Oil-generated wealth, and other energy-related economic factors, are influencing the state of play in global financial markets.
Nations are realigning, shifting old alliances.
Corporations are adjusting priorities, changing business practices, and investing to secure market opportunity.
Climate change mitigation is stimulating investments in new energy sources, new technologies, and driving new trading schemes.
International energy markets, trading schemes, and re-alignment of nations are emerging because energy consumption is rising exponentially — driven by population growth, swiftly developing economies, improving global living standards, and the burgeoning use of ever more energy-dependent technologies. It is not difficult to cite jaw-dropping illustrations of growth in energy consumption: e.g., each year, for the past few years, China has added 60,000 to 90,000 megawatts of electrical generating capacity — roughly the equivalent of the throughput of the entire electrical grid of England.
Consumption of nearly every major energy source is up markedly. If current trends continue, humans will use more energy, over the next 50 years, than in all of previously recorded history. Fossil-based energy sources, including coal, will remain a dominant part of the primary energy mix. In fact, because of demand, the market clearing price of coal,1 heretofore always plentiful and reliable, has doubled over the last year. We may only speculate on the effect of this growth in demand on the state of our planet’s environmental health.
The original “seven sisters” — which became four after mergers in the 1990s — western companies that controlled Middle East oil after World War II — are losing prominence to a new set of seven. Saudi Aramco, Russia’s Gazprom, China’s CNPC, NIOC of Iran, Venezuela’s PDVSA, Brazil’s Petrobras, and Petronas of Malaysia control almost a third of the world’s oil and gas production, and more than a third of its total reserves.
The remaining four “old sisters” produce about 10 percent of the world’s oil and gas, and hold just 3 percent of reserves. The International Energy Agency estimates that 90 percent of new production, over the next four decades, will come from developing countries — a significant shift from the past 30 years, when 40 percent came from industrialized nations.
This swing in fortunes is leading supply countries, and their national oil companies, to alter contract terms with “traditional” international oil and gas companies — for greater ownership, greater operation of assets, and greater revenue share. Increasingly, they seek, as well, to develop their own integrated supply chains — from exploration and production to refining, marketing, and transportation.
Energy supply continues to worry European Union (EU) countries, which import 80 percent of their oil and gas. Russia uses its oil and gas abundance to lock up deals with more and more European countries, even as many of them fret that Russia is using its dominant energy position as a political tool. As a consequence, the EU is developing strategies for new and renewable energy sources, and for energy efficiency — both to assure supply through diversification, and to mitigate climate change. Many speculate that Russia’s recent invasion of Georgia was spurred by Georgia’s role in developing energy routes to supply EU countries with oil and gas from non-Russian sources, reducing their dependence on Russian gas and oil.