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2013-10-29 Energy.docx

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Geography 2143A/B
Milford Green

Energy October 29, 2013 International Oil CompanyAccess is Declining The Changing Game Nationalizations in the 1970s and 1980s and tougher terms in the 1990s and 2000s mean Western oil giants face shrinking access to global oil and gas reserves -one of the biggest changes happened in energy market in the last 50 years has been rise of national oil companies versus what formerly dominated the international market companies (e.g. ExxonMobil, Shell_ -early history of development of oil: it was the predecessors of multinationals responsible for developing world system of oil deliveries -starting 1960soil bearing countries decided they wanted to capture more of the raw materials and created a number of their own individual oil companies -various political and economic pressures able to gain control of resources previously under big companies -about 85% of world’s oil were accessible to common names of oil companies -by today, 65% of today’s reserves are held by national companies -the international ones are down to 16% in total – they are being squeezed in terms of where they can get reserves -consequences: North America: U.S. and Canada became attractive for investments because there weren’t much risks in terms of nationalization or interference by government The Global Oil Picture -At the same time, the U.S. and the West hold less sway than before over the world energy supplies. The richest deposits in the most politically or geographically accessible locations have been found. Government attempts to get a firmer grip on natural resources have put state- controlled companies in control of three-quarters of the world remaining oil supplies. -Who controls the crude -The world’s reserves are increasingly controlled by the national oil companies in Saudi Arabia, Venezuela, Russia, and other countries -Reserves as of May 2007: 1148 billion barrels -Degree of access to reserves by independent oil companies, since ExxonMobil, Eni, Total, BP -77% limited equity access: national oil companies control reserves -11% equity access to reserves held by national oil companies -6% reserves held by new Russian companies -6% full access Largest oil producers -if you look at Fortune 500 or Forbes 1000: at the top 10, you’ll see 5 or 6 oil companies -that understates the importance of oil companies 1 -they don’t include national companies (they have far larger reserves) -biggest one is SaudiArabian Oil Company produces 259.9 billion barrels (712 million barrels/day) -1 crude barrel = 42 gallons -National Iranian Oil Co.: 136.2 billion barrels -Petroleos de Venezuela 99.4 billion barrels Largest private oil companies (largest oil producers) -ExxonMobil, BP, or Royal Dutch Shell are top 3 -they find some reserves, they lose some Some oil companies are too regionally concentrated Drilling Down -Oil and gas resources of selected oil companies, by region, in billion barrels of oil equivalent -some oil companies are too geographically concentrated in terms of their production -e.g. Petro China: very little geographic diversification -e.g. Petrobras: entirely Brazilian; same thing -Shell, ExxonMobil have much more balanced geographic portfolio of oil -it doesn’t matter as long as conditions remain stable -but if you have political instability in the region where you have most reserves, you would have difficult time getting access to those reserves New Seven Sisters -7 largest oil companies -dominated oil industry -most of them have merged together -new 7 sisters: they are more or less associated with countries that haves large reserves -Gazprom (Russia) -CNPC/PetroChina (China) -NIOC (Iran) -PDVSA (Venezuela) -Petrobras (Brazil) -Petronas (Malaysia) -SaudiAramco (SaudiArabia) -geographic concentration -moved aaway from oil industry dominated by private investments and now it’s dominated by government -Concentrated in select group of countries -Organization of Petroleum Exporting Countries (OPEC) -12 members 2 -Algeria, Angola, Iran, Iraq, Kuwait, Libya, Ecuador, Nigeria, Qatar, Saudi Arabia, United Arab Emirates, Venezuela -by far the most successful group of producers -this is a unique cartel: one country that is so preeminent in production that it can police the rest of the cartel: SaudiArabia -premier oil organization -goal: provide stable prices -oil prices went up after formation of OPEC OPEC -holds largest share of crude oil reserves -as the US become more self-sufficient in oil, purchases from OPEC will fall and U.S. interests in Middle East would decline -China: increasingly dependent upon international oil access -biggest customer of SaudiArabia -China has no involvement in Middle East at all (in military sense) -if this trend continues (U.S. interests decline in Middle East), Chinese might be forced to become more interested in policing that section of the world because they will be highly vulnerable in the disruption of supplies Middle East oil export by destination -projections -in terms of projections, China is going to be by far the largest destination for Middle East in oil, followed by India and Japan/Korea -U.S. will almost import none -There is two big producers that are not part of OPEC: U.S. and Russia -Russian companies have very low operating costs compared to other producers -Russia: either 1 or 2 largest oil producer in world -happy to sell at the price OPEC sells -Russia: their oil and natural gas is by far the major portion of their foreign earning and essentially supports the Russian government -orientation of Russia has been Europe -almost all their pipelines from Siberia West run to either Eastern or Western Europe -one pipeline runs to China and another under construction -Russia trying to diversify -Russian companies have one big advantage: have lowest operating costs in the world in terms of pumping oil -their profit margin is large Trend of Russian Oil Production 1992-2012 -they are pushing as much oil as they can get from the ground 3 -one constraint they have is lack of pipeline capability to get more crude out Russian Gas and Oil Have Political Effects -Map: oil and natural gas pipeline system run from Western portion of Russia into Europe -it actually goes way out from Siberia -likely that the pipeline system going to become longer overtime -problem of buying Russian oil: the Russians, if they wanted to, shut the supply down -if you displease them, you won’t get any oil or natural gas -this happened in Eastern Europe -problem: when they built the original pipeline system, it was Soviet Union -the boundaries of Ukraine and Kazakhstan became national boundaries after Soviet Union collapsedUkraine says if Russia wants to ship natural gas and oil to Europe, you need to pay us Other dependencies -you don’t want to be too dependent on outside suppliers -countries with large oil reserves would have leverage over you if they want something done -level of independence that various countries are facing -one country that is substantially decreasing dependence: U.S. -the rest are increasing dependence (ASEAN, China, India, EU, South Korea, Japan) -means that oil and gas producers have a bigger say in the future Map -oil and gas pools in southern Ontario -was one of the first areas exploited for that Canada’s oil production and consumption, 2000-2011 -Canada is a net-exporter of oil -major target of Canadian oil is U.S. -level of exports has been gradually increasing -one concern: whether that export level can be maintained -the problem is not the amount of oil Canada has; Canada has plenty of oil -the natural market of that oil is the U.S. -U.S. has increased its own production and likely to buy less oil from Canada -Canada exports more likely to drop until they can find another market -New technology has allowed US to produce more oil -Hydraulic fracturing – pumping in water mixed with chemical additives – and horizontal drilling into shale rock – previously used in natural gas 4 Shale Boom -U.S. has a lot of shale -Canada has a lot (it’s a continuation of beds that are in North Dakota and run north into Saskatchewan) -just to west of that it runs to Alberta -Alaska: left behind -not terribly important source of oil for U.S. anymore -some argue that exhausting rate for shale is much quicker than exhausting rate for potential reserves -if this is true, then fracking has a less of a future than people thought -existing technology can access more places -every place that has a lot of shale almost means that it needs a unique technology in order to access it -China has a lot of shale, but not clear if they have the technology developed and produced in the U.S. can be used in the Chinese situation -number of possible places that oil can come from -shale is big -coalbed methane: if you have coal, there’s usually methane associated with it -every time a mine blows up, it’s usually because methane is seen as ignited -but can draw that methane out and use it as fuel CrudeAwakening: Fracking has helped ignite a rise -Bakken Shale in North Dakota -tremendous amount in Pennsylvania and New York -New York does not allow fracking; Pennsylvania allows fracking; Michigan in lower peninsula covered with shale, but is a relative mild producer -the ones being used are the ones not terribly close to existing pipeline systems -but if they get access to the Barnett shale, then it’s close to existing pipelines and easier to get out Top countries with shale oil resources Technically recoverable (Barrels bn) -Russia has the most (75 barrels billion) -2 years ago, they denied that fracking works -bnd they lied because they didn’t want their conventional resources to suffer -U.S. is 2 with 58 -China is 3 ; has quite a bit (32), but we don’t know if they have the technology to do it -U.S. oil production -Million barrels per day 5 -the drop is a response to the recession in 2008 -the economy got tough and there was less need for production of oil Major forms of transport -Pipeline -most preferred because it’s efficient and least polluting -expensive and you can’t move it -solve: you can reserve the flow -if you want more oil to travel in the pipeline, you increase compression -but if you increase compression: more likely to failure (blow out) -Tanker -mainly used from production out of Middle East to other parts of the world -Rail -Rail is increasingly being used to transport US crude -More flexible -Already in place (infrastructure is already there) -Less opposition -no pipelines run north of U.S.; started to use rail -railroad system in U.S. is extensive, pretty dense -infrastructure is already there – not a lot of opposition to fix up accidents U.S. train carloadings -coal used to be primary cargo for railway system -but it has decreased Energy Role Reversal -U.S. domestic oil production is on the verge of surpassing the level of net oil imports -it appears that U.S. domestic production will exceed the U.S. imports -means that technically U.S. has been self-sufficient -has been true for the past 3 or 4 decades -last time there was a big surplus was the 1950s -has political implications -affect Canada and Canada’s role as major provider of oil Oil Dependent -China, which once was a net exporter of oil, is concerned about its growing dependence on imported oil, which is projected to be higher than that of the United States this year -China has also moved ahead of the United States as the biggest buyer of oil and natural gas from SaudiArabia, which has so far avoided social upheaval but is on Mideast analysts’watch lists. 6 That oil is shipped in tankers that travel along sea lanes controlled by India and the United States, which adds to Beijing’s jitters. -U.S. becoming more self-sufficient; China does not have enough domestic production and must go abroad and get oil -vulnerability: U.S. become less vulnerable to supply disruption and China is becoming more vulnerable -China: must think what they should do to control this vulnerability Map: oil supplies in Canada -big player:Alberta -accounts for almost 80% of total supply Canada has -most of them are in the form of oil sands (not conventional oil) -light oil is preferred -it’s easily refined -most refineries that exist are designed to handle light oil -heavy oil doesn’t flow easily -has more potential pollutants in it -it’s cheaper than light oil because nobody wants to buy it (harder to refine) -Alberta oil sands: so far away from everything else -oil sands have 2 drawbacks -1. it takes a lot of water to process it -2. it’s expensive to get out of the ground -production cost might be $15-20 in Middle East but it’s $60-70 extraction cost for Alberta -there’s a lot of light oil in Newfoundland andAlberta -most heavy oil located Saskatchewan Pipelines in Canada -almost all of them orient to the south so that it’s feeding the U.S. -refining capabilities in NorthAmerica has been the same since 1972 -no refinery construction of any major size -we see reverse happening: refineries closing down as they age Cold Cash, Hard Going -Oil and gas companies are ramping up spending to develop new wells in theArctic, but progress is expected to be slow. -major holdings are in wells: #1 Statoil, #2 ConocoPhillips, #3 Gazprom, etc. 7 -some sources say if you include oil sands, Canada has the largest reserves in world -other sources say Venezuela would have largest in the world Alberta Oil Sands -According to Petroleum Economist, “Although tar sands occur in more than 70 countries, the bulk is found in Canada in four regions:Athabasca, Wabasca, Cold Lake, Peace River; together covering an area of some 77,000 km2.” Map: Oil sands area in Alberta -there’s lots of sand that’s not been touched -mining takes place in theAthabasca Deposit -there’s lots and lots of sand that has not been touched -Lower oil prices place Canadian oil sands companies at risk, such as Suncor and Western Oil Sands Heavy Lifting -Venezuela and Canada jump to the top of the oil patch when extra-heavy reserves are counted along with conventional sources. -Venezuela #1 (270 billions of barrels of oil sands) -SaudiArabia #2 (264.3 billions of barrels of oil sands) -shows Canada is #3 (with 174.1 billions of barrels) -extra-heavy: means oil sands Northwest Passage -Canada may expand pipeline capacity from oil-richAlberta to the Pacific in order to meet growing demand fromAsian markets -over the next decade, there’s going to be a lot of propos
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