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- Herausgeber: John Wiley & Sons
- Kategorie: Geisteswissenschaft
- Serie: PRS - Polity Resources series
- Sprache: Englisch
Oil pulses through our daily lives. It is the plastic we touch, the food we eat, and the way we move. Oil politics in the twentieth century was about the management of abundance, state power, and market growth. The legacy of this age of plenty includes declining conventional oil reserves, volatile prices, climate change, and enduring poverty in many oil-rich countries. The politics of oil are now at a turning point, and its future will not be like its past. In this in-depth primer to one of the world's most significant industries, authors Gavin Bridge and Philippe Le Billon take a fresh look at the contemporary political economy of oil. Going beyond simple assertions of peak oil and an oil curse, they point to an industry reordered by global shifts in demand toward Asia, growing reliance on unconventional reserves, international commitments to reduce carbon emissions, a growing campaign for fossil fuel divestment, and violent political struggles in many producer states. As a new geopolitics of oil emerges, the need for effective global oil governance becomes imperative. Highlighting the growing influence of civil society and attentive to the efforts of firms and states to craft new institutions, this fully updated second edition identifies the challenges and opportunities to curtail price volatility, curb demand and the growth of dirty oil, decarbonize energy systems, and improve governance in oil-producing countries.
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Seitenzahl: 471
Veröffentlichungsjahr: 2017
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Contents
Cover
Title Page
Copyright
Acknowledgments
Introduction
1 The Nature of a Political Resource
The condition of the resource: growing uncertainty, declining quality
The shape of demand: lighter, cleaner, Asian
Actors: states, firms, and civil society
The geopolitics of the hydrocarbon chain
Conclusion
Notes
2 Capturing Oil
States: oil landlords, national champions, and regulators
Firms: integration, independents, and the precariousness of “Big Oil”
Negotiating access: resource-holding states versus resource-seeking firms
Extending the network
Conclusion
Notes
3 Marketing Oil
Standardizing products
Managing abundance
Oil markets and shifts in pricing power
Conclusion
Notes
4 Living With Oil
Making a living
Oil as life: the soft power of petroculture
Conclusion
Notes
5 Securing Oil
Oil wars
Energy security
Availability
Accessibility
Affordability
Acceptability
Conclusion
Notes
6 Developing Through Oil
Accounting for oil in development
Accounting for environmental and social costs
Oil revenues: who gets what?
The “oil curse”
Conclusion
Notes
7 Governing Oil
Addressing the oil governance deficit
Oil governance actors and institutions
The (real) politics of oil governance
Conclusion
Notes
8 Better and Beyond: The Future of Oil
Oil’s new reality
Responding to the new reality
Four priorities
Conclusion
Notes
Selected Readings
Index
End User License Agreement
Figures
1.1 World oil production and price (1900–2015)
1.2 Major international trade flows, crude oil (2015)
1.3 Major international trade flows, refined oil products (2015)
1.4 Oil production and consumption (2015), showing largest 25 countries
1.5 The politics of the hydrocarbon chain
2.1 A generalized oil-production network
2.2 Variation in production costs by type of oil source
3.1 Oil price, volatility, and US recessions (1945–2011)
3.2 Futures and options contracts for oil and other commodities (1993–2010)
5.1 Maritime choke points
5.2 Chinese oil production and consumption 1965–2015)
6.1 GDP, HDI, and poverty levels among oil producers
8.1 Urban population densities and ground transportation emissions per capita
Tables
1.1 Reserves, production, and consumption, leading countries (2015)
1.2 Unconventional oil reserves
2.1 Top 20 integrated oil companies (2015)
2.2 The supermajors’ dwindling control over world oil
5.1 Main internationally disputed oil areas
5.2 Energy security criteria by resource type
5.3 Gasoline taxes or subsidies for selected countries
6.1 Distribution of cash flow from oil sector
6.2 “Government take” from oil revenues
6.3 Secessionist conflicts in oil-producing countries
7.1 Main positions on oil governance
7.2 Oil- and energy-related international initiatives and organizations
7.3 Oil governance: main goals, activities, and organizations
8.1 Adaptation strategies for selected regions
Box
1.1 Conventional versus unconventional oil
2.1 China’s national oil companies
2.2 From the “Seven Sisters” to “Big Oil”
2.3 The rise and fall of production-sharing agreements
2.4 Royal Bank of Scotland: “the oil and gas bank”
3.1 Compartmentalizing the market – China’s loans-for-oil
5.1 Oil and the “Islamic State”
5.2 Revisiting the “oil weapon”
6.1 The oil we eat: petroleum in the geopolitics of food production
6.2 Petrodollars
6.3 Oil revenue transparency
7.1 Oil governance and the Paris Agreement on climate change
8.1 Swapping “oil for nature” in Ecuador
8.2 Deregulation and oil price speculation
Guide
Cover
Table of Contents
Begin Reading
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Resources
Peter Dauvergne & Jane Lister, Timber
Michael Nest, Coltan
Elizabeth R. DeSombre & J. Samuel Barkin, Fish
Jennifer Clapp, Food, 2nd edition
David Lewis Feldman, Water
Gavin Fridell, Coffee
Derek Hall, Land
Ben Richardson, Sugar
Ian Smillie, Diamonds
Adam Sneyd, Cotton
Bill Winders, Grains
Oil
Second edition
GAVIN BRIDGE AND PHILIPPE LE BIIION
polity
Copyright © Gavin Bridge and Philippe Le Billon 2017
The right of Gavin Bridge and Philippe Le Billon to be identified as Authors of this Work has been asserted in accordance with the UK Copyright, Designs and Patents Act 1988.
First edition published in 2013 by Polity PressThis edition published in 2017 by Polity Press
Polity Press65 Bridge StreetCambridge CB2 1UR, UK
Polity Press350 Main StreetMalden, MA 02148, USA
All rights reserved. Except for the quotation of short passages for the purpose of criticism and review, no part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher.
ISBN-13: 978-1-5095-1176-1
A catalogue record for this book is available from the British Library.
Library of Congress Cataloging-in-Publication Data
Names: Bridge, Gavin, author. | Le Billon, Philippe, author.
Title: Oil / Gavin Bridge, Philippe Le Billon.
Description: Malden, MA : Polity Press, 2017. | Series: Resources | Originally published in 2013. | Includes bibliographical references and index.
Identifiers: LCCN 2016044320 (print) | LCCN 2017000669 (ebook) | ISBN 9781509511723 (hardback) | ISBN 9781509511730 (pbk.) | ISBN 9781509511754 (Mobi) | ISBN 9781509511761 (Epub)
Subjects: LCSH: Petroleum industry and trade. | Petroleum industry and trade--Political aspects.
Classification: LCC HD9560.5 .B625 2017 (print) | LCC HD9560.5 (ebook) | DDC 338.2/7282--dc23
LC record available at https://lccn.loc.gov/2016044320
The publisher has used its best endeavours to ensure that the URLs for external websites referred to in this book are correct and active at the time of going to press. However, the publisher has no responsibility for the websites and can make no guarantee that a site will remain live or that the content is or will remain appropriate.
Every effort has been made to trace all copyright holders, but if any have been inadvertently overlooked the publisher will be pleased to include any necessary credits in any subsequent reprint or edition.
For further information on Polity, visit our website: www.politybooks.com
Acknowledgments
In working on this second edition, we have deepened the debt we accumulated to colleagues near and far in writing the original. We again thank all those whose information, assistance, and time have been freely given. We thank Chris Orton in the Department of Geography at Durham University for preparing new graphics for this edition, and Nick Scarle in the School of Environment, Education, and Development at the University of Manchester, and Eric Leinberger at the School of Geography of the University of British Columbia who worked on the originals. We are grateful for the comments and suggestions of readers and reviewers who engaged with the first edition and shared their experiences of the book. We also warmly thank Louise Knight at Polity for her enthusiasm for a second edition and support for our vision of what it would involve, and Nekane Tanaka Galdos for steadfast editorial support during its writing. Finally, we both thank our families.
Introduction
Oil pulses through our daily lives. It is the plastic we touch, the food we eat, and the way we move. Oil powers our cars, chainsaws, and tanks. Yet six generations back, oil was a bit player in an emerging lubricant market where it competed with the rendered bodies of whales, lizards, and fish. Oil’s brief and startling career – from small-town hustler to global kingpin – is one of spectacular boom and bust, extremes of wealth and poverty, and environmental ills ranging from local spills to global climate change. During the twentieth century, this complex hydrocarbon has been pulled from the earth and spread far and wide. The worlds made by and through oil, however, are anything but uniform. The international oil trade links every country on earth, but only a handful of countries hold the lion’s share of known reserves. Every minute, millions of dollars change hands through the oil markets as crude is bought and sold, but oil itself moves through pipelines and in tankers at a comparatively medieval pace. Oil provides an unprecedented freedom from geographical constraint for those who can access it, yet its record of pollution and distorted development cripples the lives of many others.
Creating wealth and power from oil is quite a trick. Crude hides below ground and must be hunted and captured. This raw oil is frequently in the wrong place – miles from markets, in places difficult to access or already used by others. Unlike the subterranean lakes of the imagination, crude inhabits tiny gaps in ancient sediments and often must be compelled to the surface. In the ground, oil takes on characteristics of time and place – local variations in viscosity and the content of metals and sulfur, for example – that must be erased by refineries if oil is to behave as required in engines, power stations, and production lines. In the search for value, refineries create fresh distinctions between grades of oil and different types of petrochemicals, producing a catalogue of products tailored for hundreds of specific uses. Most of these products are flammable, noxious, and difficult to contain, but must be transported, stored, and distributed widely if demand is to be created and sustained. Most oil is burnt to provide mobility via land, sea, and air, but the by-products of this combustion can be directly hazardous to health and livelihoods. Exchanges and final markets help lubricate the global movements of oil, yet speculation over oil’s future price can disrupt existing patterns and rates of oil movement by driving wild swings in price. There is, then, a savvy to the business of making money from and through oil that extends beyond oil’s physical properties to the economic and political structures that take shape around it. The popular fascination with oil’s tycoons, barons, and sheiks – Getty, Rockefeller, Abramovich, or the Sultan of Brunei – acknowledges how oil’s value can be captured to remarkable effect. Beyond the palaces, yachts, and gleaming towers, oil’s many other landscapes also reveal how its value evades a large proportion of the population in many oil-rich countries.
If we think of oil at all, we tend to think of it as a gift of nature – a natural endowment bequeathed by geology and time. Oil is indeed a legacy from the past, an accumulation of carbohydrates and proteins from the bodies of algae and plankton that has been trapped and cooked underground. But to think of oil in this way is misleading, as it gives nature too much of a hand. Where, how, and when oil moves within modern economies has little to do with nature or geology. The way we use it, who can afford it, where it is extracted, and even how we know how much is in the ground are determined by the actions and interactions of some of the most powerful actors and institutions in the global economy. Because decisions about finding, moving, and using oil bring together groups of people with different interests and agendas, oil is unavoidably political. Oil may be drawn from the earth but it is a very social resource.
This point is important for understanding what we mean in this book by the “politics” of oil for two reasons. First, the political character of oil is a normal and continuous state of affairs and not an aberration or interrupting event. We aim in this book to show how the politics of oil is changing, rather than to suggest oil is now becoming political (it has always been so). Second, we take the politics of oil to mean more than a zero-sum game over a fixed and declining resource – a scramble at the end of the “Age of Plenty” for nature’s unclaimed gifts. Instead, the politics of oil concerns the relationships of competition, conflict, and cooperation that define the social and geographical distribution of the various “goods” and “bads” that can be produced through oil. In the twentieth century, the politics of oil was about the management of abundance, state power, and market growth. The legacy of this “Age of Plenty” includes declining conventional oil reserves, volatile prices, climate change, and major political and economic distortions in most oil-rich countries. Our argument in this book is that a new geopolitics of oil is now emerging, centered on changes in the availability, accessibility, affordability, and acceptability of oil. The dynamics of competition, conflict, and cooperation associated with this new geopolitics point to the imperative for more effective global oil governance.
Our goal in the chapters that follow is to highlight the critical relationships – among states, firms, and society – that are key to understanding oil’s geopolitics, and their relationship to changes in the availability, accessibility, affordability, and acceptability of oil. It is not the characteristics of individual actors that matter to us, but the dynamic relationships among them and what these relationships mean for the governance of oil. In chapter 1 – “The Nature of a Political Resource” – we explore the origin of oil’s extraordinary utility and its potential for social conflict. We review the state of global oil reserves after more than a century of exploration and the shifting character of contemporary demand. Chapter 1 introduces six fundamental tensions that underpin the oil sector and that together make up the geopolitics of oil: these are then explored in chapters 2–7. In chapter 2 – “Capturing Oil” – we examine the structure, connections, and interactions between different parts of the production and consumption chain for oil. We move from a physical, metabolic process of refining crude to an understanding of the distribution of value along the chain. Chapter 3 – “Marketing Oil” – focuses on the politics of value creation, contrasting efforts to create new markets with contemporary attempts to reduce demand. In Chapter 4 – “Living With Oil” – we consider how working with oil and its products provides a livelihood for millions of people, and how the diversity and character of oil work influences the politics of labor in the sector. We examine too how the everyday experience of living with oil has profoundly shaped cultural practices and habits of mind, enabling deeply held cultural and political identities to take root within wider society. In chapter 5 – “Securing Oil” – we explore the political geography of oil’s winners and losers, and ask for whom oil is secure. Chapter 6 – “Developing Through Oil” – examines the social and environmental challenges associated with oil dependence. Chapter 7 – “Governing Oil” – shows how oil is in need of global governance, explains why, and proposes reforms to existing institutions. Chapter 8 – “Better and Beyond: The Future of Oil” – summarizes the “new reality” of oil as an apparently intractable challenge: efforts to sustain supply in the face of rising demand appear to only further exacerbate the economic, social, and environmental ills associated with capturing, producing, and consuming oil. We conclude that there is an imperative for better oil governance, and identify four priorities for improving oil’s economic, social, and environmental impacts and, in the longer term, moving beyond oil.
CHAPTER ONEThe Nature of a Political Resource
“Oil” is a catch-all term that covers a diversity of liquid hydrocarbons. The starting point for most of these is “conventional” crude oil, a form of oil sufficiently liquid to be pumped directly out of the ground and rich enough in carbon–hydrogen atomic linkages to be directly refined. Conventional crude fueled the remarkable expansion of oil production and consumption during the twentieth century but growth in the last decade has stalled, and is increasingly giving way to “unconventional” sources. These are mostly hydrogen-enriched synthetic crude recovered from sand and rock containing bitumen, and liquids associated with natural gas production; together these account for 10 percent of global oil production and could rise to 30 percent by 2035. The origins of oil and the chemistry of crude formation might seem of little relevance for understanding the politics of oil. However, the conditions under which oil forms are key to understanding both the extraordinary utility that modern societies have found in oil and fundamental questions of control. They determine the character of crude, the uneven distribution of oil resources at the global scale, and the costs and risks of turning raw resources into valuable products. Oil forms via the decomposition of organic (carbon-based) matter under conditions of heat and pressure – a process akin to “slow cooking,” more properly known as “diagenesis.” Most of the oil being extracted today was formed between 200 million and 2.5 million years ago. The processes that break down organic matter and lead to the formation of oil typically occur at temperatures between 75°C and 150°C, and in most settings these conditions are found 2–3.5 kilometers below the surface. This creates an “oil window”: above it, temperatures are too low for oil to form; below it, the longer hydrocarbons are broken down into shorter chains, producing natural gas instead of oil. A particular combination of physical conditions is needed if these hydrocarbons are to concentrate together rather than simply disperse. Oil forming in an organic-rich source rock needs a porous “reservoir” rock (typically sands, sandstone, or limestone) into which it can migrate and accumulate, and an impermeable seal or cap that prevents oil from moving further. Because the conditions for the formation of oil are not found everywhere, crude oil is variable in its physical and chemical properties and unevenly distributed in the earth.1
Crude oil is primarily carbon, atoms of which are locked together with hydrogen in different arrangements to form “hydrocarbon” molecules. As with other “fossil” fuels, the carbon atoms in crude oil are an underground stock accumulated over millions of years via the global carbon cycle. Pumping, refining, and burning crude oil returns these carbon atoms to the surface – ultimately in the form of carbon dioxide emissions to the atmosphere. In this way, the global oil industry acts as a carbon conveyer, moving carbon stocks from below ground into the atmosphere. And because the rate at which carbon flows to the surface is much greater than the return flow – via the decomposition of organic matter or the deliberate capture and storage of carbon dioxide – the oil industry is deeply involved in the atmospheric accumulation of carbon dioxide and climate change.
The way in which carbon and hydrogen are combined varies, so that crude oil is made up of many different types of hydrocarbon molecules. The larger the number of carbon atoms that make up a molecule, the heavier the hydrocarbon: from gaseous methane and ethane with one and two carbon atoms respectively, through liquid gasoline with 7–10 carbon atoms per molecule, to highly viscous bitumen with more than 35. Crude oil also contains other materials, including sulfur, nitrogen, metals, and salts. Because it is a natural material that reflects the conditions of its formation, the quality of oil in underground reserves is highly variable. Among the most significant forms of variability are: density (oil with more hydrogen is lighter and has a lower specific gravity); sulfur content (a higher content characterizing “sour” from “sweet” crudes); viscosity (how readily it flows); and acidity and the presence of metals. Oil is a liquid hydrocarbon. The rather obvious fact that oil flows is significant, because – unlike gas or coal – it can be moved over distance with comparatively few energy and labor inputs. It can be pumped across continents, into storage tanks, and into engines. Underground, oil is a liquid that is often under pressure, and under the right conditions it travels to the surface without lifting. On the other hand, this flow character lends oil an unruliness – a capacity to flow beyond control – that requires capital, equipment, and skill to contain.
For thousands of years, societies have found utility in these physical and chemical properties of crude, including waterproofing for boats, as a mechanical lubricant and as a medical ointment. Today, crude’s value lies in its role as a chemical feedstock and fuel. The diversity of hydrocarbon molecules – and the relative ease with which they may be split, combined, and re-engineered – provides a rich storehouse of potential petrochemical combinations with which to manufacture new materials, including plastics, synthetic fibers, and a range of chemicals. One of every 15 barrels of crude oil (i.e. 6 percent) is used in this way as a feedstock for the production of petrochemicals.
It is as a fuel, however, that most crude oil is used. Combining hydrocarbon molecules with oxygen – as in combustion – releases large amounts of energy as heat and light. Oil packs a greater energy punch than coal or natural gas: nearly twice as much as coal by weight, and around 50 percent more than liquefied natural gas by volume. The practical effect of this greater “energy density” is that oil has unrivaled capacities as a transportation fuel. The amount of oil required to move a ton or travel a thousand kilometers is less than for other fuels, allowing expanded mobility and geographical flexibility. The replacement of coal (through steam) by oil (diesel, gasoline, kerosene, and marine fuels) in transportation, which occurred for the most part in the first half of the twentieth century, reflected the greater energy services that oil could provide. The higher energy density of oil changed the economies of scale required for crossing space, allowing the size of vehicle units to fall – from the train and tram to the automobile – and an increase in the power output for a given size or weight of engine. Oil’s energy density enabled the evolution of the internal combustion engine (where oxidation/combustion on a small scale released a sufficient amount of energy to enable the direct movement of a piston), as opposed to the much larger, external combustion engines associated with steam power. Oil was not the first fossil fuel to have significantly shrunk distance: the introduction of coal-fired steamships in the second half of the nineteenth century drove down shipping costs and further facilitated long-distance trade in bulk commodities like wheat and wool. But oil consolidated this process and drove it further: from cars and airplanes, to diesel and bunker fuels for ocean shipping. In the US today, three-quarters of all petroleum is used as transportation fuel. As a fuel, oil is burned in a variety of forms. These include gasoline and jet fuel at the lighter end of the spectrum; heavier diesel fuels, heating oils, and bunker fuels for shipping; and, heaviest of all, petroleum coke which is used as a fuel in steel smelting and cement production.
Oil’s high energy density and liquid properties mean the “gap” between the amount of energy expended in gathering a barrel of oil and the amount of energy that the barrel can release can be very large. Harnessing this “energy surplus” has enabled large gains in labor productivity over the last hundred years, as oil-based machines replaced human labor and facilitated growing economies of scale. The energy surplus available through oil has enabled industrial economies to overcome declining resource quality and the exhaustion of local stocks, expanding in turn the output of food and raw materials. The average energy surplus available through oil has been declining, from around 100:1 down to 30:1 over the course of the twentieth century, with some deepwater crude and unconventional oil sources now as low as 5:1. This declining ratio demonstrates the gradual deterioration of “energy returns” as investment has increasingly become geared toward accessing harder-to-reach conventional oil deposits or hard-to-upgrade unconventional sources.2
The condition of the resource: growing uncertainty, declining quality
Over the last 150 years around 1.5 trillion barrels of oil have been extracted from the earth, over half of it since around 1989 (see Figure 1.1). At the same time, global oil reserves have grown: world reserves grew by 51 percent between 1995 and 2015 and now stand at 1.7 trillion barrels. The clue to this apparent paradox is that reserves (unlike the total planetary resource) are not fixed, but are shaped by geological knowledge, technology, political factors, and the economics of production. As oil companies probe the earth, they produce not only oil at the top of the well but also new reserves at the bottom. For most of the twentieth century, exploration activity and investment in existing fields “produced” reserves faster than they were recovered, and most of the world’s largest fields – the “supergiants” that continue to supply today’s demand – were discovered between the 1930s and 1960s. While exploration and technological change continue to “produce” reserves, there are three significant changes.
Figure 1.1 World oil production and price (1900–2015)
Source: Authors, based on data from BP Statistical Review 2016.
First, finding new reserves of “conventional oil” – the type of crude oil that has underpinned twentieth-century growth – is proving increasingly difficult. There have been new discoveries in Africa and Central Asia, as well as re-evaluations of reserves in Iran and Iraq. However, overall reserve growth of conventional oil has slowed to a standstill outside the Organization of Petroleum Exporting Countries (OPEC), and there is increasing uncertainty over the ability to expand production from known reserves in the Middle East. The reserves/production ratio – which captures this dynamic of depletion and replacement – reached 45 years of production by the late 1980s, but then remained relatively flat until the inclusion of Canadian and Venezuelan unconventional sources from the mid-2000s, despite a rise in the price of oil. A handful of countries control the lion’s share of the gold-standard conventional crudes that have underpinned economic growth in the twentieth century (see Table 1.1). The center of gravity of global reserves of conventional oil continues to be the Middle East with 47 percent – 800 billion barrels – of proven reserves, although its dominance has been falling (see p. 18). The future of conventional oil will remain the Middle East, but it is clouded by uncertainties over the real volume of reserves, political factors, and rising domestic oil consumption. Saudi Arabia has continued to declare about 260 billion barrels of conventional crude oil reserves since 1989 while maintaining, at times with some difficulty, production of over 11 million barrels per day (mmbd) in recent years. At 155 billion barrels, Iran supposedly holds among the world’s largest reserves and, despite doubts about many upward revisions, the recent lifting of major political constraints on production suggests much potential for growth. Iraq reassessed its reserves upward to 143 billion, assuming higher oil recovery rates. With major investments and despite a continuation of hostilities, Iraq doubled its production from 2 to about 4 mmbd between 2003 and 2015, still a far cry from the Iraqi government’s initial target of 12 mmbd by 2017. The Persian Gulf is not only a major repository of oil, but it also enjoys some of the lowest production costs and is relatively close to major markets, with Europe, India, and China all within two weeks of tanker travel or less than 6000 km of pipelines. The reserve-holding states of this region – and their custody of a high proportion of the world’s high-quality oil resources – are one of the distinctive features of the political economy of oil.3
Table 1.1 Reserves, production, and consumption, leading countries (2015)
Source: Data from BP Statistical Review 2016 (differences between consumption and production result from stock changes, non-petroleum additives and substitute fuels).
Second, the quality of reserves is changing. As the highest-value light crudes are depleted, the physical and chemical profile of reserves is shifting toward heavier, poorer-quality oils that are more costly to extract and refine and which are associated with higher greenhouse gas (GHG) and other emissions. Within the broad category of conventional oil, average sulfur content is rising as poorer-quality crudes are brought into production, and there is a shift toward heavier crudes overall to match growing oil demand. There is also a significant turn toward so-called “unconventional” sources of crude (see Box 1.1). Although these do not have the premium characteristics of conventional crude, they are expected to account for around 30 percent of consumption by 2035. The growth of unconventional reserves challenges the primacy of Saudi Arabia in global reserves, with Canada, Venezuela, and Russia holding major reserves in heavy oil and bitumen, and the US, China and Russia in shale oil (see Table 1.2). Output of shale oil in the US, also known as “tight oil” because the shale rock hosting the oil is of low permeability and the oil must be driven from the formation via hydraulic fracturing techniques, has risen rapidly from 0.5 mmbd in 2008 to 4.5 mmbd in 2015. As a consequence, the US now leads global production of unconventional oil. Shale output has doubled US oil production between 2008 and 2015, transforming it into the world’s largest oil producer (Table 1.1) and creating political conditions in which it became possible for the US Congress to lift a ban on crude oil exports introduced in 1975. ConocoPhillips and NuStar Energy shipped the first batches of crude, pumped from the Eagle Ford Shale in Texas, to Europe in January 2016 with oil producers and oil traders following suit. Tight oil production, however, can prove vulnerable to low oil prices due to high production costs and rapid well depletion associated with the very low porosity and permeability of reservoir rocks, and the need to use horizontal drilling and hydraulic fracturing (“fracking”) techniques. Alberta’s “tar sands” have witnessed similar growth in output, increasing from 1 mmbd in 2005 to 2.3 mmbd in 2015. However, given the capitalintensive character and high production costs of the sector, low prices have led to the suspension of many of the projects through which production was planned to grow to 4 mmbd by 2030. Venezuela’s unconventional oil production has stagnated at 0.5 mmbd and seems unlikely to reach 2 mmbd even by 2025. Because unconventional “heavy” sources of oil are essentially “undercooked” or degraded forms of conventional oil – with their long hydrocarbon molecules not having been broken down into shorter ones, or shorter molecules having been altered by bacteria and oxidation – significant inputs of energy, hydrogen (in the form of natural gas), and water are needed to both extract and upgrade them. Unconventional oil reserves are very large but the energy demands and environmental burdens are high, and decried by opponents of shale oil projects and Alberta tar sands.
Box 1.1 Conventional versus unconventional oil
Variation in the physical, chemical, and energy properties of crude oil means that some sorts are more highly prized than others. “Conventional oils” have lower densities than “unconventional” sources of oil, and thus flow more easily out of reservoirs. They also produce more of the highest-paying fractions of oil such as gasoline, with most oil refineries set up to handle conventional crude. This in turn has made conventional oils the target of exploration and the bulk of global supply. The gold standard is a light, “sweet” (low sulfur) crude, such as Bonny Light from Nigeria. At the other end of the conventional oil spectrum are the heavy, “sour” crudes like Arab Heavy from Saudi Arabia. Between light and heavy are so-called “benchmark” conventional crudes like West Texas Intermediate and Brent Blend.
The term “conventional” recognizes explicitly the boundaries of current practices and also points to the significance of recent changes. Sources once seen as “unconventional” are now an increasingly significant component of overall oil supply, enabling the production of liquids to continue to expand to meet rising demand and delaying the point of decline. These unconventional sources include, in order of decreasing ease of production, extra-heavy crudes (mobile at reservoir conditions, Venezuela’s Orinoco Delta), bitumen (mobile only if reservoirs heated, Canada’s Athabasca), and oil shale (non-mobile requiring mining or fracturing of source rock, US’s Green River Formation), and the use of coal-to-liquids technology. Unconventional oil production faces stiff public opposition, in response for example to groundwater contamination and potential seismic impacts associated with underground fracturing (or “fracking”) using toxic solvents and explosives. Pressed by international oil companies and industry organizations, the US Securities and Exchange Commission changed its accounting rules in 2008, allowing companies to book unconventional deposits as proven reserves. A more encompassing definition of “unconventional” oil considers not only the physical and chemical characteristics of oil, but also the broader geographical context. The political scientist Michael Klare, for example, refers to “extreme energy” to capture how the search for the sorts of oil to which we have been accustomed – and upon which current infrastructure and trade relations are premised – means oil producers are increasingly exploring and developing oil in unconventional operating environments.4
Table 1.2 Unconventional oil reserves
Value represents best estimates of ultimately recoverable resources (URR) in billion (or giga) barrels.
Sources: S. H. Mohr and G. M. Evans (2010), “Long-Term Prediction of Unconventional Oil Production,” Energy Policy 38(1): 265–76; World Energy Council, 2010 Survey of Energy Resources.
Third, in the search for new reserves, the “frontier” of extraction is changing. This includes the Arctic, the ultra-deepwater environments offshore (i.e. over approximately 1,500 meters of water depth), as well as areas with limited state capacity and where the governance systems and civil society are in a fledgling condition. These “unconventional” locations are increasingly a feature of the international political economy of oil. Production from ultra-deepwater environments in Brazil, the Gulf of Mexico, and the Gulf of Guinea has been growing over the last decade. The explosion on the Deepwater Horizon drilling rig in 2010, and the subsequent uncapped flow of crude from the Macondo oil field around 1,500 meters below the sea surface, indicate the risks and challenges of sourcing supply from unconventional environments.
The production of oil is necessarily linked to reserves, but the geographies of production and reserves do not neatly map onto one another. If the development of oil followed a strictly economic logic, in which the largest, low-cost reserves were exploited preferentially, then production would converge on the comparatively low-cost reserves of the Middle East where break-even costs are lower than US$10 per barrel. Production followed this trend between 1955 and 1975 as a result of attractive economic conditions and the introduction of supertankers that drove down the cost of moving crude oil to markets. However, the nationalization of production by large resourcing-holding states during the 1960s and 1970s – and dramatic spikes in the price of oil that these states achieved through coordinated action in the Organization of Petroleum Exporting Countries – drove new oil-field development in the UK, Norway, Alaska, Nigeria, the Gulf of Mexico, Angola, and Russia. This pattern of geographical diversification away from the Middle East has continued with the collapse of the Soviet Union, so that the geography of production is now significantly less concentrated than that of reserves. By 2015, the Middle East accounted for 47 percent of reserves but only 32 percent of production. The development of unconventional sources continues this trend of diversification away from the Middle East, such as the 2.3 mmbd (equivalent to Qatar) currently produced from bituminous sands in Canada, or the 1 mmbd (equivalent to Oman) from the Bakken shale in North Dakota. In 2011, the president and CEO of Saudi Aramco, Khalid al-Falih, acknowledged the “more balanced geographical distribution of unconventionals” was reducing demand for growth in conventional output from the Middle East. To protect their eroding market share, OPEC members (and Saudi Arabia in particular) have maintained production rates in the face of slowing demand growth. The effect has been to push down oil prices from the middle of 2014, below the level required to keep costlier unconventional production economically sustainable. Lower prices have knocked off some “tight oil” production and led to the suspension of new bitumen projects. They have also, however, hurt the budget of OPEC regimes. Unconventional oil production is itself spatially concentrated (partly due to the geography of the resource base but also to the massive infrastructure required to upgrade unconventional sources to liquids). The further development of unconventional oil sources – particularly oil shales which are widely distributed – could, however, see this degree of concentration decline.5
The shape of demand: lighter, cleaner, Asian
Overlaid on the highly uneven geography of global oil reserves is a different pattern of industrial development and economic growth. Simply put, the centers of greatest demand for oil do not coincide with reserves. Demand varies widely among countries (and within them). The US consumes 20 percent of world production yet has only 3.2 percent of reserves and 4.4 percent of the population. Consumption is around 123 barrels per day per thousand people in Saudi Arabia, 60 in the US, 24 in the UK, 9 in China, and 0.7 in Bangladesh. For both individuals and countries, the price of oil can be an obstacle to participating in “demand.” The discrepancy between these two different geographies, between where oil is found and where it is required, underpins several significant features of the global political economy of oil as outlined below.6
First, imbalances in consumption and production are the basis for international oil trade: close to 7 of every 10 barrels produced is exported and imported, a movement of more than 60 mmbd and the largest component of world trade (see Figure 1.2). There are net outflows of crude oil from the Middle East, North and West Africa, Latin America and Russia, and net inflows into East Asia, Europe, and the US. Layered on top of this trade in crude is an international trade in refined oil products such as diesel, gasoline, and liquefied petroleum gas (LPG), now equivalent in scale to around half the international movement of crude and increasingly characterized by “long-haul” flows to markets in Asia, Africa, and Latin America (Figure 1.3). The growing scale and geographical scope of the refined products trade reflect a number of significant economic shifts, including expansion of refinery capacity in the Middle East, increased availability of gasoline exports from the US following development of its unconventional shale resources, and rapid growth outside the OECD of consumer demand for fuels that has outstripped regional refinery capacity.
Figure 1.2 Major international trade flows, crude oil
Source: Authors, based on data from BP Statistical Review 2016
Figure 1.3 Major international trade flows, refined oil products (2015)
Source: Authors, based on data from BP Statistical Review 2016
Second, the number of consuming countries is much larger than those holding reserves – every country consumes oil to some degree while there are many without significant reserves – and consumption is less concentrated on a country basis (see Table 1.1). As a consequence, the market power of consuming countries is weak in relation to the small number of countries that control reserves and there is significant competition among importing states for access to supply. This underscores the need for countries with limited reserves but large and/or growing demand to reduce the risk associated with this relatively weak market position. The strategies available indicate the political choices at stake. Supply risk can be reduced through an increase in the intensity of domestic drilling, as pursued in the US through the rapid development of “tight oil”; by diversifying the locations from which oil is imported; by strategic investment partnerships with oil exporters to “lock in” supply outside of the market; by the use of direct military or paramilitary force to control production and supply routes; or via domestic policies that reduce demand and facilitate a transition away from oil.
Third, at the global scale, demand for oil continues to rise. Oil consumption has grown faster than population, increasing by an average of 1.44 percent per year between 2001 and 2015, despite high prices and an economic crisis in the period following 2008, compared to a slowing population growth rate of 1.18 percent. But global growth obscures a significant geographical shift in where oil is being consumed. As the world economy’s center of gravity shifts away from North America and Europe toward Asia and the Pacific, so market growth – and overall demand – has tilted decisively to the East. In China, for example, consumption grew 6.4 percent per year over that period, peaking at over 16 percent in 2004. In contrast, annual consumption in France dropped by an average of 1.5 per cent. Some of this shift in oil demand is the result of Organisation for Economic Co-operation and Development (OECD) countries outsourcing manufacturing to take advantage of lower production costs. Many of the products manufactured in these lower-wage economies are ultimately consumed back in OECD countries, although the GHG emissions associated with their production are attributed to the place of manufacture. This problem of “embedded carbon” is substantial – the carbon embedded in China’s exports is estimated to be twice as large as the UK’s carbon emissions – and an important factor in assessing responsibility for oil-related GHG emissions. An increasing proportion of Asian oil demand, however, is associated with domestic consumer spending (cars, furniture, plastic products) linked to the region’s growing middle class rather than industrial production. Consumer demand is expected to power oil consumption growth in India, China and many other countries in the region over the next couple of decades: Asia currently accounts for less than a third of the global middle class, but this is projected to grow to around two-thirds by 2030.
China’s demand for oil outstripped its domestic capacity in 1993 and since then it has been a significant importer and an increasingly assertive presence in the search for access to new reserves. The shift in the center of gravity for oil demand is associated with a shift in bargaining power among importing states – notably between the US and China – and with the development of new strategies by importing states for the acquisition and/or control of nondomestic sources of oil. Within former oil-exporting states like Indonesia, domestic growth and the development of a middle class has absorbed production and changed the direction of flow: since 2005, Indonesia has imported more than it exports. Consumption is also rising in other large producing and exporting states: Saudi internal demand doubled between 2004 and 2015. By contrast, in Europe oil demand peaked prior to the recession and is expected to continue to fall as a result of slow economic growth, climate regulation, and comparatively high taxes on fuels. Oil demand in non-OECD economies has steadily risen and passed that of the OECD in 2013. The result is that “rich countries are not setting the rules on either the demand or the supply side of the equation anymore.”7
Fourth, there is also a shift in the nature of demand toward the lighter fractions available from the refining of crude oil that are used as transportation fuels (diesel, gasoline, jet fuel) and away from heavier heating oils. Within growing markets, this is associated with an emerging middle class, growing car ownership, and air travel. Within mature markets, the shift reflects a substitution by natural gas in heating and power sectors and increasing regulation of air quality. The changing nature of demand is creating a growing “quality gap” between the direction of the market for petroleum products and the increasingly “hard-to-get” and, in the case of unconventional resources like bituminous sands, lower-quality raw materials available to the oil industry. The gap can only be met by “upgrading” the resource, implying greater inputs of energy and rising costs (often despite efficiency gains). In addition, the shift of oil into transportation and out of the power sector decreases the ease with which emissions from the burning of oil and petroleum products can be captured, ensuring a collision between “car culture” and climate change.
Fifth, the models of development that embedded oil within industrialized economies in the postwar period, later replicated in most parts of the world, took little account of the “externalities” of gathering and processing oil, turning it into durable plastics and emitting carbon dioxide and other pollutants during the combustion phase. Environmental regulation and an increasing awareness of both climate change and the wider consequences of oil development now influence the accessibility of oil reserves (e.g. environmental considerations), the price and demand for oil (e.g. via “green” taxation of fuels and carbon accounting), and the acceptability of current practices of oil extraction and use. Peak demand – rather than supply – is a reality in the OECD, while “demand destruction” is increasingly a policy objective as part of broader efforts to decarbonize economies as a response to climate change. The mismatched geographies of oil production and consumption (Figure 1.4) also raise challenging questions about responsibility for the carbon dioxide emissions associated with oil. Current approaches point to the responsibility that consumers have at the end of the carbon chain (via the regulation of emissions) rather than to the countries or companies that separate carbon from underground stocks and dispatch it into the economy. However, frameworks like the European Union (EU) Emissions Trading Scheme exclude transportation (the EU ETS has included aviation since 2012 but does not include road or diesel-powered rail transport) and so leave many of the emissions associated with oil untouched. Further, international regulation, via the UN Framework Convention on Climate Change (UNFCCC), emphasizes the historic responsibilities of countries that have been major markets for oil in the twentieth century but where demand is now in decline (the 43 industrial countries and transition economies listed in Annex 1 of the UNFCCC). The approaches currently adopted for dealing with climate change, then, are insufficient for addressing the carbon responsibilities of the oil production chain.
Figure 1.4 Oil production and consumption (2015), showing largest 25 countries (with percentages) plus rest of world
Source: Authors, based on data from BP Statistical Review 2016
Actors: states, firms, and civil society
The landscape of actors in and around oil is complex, and we examine this in more detail in chapter 2. Key actors are states, firms, and civil society organizations. Here we highlight the way these are involved with oil and point to significant emerging issues.
Oil resources are embedded – literally – in the territorial framework of states. In most jurisdictions (although not all, such as non-federal lands in many US states) oil resources are owned by national governments. Physically, legally, and culturally, oil is frequently understood as part of the “body” of the nation, so that national interests can play a decisive role in decisions about the production of oil. For states that host large oil reserves, oil can be seen as a route to modernization and development. The record on this is remarkably mixed and the state’s ownership of resources can be a means for those in power, or close to government, to capture public wealth for private gain. Many states holding large reserves have also sought to capitalize on their ownership position and become drillers, refiners, and marketers of oil via the formation of national oil companies.
The consumption of oil is also closely tied to state-level policies. Tax revenues from fuel sales, the sensitivity of economic growth to oil prices, and the geopolitics of energy security ensure that national governments have a keen interest in the accessibility and affordability of oil. High taxes on oil consumption allow some importing states to get more revenues from oil than exporting ones. National security and the ability to project “hard power” are also significant concerns for import-dependent states, as military flexibility and muscle are premised on a suite of petroleum products. National military institutions are concerned about the stalling of conventional supply and increasing competition for reserves. States also play a significant regulatory role in occupational health, safety, and the environment. National governments, then, play a larger role in oil than in many other resource sectors. An important distinction is between states that are net importers of oil and those that export. These two groups face each other on different sides of the oil market, although there is also a mutual dependency around price as higher prices for oil (which benefit exporters) can erode markets as importers reduce demand and substitute other energy sources. Tensions over price and the security of supply historically led these two groups of states to form their own “clubs” to protect their interests, in the form of the Organization of Petroleum Exporting Countries (OPEC, created in 1960) and the International Energy Agency (IEA, created in 1974).
States may own most of the world’s oil, but it is companies that search for, develop, refine, and market it. The international, vertically integrated oil firm – headquartered in the US or Europe and with extractive and marketing arms around the world – is the iconic actor, its capacity to regulate the flow from reserves to markets giving it historically a dominant position. Firms like Standard Oil and Shell defined the shape of the industry from its beginnings and into the postwar years and for this reason have become known as “the majors” or, more prosaically, “international oil companies” (IOCs). Today, “the majors” is something of an anachronism. IOCs remain among the ranks of the leading producers, but the nationalization of their crude oil assets by many reserve-holding states in the 1950s and 1960s removed their control over supply. ExxonMobil, for example, holds the most reserves of any IOC yet ranks only fourteenth worldwide, with 1 percent of global reserves. State-owned, national oil companies (NOCs), headquartered in some of the most significant oil-exporting states, decisively entered the field in the 1960s and 1970s. Building on their ownership of low-cost reserves, many of these firms have developed extensive, vertically integrated networks of distribution to markets in Europe, the Americas, and Asia. NOCs produce close to three-quarters of the oil extracted each year. Saudi Aramco, the world’s largest integrated oil company in terms of annual output, produces around 10 percent of the world’s crude and NOCs head the world rankings of oil companies by operational (as opposed to financial) criteria.
This distinction between IOCs and NOCs has historically been important for understanding competition over access to resources and markets. IOCs have been understood as “resource seeking” (in order to supply their downstream refineries and “home” markets) while NOCs have been seen as “market seeking” (looking for external markets to absorb their exports). However, this dichotomy is increasingly insufficient for grasping the global political economy of oil, for four reasons. First, the distinction typically highlighted the way NOCs operated to a national political logic rather than commercial objectives. But NOCs are an increasingly diverse group: for many state-owned firms, the level of state ownership has been reduced over time via public offering with the state retaining a controlling share, and a few have technical and commercial capabilities on a par with the IOCs. Second, IOCs and the large reserve-holding NOCs are increasingly in cooperation with one another in the development of the more challenging fields. Third – and most significantly – a number of NOCs have emerged from Asian economies that are not market seeking but resource seeking. Firms like the Korea National Oil Company, the Oil and Natural Gas Corporation (India) (ONGC), China National Offshore Oil Corporation (CNOOC), and PetroChina are state-owned firms: as important as their “national” ownership, however, is their strategy of transnationalization and their competition with the IOCs for access to resources. Fourth, with slowing rates of growth and declining margins in the historically large markets of Europe and North America, many of the IOCs are engaged in “market-seeking” activity. This includes shifting their assets to sell into the growing Asian markets while also moving more heavily into growing segments of the US and European markets such as natural gas.
Civil society, a collective term for the nongovernmental and noncorporate organizations and institutions that have come to play an increasingly significant role in public advocacy, has emerged as an important actor in the political economy of oil. Working through the medium of information and harnessing public concern to bring pressure on corporations and governments, civil society organizations have turned a spotlight on oil. Organizations like Global Witness, Oil Watch, PLATFORM, Publish What You Pay, and the Natural Resource Governance Institute draw attention to the unsavory political bargains created in and around oil and the need for greater transparency and accountability. Other groups emphasize the development challenge of oil. The strong association between oil extraction and persistent poverty (the “resource curse”) in parts of Africa, Latin America, and the former Soviet Union has sharpened the question of who benefits from oil and how oil extraction may be harnessed for sustainable forms of economic and social development. Still other civil society organizations highlight oil’s environmental deficits, from groundwater pollution and habitat loss to climate change. In short, civil society organizations have not only identified and publicized many of the negative externalities of oil production and consumption but have also contested them. Their argument, in effect, is that oil is failing in significant ways to meet broad social goals. The ways in which we access, process, and use oil, they claim, are unacceptable and something must be done.
