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Saturday, September 25, 2004

GEOPOLITICS AND OIL: THE COLD HARD FACTS

In order to get a perspective on the relationship of oil to international security, a macro view of world energy use, as well as hydrocarbon resources, is quite helpful. While there are various non-hydrocarbon sources of energy, including nuclear energy and "renewable resources" such as wind and solar power, clearly the world is dependent upon petroleum based products. In fact 86% of the world's energy is produced from three hydrocarbon fuel sources -petroleum, coal, and natural gas.



What's even more astounding is that at least in the near to mid-term, that percentage is going to rise. Many European countries have committed to phasing out their nuclear power programs in the coming years, including Germany, the world's third largest economy. The others are Belgium, Spain, Sweden and the Netherlands.

The relationship between hydrocarbon resources and geopolitics is thus clear: every country wants them, while only a few countries have them. It's as simple as that.

But not all hydrocarbons were created equally. Oil is by far the most important of all. Not only is it used for heating and electricity production, it is also necessary for the production of gasolines and other important petrochemicals. Many of the international issues surrounding energy security thus revolve around the production, transportation, and consumption of oil.<>

However, the vast majority of national economies use more oil than they produce. This makes both buyers and sellers of oil dependent upon relations with other nations. In fact, only seven of the top twenty oil consumers produce as much as they consume. Few of these countries have further undeveloped reserves to tap, while some of the biggest consumers -China, the United States, and Great Britain in particular- have passed their peak oil supply point, and will be able to satisfy less of their own demand in the coming years.


Domestic Supply as a Percentage of Domestic Demand

Top 20 Consumers of Crude Oil – 2002

Top 20 Oil Consumers
(bbl/d)

Domestic Demand

(bbl/d)

Domestic Supply

(bbl/d)

Net Domestic Production

(bbl/d)

Domestic Supply as % Domestic Demand

Saudi Arabia

1,514.0

8,718.9

7,204.9

575.9%

Russia

2,580.0

7,659.9

5,079.9

296.9%

Iran

1,346.0

3,526.8

2,180.8

262.0%

Mexico

1,980.6

3,593.4

1,612.7

181.4%

United Kingdom

1,696.3

2,562.4

866.1

151.1%

Canada

2,092.6

2,949.0

856.4

140.9%

Indonesia

1,088.0

1,359.0

271.0

124.9%

Australia

880.5

744.7

-135.8

84.6%

Brazil

2,162.0

1,773.0

-389.0

82.0%

China

5,161.0

3,524.2

-1,636.8

68.3%

India

2,185.0

819.0

-1,366.0

37.5%

United States

19,761.3

8,999.9

-10,761.4

45.5%

Netherlands

899.1

98.4

-800.7

10.9%

Italy

1,848.1

126.7

-1,721.3

6.9%

Germany

2,721.0

155.3

-2,565.7

5.7%

France

1,984.4

81.1

-1,903.2

4.1%

Japan

5,300.6

122.2

-5,178.4

2.3%

Spain

1,506.6

24.5

-1,482.0

1.6%

South Korea

2,179.7

10.9

-2,168.8

0.5%

Taiwan

938.0

3.8

-934.2

0.4%


In addition, economic growth trends will further exacerbate the situation. The three most developed regions of the world -north America, Europe, and Asia- are currently the world's net oil importers. As other regions make progress toward developed economies, they too will demand increased amounts of oil. Although there are significant reserves world-wide still to be developed, the cannot mitigate these underlying trends.

Finally, the role of one region in particular cannot be ignored. The Middle East contains more than a third of the world's known estimated oil reserves. Although part of that region’s volatility is related to oil itself, many of the reasons are entirely unrelated to its resources. Religion, history, and geography as well as oil help make the Middle East the world's geopolitical center of gravity.

World Reserve Estimates - 2004 (billions of barrels)
Region and Country Proved
Reserves
Reserve Growth
Undiscovered Total

Middle East

726.8

252.5

269.2

1248.5
Russia/FSU
78.0 137.7 170.8 386.5
Central and South America 98.8 90.8 125.3 314.2
Africa 87.0 73.5 124.7 285.2
Canada 178.9 12.5 32.6 224.0
United States 22.7 76.0 83.0 181.7
Mexico 15.7 25.6 45.8 87.1
Western Europe 18.2 19.3 34.6 72.1
China 18.3 19.6 14.6 52.5
Other Developing 11.0 14.6 23.9 49.5
India 5.4 3.8 6.8 16.0
Australia/ New Zealand 3.6 2.7 5.9 12.1
Eastern Europe 1.4 1.5 1.4 4.2
Japan 0.1 0.1 0.3 0.5
Total 98.8 481.0 690.0 2842.8
OPEC 869.5 395.6 400.5 1665.6
Non-OPEC 396.3 334.5 538.4 1269.2
Total 1265.8 730.1 938.9 2934.8

With so much of the world's known reserves in such a complicated and volatile location, geopolitics and oil will always be inextricably linked.

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