4. Iran

4.09

5. Mexico

3.83

A (i) Estimated World Reserves (bbl)

1

Saudi Arabia

261,700,000,000

2004 est.

2

Canada

178,900,000,000

2004 est.

3

Iran

130,800,000,000

2004 est.

4

Iraq

112,500,000,000

2004 est.

5

United Arab Emirates

97,800,000,000

2004 est.

(9)

Russia

69,000,000,000

2003 est.

B) GAS PRODUCTION cm/d (cubic meters)

1

Russia

578,600,000,000

2003 est.

2

United States

548,100,000,000

2001 est.

3

European Union

242,600,000,000

2001 est.

4

Canada

165,800,000,000

2003 est.

5

United Kingdom

105,900,000,000

2001 est.

B) (i) Estimated World Reserves (cu m)

1

Russia

47,000,000,000,000

2003

2

Iran

26,700,000,000,000

2004

3

Qatar

14,410,000,000,000

2004

4

Saudi Arabia

6,339,000,000,000

2004

5

United Arab Emirates

6,060,000,000,000

2004

2) THE COUNTRIES WITH THE BIGGEST EXPORTS, IMPORTS AND DEMAND IN OIL AND GAS

A) Oil Exports, Imports and Demand

Exporters2

Net oil
exports

Consumers3

Total oil
consumption

Importers4

Net oil
imports

1. Saudi Arabia

8.73

1. United States

20.5

1. United States

11.8

2. Russia

6.67

2. China

6.5

2. Japan

5.3

3. Norway

2.91

3. Japan

5.4

3. China

2.9

4. Iran

2.55

4. Germany

2.6

4. Germany

2.5

5. Venezuela

2.36

5. Russia

2.6

5. South Korea

2.1

B) Gas Exports, Imports and Demand

Top 5 Consumers of Natural Gas (Demand, bcm)

United States 6,820
Russia 4,661
United Kingdom 1,024
Germany 1,010
Canada 979

(Ukraine-921.4, PR China-360.0)

B, i) Top 5 Countries in Natural Gas Exports and Imports (bcm)

a) Exports

Russia 2,227
Canada 1,159
Norway 657
The Netherlands 565
Turkmenistan 452

(United States 157)

b) Imports

United States 1,224
Germany 876
Japan 829
Ukraine 649
Italy 638

3. Percentage of Oil Shipped by Tankers or via Pipeline Network and Transportation Routes.

A) Oil Transportation and Major Chokepoints.

The bulk of the oil transported (62%) is using maritime transportation. The rest (~38%) uses mainly world pipeline networks, mostly in the region of the former USSR and Europe. On the other hand, the Persian Gulf is a major origin for oil transfer and from this point maritime routes are reaching Europe through the Suez Canal, Japan through the Strait of Malacca and North American through the Cape of Good Hope. Major continental movements involve the Russian and former Soviet Republics petroleum shipped to Western Europe by pipeline and Alaskan and Canadian petroleum shipped to the United States also by pipeline. Other important oil shipments are from Africa to North America and Europe, from the North Sea to Europe and from South America to North America.

The world tanker fleet capacity (excluding tankers owned or chartered on long-term basis for military use by governments) was about 280 million deadweight tons in 2002. There are roughly 3,500 tankers available on the international oil transportation market. The cost of hiring a tanker is known as the charter rate. It varies according to the size and the characteristic of each tanker’s size and characteristics of the tanker, its origin, destination and the availability of ships; although larger ships are preferred due to the economies of scale they confer. About 435 VLCCs account for a third of the oil being carried. Transportation costs account for a small percentage of the total cost of gasoline at the pump. For instance, the average cost of carrying oil between the Middle East and Europe was $1.30 a barrel in 1992, while the price of the oil barrel was around $20. Transportation costs thus account for about 5 to 10% of the added value of oil. Tanker ships can also be used as semi-permanent storage tanks. In 1990, about 5% of the world's tanker capacity was being used for oil storage.

Different tanker size are used for different routes, namely for issues of distance and port access constraints. There is thus a specialization of maritime oil transportation in terms of ship size according to markets. VLCCs are mainly used from the Middle East in high volumes (more than 2 million barrels per ship) and over long distances (Europe and Pacific Asia). Shorter journeys are generally serviced by smaller tanker ships such as from Latin America (Venezuela and Mexico) to the United States. Transport costs have a significant impact on market selection. For instance, three quarters of American oil imports are coming from the Atlantic Basin (including Western Africa) with journeys of less than 20 days. Accordingly, the great majority of Asian oil imports are coming from the Middle East, a 3 weeks journey. In addition, due to environmental and security considerations, single-hulled tankers are gradually phased out to be replaced by double-hulled tankers.

4. Key Transit Countries for Oil and Gas-Political and Economic Risk.

Natural gas as described above is usually shipped via pipeline networks. Liquefied natural gas (LNG) is also a way of transit, albeit still limited due to (but not only) high cost and risk of every single shipment that is made. The most important countries hosting such networks are the Ukraine and Belarus in Eastern Europe, the Caucasus as a whole, Turkey (in both pipelines and sea transportation) as well as the former Soviet countries of Central Asia. Pipeline network can also be interstate or inter-regional like the Russian, the US, the Canadian ones or the South American regional network.

While the risks for oil transport via tankers are nowadays down to (mainly) weather conditions and to a much lesser extend (the risks) are connected with politico-social or economic conditions, the risks regarding gas transportation via pipeline network are much more complex. Since pipelines go through third countries in order to reach their ultimate destination (one part of the destination may be the transit country itself) the political as well as the economic risks are getting more complicated and they can be found in both the producing and the transit countries. Although each region of the world may have special characteristics outlining the risks, there are some common problems that can be found around the world. Note that risks are not only about the transportation itself but also specific problems that can arise in the producing as well as the transit countries. Those risks are usually found in developing countries: former USSR, Latin America and parts of S.E. Asia.

a) Producing Countries

Oil production in the above regions tends to employ relatively few people, especially if one considers the vast majority of revenues oil and gas business offer to each State. The linkage between local economy and each country’s/region’s production is through state revenues from the energy sector. In these regions the ability of the State to allocate those revenues transparently to high-priority expenditures is very weak. The lack of accountability by the governments and the only few staff trained in expenditure analysis or auditing are prone to considerable corruption and waste. Weak democratic system, i.e. little or no parliamentary control and the lack of a proper judiciary system (among others), contribute towards this expanded corruption. Also, highly personalized and authoritarian regimes, combined with uncertainty over succession to presidency or other high posts and a lot of patronage in the political life reinforce such tendencies. This leads the public to (correctly) believe that local elites are taking the lion’s share from energy-related revenues.

One of the major problems in producing countries (and this time not necessarily only in the developing ones) is that the growth of oil and gas sector may crowd out investment in the rest of the economy leading to a decline in incomes as well as overall interest including Foreign Direct Investment (FDI) in the rest of the economy. This phenomenon is known as the Dutch Disease. One of the strongest producing countries in both oil and gas is Russia. Although the Dutch Disease has not overwhelmed the country (because of the vast natural and other resources), it is more than obvious however that the Russian economy’s “boom” since 1999 is basically due to high oil prices and partly due to the devaluation of the ruble. This is a sign of the Dutch Disease, which nevertheless, can be said that does not threaten directly Russia but more the rest of the CIS countries.

b) Transit Countries.

In certain regions of the world like the Caucasus or Central Asia or indeed the Russian Federation itself geography dictates an increasing dependence by producing countries on transit countries. In the case of Eastern Europe however-the route in other words from Russia and the Caucasus towards Central and Western Europe-transit countries are simultaneously major buyers. That could lead to the conclusion that because a transit country is also a major buyer the relations between these countries and the producing ones should be at a relatively safe balance. Nevertheless, due to the lack of an alternative seller, the transit countries are too dependent on the producing ones and this development somewhat ‘spoils’ the relations that should, in theory be in place.

However, transit risks in general derive to a considerable extent from fundamental pipeline economics. Pipelines have high fixed capital costs, (construction, line pipe, terminals, acquisition of rights of way) low salvage values (no alternative usage, limited scrap value) and low variable costs. A number of economic factors also affect the degree of the risk involved in transportation. If the transit fees constitute major income for the transit country’s government then it is obvious that this country may use high cost to transfer the oil or the gas. However, in the case of the former USSR it is the seller that has already constructed the pipeline network therefore the transit country has limitations on implementing such unilateral policies regarding fees. A certain network of pipelines can only be limited in value by the construction of an alternative pipeline network.

Natural Gas has specific risks regarding its transportation. Gas tends to be for regional markets apart from the LNG transportation which is, as stated above, highly costly and much more risky. Gas costs seven times more than oil when it comes to transportation, mainly due to the limitations pipeline networks have. Also, the richness of a certain region and the calculations regarding the reserves may have enormous macroeconomic complications. For instance, regarding the Caspian region, the recent Shah Deniz gas discovery suggests that the adjacent portion of the Caspian may be much richer in gas than oil. The region’s countries (Russia, Turkmenistan, Iran, Azerbaijan even Uzbekistan) may compete in a fierce fashion in the not-so-distant future in order to offload large volumes.

Despite all that, we can safely say that the governments of both the transit as well as the producing countries do come to a communication and big crises over transportation are rare because of the many actors involved from the time oil or natural gas is extracted till the point that the commodities reach their final destination, a household or a company.

5) Cheapest Drilling Regions Around the Globe

Drilling does determine to a big extent the final price of oil and gas. The first oil to be extracted in the western world (including Russia) was from very high-close to the surface – reserves, which with the help of natural gas and other underground forces was literally pumping out of the ground once a drill was made. That process was very common in Siberia in the end of the 19th century as well as in North California, Texas and Alaska (at the time still under Russian Imperial rule). The first modern oil well was drilled in 1848 by Russian engineer F.N. Semyonov, on the Aspheron Peninsula north-east of Baku. Since then such oil wells have now almost extinct (apart from Alaska that only a few such wells still exist), cheap drilling is now considered the one in countries that the oil wells are relatively close to the surface. One of these countries is Iraq, and generally speaking deserted regions with oil reserves tend to be cheap(er) for drilling. Sea drilling is for instance very costly because of the risks involved in security (strong winds and sea currents) as well as the big depth in which oil is usually extracted from. Certain field-regions of South America are considered relatively cheap towards oil extraction, namely in Venezuela.

WORLD GAS MAP-ORIGINS AND TRASPORTATION

Info and Map-related links: www.energyintel.com>Free Services>Special Reports and Maps>The Oil Supply Dilemma.

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