The Globalization of Energy

by Amineh, M. Parvizi; Guang, Yang

• ISBN13: 9789004181120
• ISBN10: 9004181121
• Format: Hardcover
• Copyright: 2010-02-28
• Publisher: Brill Academic Pub

Summary

Energy security challenges are topping the policy agenda of the European Union and China. Consequently, policy makers of both energy import-dependent polities continue to look for new responses. But will these new policies put EU-China relations in a cooperative or competitive setting?

Excerpts

Chapter One Introduction: Tapping Global Energy Stocks: Energy Security Challenges for the European Union and China Mehdi P. Amineh & Yang Guang 1.1 Introduction Energy security challenges top the policy agendas of the European Union (EU) and China today. Consequently, policy makers of both import-dependent polities continue to look for new responses. These include not only the diversification of source and origin to encourage supply security, but also support for substitutes of fossil energy and improving efficiency in energy use. In these endeavors, the urgency of geopolitical concerns seems to draw more attention than long-term plans of transitions to renewable energy systems. As a result, the perception that the EU and China might be competitors in the geopolitical arena for access to foreign markets seems to overshadow their common interest in developing renewable energy and sharing efficiency-improving technology. However, it is often neglected that the EU and China at the same time are well positioned to cooperate vis-à-vis producer countries and compete in the development of high-end renewable technologies. This volume challenges such dominant perceptions and aims to provide the wider public with a more balanced account of EU – Chinese energy relations. To this end, this volume not only focuses on geopolitical realities that affect energy relations among both polities, but also on energy efficiency and the development of alternatives and renewables. Global primary energy demand, according to the EIA International Energy Outlook 2008, is projected to increase by 50% between 2005 and 2030, although this is greatly dependent on the level of economic growth until then. Most of this growth is expected to come from newly industrializing Asia, mainly China and India, while the growth of demand in industrialized or Organization for Economic Cooperation and Development (OECD) countries, like the EU and US, will be more modest, given that these already have high levels of per capita use. As a result, it is predicted that by 2030 more than 25% of world energy demand will come from developing Asia, particularly China and India (18% in 2005). By contrast, the share of the US in world consumption is expected to diminish between 2005 and 2030 from 22% to 17%. According to EIA International Energy Outlook 2008 estimates, world oil consumption will rise from 84 million barrels per day in 2005 to 113 million in 2030. The EIA also anticipates a substantial growth in the global consumption of natural gas for the period 2005-2030 from 104 trillion cubic feet (tcf) in 2005 to 158 tcf in 2030. Gas import dependence will grow substantially in all major consumer markets, except in East and Southeast Asia, where import dependence is already very high. The import dependency of the EU and China will grow to about 70% of domestic consumption by 2030 (EU Green paper 2000 and EIA IEO 2008). In the period to 2030, global oil and gas supplies are predicted to originate in fewer countries than today. This is due to the fact that proven oil and gas reserves are unevenly distributed in the world and that only a few countries are surplus producers. The total global oil stock as of January 1, 2008 was estimated at 1,332 billion barrels (bbl) proven oil reserves, around 70% of which is located in OPEC countries, and 30% of which in non-OPEC countries. Just five countries (Saudi Arabia, Iraq, the UAE, Kuwait, and Iran) hold about 55% of global proven oil reserves. So far, the Gulf has been a critical factor in meeting global demand, followed by the states of the former Soviet Union. It is expected that world oil supply will need to be 28 million barrels per day more in 2030 than in 2005. To meet this demand OPEC and non-OPEC countries combined are expected to produce 49 and 63 million barrels per day, respectively, according to the EIA IEO 2008. This results in a market share of OPEC of 44% in 2030 and continues a longstanding growth trend. Moreover, non-OPEC supplies are maturing, resulting in increased demands on OPEC oil in the long-term future. Proven gas reserves are slightly less concentrated than oil reserves. Russia (including the Caspian Sea region) and the Middle East each represent about 1/3 and 2/5 of proven global reserves, respectively. Moreover, Russia and Iran hold about 42.5% of the global gas reserves as of 2008 (January 1, 2008, EIA International Energy Outlook 2008). The Middle East has substantial gas potential, but it remains largely untapped. This is due to the difficulty or cost at which these gas reserves can be developed and brought to market. Compared to the international oil market, the international gas market is still very much a regional one, divided into Asia’s LNG market, the Russian-European market, and the North American market. Non-OECD Europe and Eurasia and the Middle East account for around 40% of global production in 2005, and are expected to account for 45% of the increase in production between 2005 and 2030. OECD countries will decline their share of global production from 39% to 27%. Hence, it is estimated that by 2030 supplies of gas for the world market will originate in fewer countries than today because some of the existing sources will dry up. Global oil and gas markets look bleak as the result of ever-growing energy consumption, an increasing exhaustion of reserves, and an increasing geographical concentration of production. Against this background, it is likely that state and non-state actors will assign more significance to economic and resource concerns and energy relations will increasingly politicize. On the one hand, the growing energy imports of countries such as China and India adds to that of the European Union and the United States. In addition, the anticipation of future supply disturbances is reflected in generally rising oil and gas prices, especially their increasing volatility and the inelastic demand by major consumers. On the other hand, based on the location and increasing scarcity of world oil and gas reserves, a geographical concentration of energy supplies is expected to materialize in the politically unstable producer countries of the Gulf, Russia, and the Caspian Sea region. Moreover, internal conflicts may arise in countries where oil and gas are the main source of income, especially when accompanied by ethnic hostility, terrorism, religious fundamentalism, economic injustice, corruption, and political competition. Hence, both competition and cooperation for energy supplies among consumer countries and between consumer and producer countries are likely to intensify in the coming decades, the more so because policy responses of consumer countries cannot be understood in isolation of one another. The global demand for oil and gas, rising political instability in many producer countries, and the approach of the peak-oil situation (2010-2020) are beginning to change the overall balance of power in the relationship between energy producer and consumer states in a way that strengthens the latter. This dilemma is further worsened by the renationalization wave experienced by the energy industries of producer states. Whereas in the early nineties energy sectors spearheaded market reforms, giving TNCs considerable power over energy resources, they are now slowly but surely transforming into government-controlled sectors. With oil and gas companies already state-owned in most Middle Eastern OPEC states, recently nationalized in Russia and Venezuela, and subject to government control in China and India, trust in the market seems critically misplaced. Hence a reliance on the market and transnational energy corporations for providing adequate supplies no longer seems sufficient in a world in which oil and gas are both a source of energy and power, and bilateral contracts increasingly bypass the market. To summarize, the combination of increasing oil and gas consumption, diminishing reserves, and geopolitical rivalry creates a setting for both the EU and China that can be characterized as one of demand-induced, supply-induced, and structural scarcity, or a combination thereof. Demand-induced scarcity refers to a situation in which population growth, a rising per capita income resulting in higher levels of consumption, and technological change that renders fossil fuels more essential for the production of wealth and power, increase domestic demand for fossil fuels. Supply-induced scarcity refers to a situation in which a decrease of stock (or market-efficient access to it), inefficient use of supplies, and a lack of adequate productive capacity and pipeline infrastructure, decrease the supply of energy resources. Structural scarcity refers to a situation in which there is a supply-induced scarcity caused by the deliberate action of a major power or non-state actors, like transnational oil companies and producer cartels like OPEC. For example, in the current unipolar military order, the US can opt to induce scarcity for allies, competitors, and enemies alike by interdicting the maritime transport of oil and gas. That option, however, is available only after oil and gas have been brought to ports and ships from the territory of extraction. America, by extending the country’s defense perimeter into the heartland of energy supply, is equipping itself with the capacity to induce structural scarcity for contenders by diverting flows on land. Environmental constraints and advances in technology also affect energy security. According to the IEA World Energy Outlook, the world is facing a twin energy threat: that of energy supply security (at affordable prices) and that of environmental harm. Global CO2 emissions are expected to increase by 55% between 2004 and 2030 (1.7% annually). Emissions thus grow faster than energy demand. This is alarming, because it contrasts with the 25-year-long opposite trend towards cleaner energy sources, and testifies that our future energy use will be more ‘dirty.’ A likely cause for this is the switch back to coal that occurs in response to the oil and gas scarcity in many countries. Coal resources are more abundant and geographically less concentrated, though they have higher levels of carbon than oil and gas. This shift coincides not accidentally with the fact that developing countries will overtake OECD countries as the biggest emitters of CO2 shortly after 2010, and will account for more than 50% of global emissions by 2030. China alone is expected to represent 39% of the rise in emissions until then. While pollution creates cross-border tensions, innovations in alternative and renewable resources, alongside efficiency measures, can reduce energy import dependence and contribute to reducing greenhouse gas emissions. However, deploying new technologies involves more than a simple replacement of oil and gas by other energy sources. It requires building new production facilities, new storage and distribution means, and even new end-use applications. Apart from time and money, such energy infrastructure transitions also necessitate continued government and popular support, especially when it is likely to be driven by social, political, and environmental benefits, and the technical and economic sides cannot yet compete with existing fossil fuels. Moreover, a transition to a more sustainable energy system differs essentially from past energy transitions. First of all, the duration is estimated to be around fifty years instead of ten to twenty years. Secondly, whereas the current transition takes place in a liberalized market setting involving many actors, in the past, transition took place in a regulated setting with few actors, among which the government assumed the dominant position. Finally, the current transition has a very diverse set of technologies and complex solutions in mind, whereas past transitions had comparatively simple technical goals. Consequently, the general public was more supportive about past transitions than the current one, which is often considered to be rather vague in terms of goals, policies, and results. Combined, these reasons urge for the development of new ways to govern such a transition. It is expected that even by 2030 the role of renewables in the global energy mix will be marginal at best. The World Energy Outlook 2006 of the IEA states that while renewables and alternatives today cover 19% of global primary energy supply (if one includes nuclear and biomass; renewables alone account for 3%), by 2030 this will still be only 19% (and 4%). This is not due to a lack of development of renewables, but simply because global oil, gas, and coal consumption will also continue to rise. Nevertheless, as oil and gas become increasingly scarce, developing innovative technologies is the only long-term alternative. International conflicts over the control of global oil and gas become more likely as consumption and imports rise, availability of oil and gas decreases, prices of these commodities increase, and environmental conditions deteriorate. These energy security challenges urge the EU and China to respond. The obvious questions remaining are how they (should) do so and what the impacts of their energy security policy strategies on each other are. To that end, this volume analyzes the effects of competition for access to oil and gas resources among the main global consumer countries and its implications for the security of energy supplies of the EU and China. The volume also analyzes domestic energy demand and supply patterns, policies to increase energy efficiency, and the prospects for the exploitation of renewable energy resources. The aim is to give insights into both the geopolitical and domestic aspects of EU-China energy relations in order to understand where the possibilities and impediments for cooperation and competition lie. 1.2 EU’s Energy Security Issues The EU is a net importer of energy due to the combination of high consumption, few resources, and little domestic production. According to the BP Statistical Review of World Energy 2008 , the EU’s 27 member states combined consumed in 2007 14861 thousand barrels of oil daily (tbb/d), which is 17.8% of global consumption. This figure represents a 2.6% decrease compared to the previous year and interrupts therewith a longstanding rising trend. Oil production has declined over the last year and now stands at approximately 2394 tbb/d, or 2.9% of global production. Even worse for future prospects are the EU’s oil reserves, which stand at 6.8 billion barrels, a staggeringly low 0.5% of global reserves and declining. The statistics on natural gas are not much more optimistic. In 2007 gas consumption stood at 481.9 billion cubic meters (bcm), or 16.4% of total world consumption, which is a 1.6% decrease from the year before and again interrupts an overall increasing trend. At the same time, gas production fell 6.4% to 191.9 bcm over the previous year, continuing the decreasing trend and making EU production 6.5% of global production. Again, reserves further aggravate the problem, standing at 2.84 trillion cubic meters or 1.6% of global reserves and decreasing. Thus the EU possesses insufficient reserves to meet future demand. Expectations are that the EU’s import-dependence will continue to grow. The European Commission has repeatedly warned since 2000 (Green Paper) that the EU’s net energy import-dependency will rise from 50.5% in 2005 to 70% of the EU’s total energy requirements by 2030. More precisely, where 45% of oil is currently imported from the Middle East, by 2030 this will be 90%. The situation for gas is similar. Currently 40% is imported from Russia, 30% from Algeria and 25% from Norway. By 2030 this will be 60% from Russia and an 80% overall import dependency. It is especial cause for alarm that the EU import-dependency on gas from Russia is likely to grow and that gas is increasingly replacing oil as the