NAMUN2015 Joint-Crisis Committee FUELLING THE FUTURE

vs. TM SINOPEC Energy lives here

Background Guide TO THE DELEGATES, Welcome to the Fuelling the Future Joint Crisis Committee, here at the North American Model United Nations 2015 conference!

One of our main goals in designing the Joint Crisis committees for this year, and indeed what we see as one of Model UN’s greatest values, is to provide a forum for engaging with issues both from today and in the future. More than an opportunity to consider such problems and potential solutions, we hope the committees allow you as delegates to apply your critical thinking, teamwork, and rhetorical skills to them in a dynamic environment. At the same time, we want this to be equally as enjoyable an experience as it is intense.

Please do not hesitate to communicate with any of us should any questions or concerns arise during your time here at NAMUN 2015. Alternatively, we very much welcome any ideas for improvement you may have—NAMUN has always been the beneficiary of the outstanding delegates that have participated in it, and we believe that listening to them can only improve the conference.

In the spirit of Model UN and meeting delegates from a great diversity of schools and places, we look forwards to seeing you at NAMUN!

Signed, Benjamin Pan

Director of Joint Crisis Committees

Sameer Chhabria

Vice Director, Fuelling the Future

Kelsey Wiseman, Sevda Sparks

Committee Chairs

1 Central Azeri oil platform in the Caspian Sea

INTRODUCTION Throughout the 21st century, oil has assumed an incredibly important role in industry, and thus the global economy as a whole. This unassuming black liquid, the remnants of prehistoric life forms transformed by time and geological pressure, fuelled the industrialization of the past century that has enabled so many products of this one. As a finite resource however, oil is nearing a theoretical apex point—“peak oil”.

Given how pivotal oil is for transportation alone, peak oil will compel every industry to fundamentally and unprecedentedly adapt.1 Today, transportation is the primary consumer of petroleum: personal vehicles, buses, motorcycles,

1 Daniel Yergin, “What’s Wrong with Peak Oil,” The Wall Street Journal, September 1, 2011, http://online.wsj.com/news/articles/SB100014240531119 04060604576572552998674340.

2 aviation, and trains are all fuelled by oil or its derivatives.2 In the United States for instance, “the transportation sector accounts for 70 percent of oil consumption.”3

Oil scarcity however, will not only make the transportation industry vulnerable. In fact, many other prominent industries rely on oil. The military, for instance, is a major user of oil. The decline of oil supplies thus could push many countries into precarious conflicts, and it is not implausible to suggest that wars may occur in dealing with petroleum scarcity. This could change the international balance of power, and could strain the political relations between major super powers, including Russia, the United States, and China. Moreover, given that oil is used for heating and electrical generation, peak oil combined with anthropogenic climate change may have significant consequences. Lastly, crude oil is used as a starting material for several reactions in the production of industrial chemicals with wide ranging uses.

Oil then is more than a commodity, for it is now a necessity. With all these uses, oil is an essential component of today’s economy on a scale that is arguably unrivalled by any other.4 With the world’s overuse of oil and as the world’s demand for it continues to climb, peak oil is a problem that states, corporations, and individuals unavoidably will have to confront this century. Major energy companies like ExxonMobil and Sinopec—for which oil today lies at the centre of their businesses—are thus faced challenges that are likely unparalleled by any other.

This committee asks you, as officers of these two corporations fifty years in the future: how will you cope with the economic and geopolitical implications of rapidly rising prices and the rapidly declining supplies of what is currently our chief source of energy? How will you navigate through territorial disputes, manage disruptions in extraction and production, balance exploration with alternative energy research, and mitigate souring public opinion as the world enters a new era?

2 “What is Oil Used For?” Environmentally Conscious Consumers for Oil Shale, Accessed November 26, 2014, http://www.eccos.us/what-is-oil-used- for. 3 Christopher R. Knittel, “Reducing Petroleum Consumption from Transportation,” Journal of Economic Perspectives 26, no. 1 (2012): 93-118, http://web.mit.edu/ceepr/www/publications/reprints/Reprint_238_WC.pdf. 4 “What is Oil Used For?”

3 The Oil Industry The oil industry first began its ascension in importance approximately 150 years ago. Since then, as it has become increasingly integral to global economies, talks of peak oil have become increasingly salient.5

Peak oil is defined as the conceptual point at which global petroleum production will begin to decline. Outlined in M. King Hubbert’s seminal 1956 paper, this is distinct from oil depletion: it does not refer to the point at which there is decreasing or no oil, but rather to the economically maximal point of production. In other words, oil production declines when there are other more economical forms of energy available.6 This may thus be brought about by advances in alternative energy sources, or the exhaustion of conventionally or easily recoverable oil7—the source of the majority of today’s oil.

Source: The University of Texas at Austin, Jackson School of Geosciences

5 “Oil,” David Suzuki Foundation, Accessed November 26, 2014, http:// www.davidsuzuki.org/issues/climate-change/science/energy/oil/http://www. davidsuzuki.org/issues/climate-change/science/energy/oil/. 6 “Peak Oil?” Cornell University, Accessed December 27, 2014, http:// www.geo.cornell.edu/eas/energy/the_challenges/peak_oil.html. 7 Ibid.

4 This point is estimated to occur anywhere from 2026-2037, though actual significant declines in production have been continuously postponed due to new and innovative techniques in production.8 On average during 2011, 83.6 million barrels of oil were produced each day, representing a 163% growth since 1965.9

As petroleum prices have increased, unconventional sources of oil and natural gas have increasingly been looked to as economically viable sources of energy. Indeed, energy analysts predict that unconventional sources contain greater reserves of energy resources than all undiscovered remaining conventional ones.10 Oil sands, oil shale, and shale gas are examples of such sources that have grown in prominence as technologies such as oil sands extraction and fracking have increased in usage.

Source: Cornell University College of Engineering

8 “Peak Oil Models Forecast China’s Oil Supply, Demand,” Oil & Gas Journal, Accessed November 26, 2014, http://www.ogj.com/articles/ print/volume-106/issue-2/drilling-production/peak-oil-models-forecast- chinarsquos-oil-supply-demand.html. 9 “How Much Oil Does the World Produce?” EnergyTrends Insider, Accessed December 24, 2014, http://www.energytrendsinsider. com/2012/06/25/how-much-oil-does-the-world-produce/. 10 “EXPLORATION & INNOVATION: GEOSCIENTISTS PUSH THE FRONTIERS OF UNCONVENTIONAL OIL AND GAS,” JSG News, Accessed December 27, 2014, http://www.jsg.utexas.edu/news/2008/04/exploration- innovation-geoscientists-push-the-frontiers-of-unconventional-oil-and- gas/.

5 There are two main processes associated with the oil industry: energy exploration and energy production. The former refers to the search for oil and energy under the Earth’s surface, while the latter is the process of recovering these found resources for use. Since most oil is buried deep underground, drilling is often necessary to confirm its presence and later to extract it.

Although the science behind the search for oil and energy has drastically improved, there is no guarantee that the arduous and hazardous work put into the drilling process will be worthwhile.11 According to British Petroleum, companies have “drilled more than two million wells around the world in hopes of striking oil. Many of the early wells turned out to be dry.”

The Issues at Stake Geography & Territorial Disputes While oil is nearly ubiquitous across many geographical regions, Saudi Arabia, Venezuela, Iran, Iraq, Kuwait, United Arab Emirates, the Russian Federation, Libya, Kazakhstan, and Nigeria are its ten largest sources.12 These reserves, however, are not endless, even though we may be exploiting them as if they are.

There are certain contested areas where oil has been found—in the Arctic and the South China Sea, for instance. These already fiercely disputed territories may prove even more contentious as peak oil nears and as easily recoverable reserves are exhausted. China, for one, has been embroiled in a conflict with the Philippines (as well as, to a lesser degree, with Vietnam, Malaysia, and Brunei) over “overlapping claims” in the South China Sea. Both China and the Philippines claim to have economic rights to the waters, which include certain oil reserves.13 Another relevant disputed territory is the Arctic, involving Canada, the United States, Denmark, Russia, and Norway. Similar to the South China Sea, there are oil reserves within the contested Arctic regions

11 “Finding Oil and Gas,” BP, Accessed November 26, 2014, http://www. bp.com/en/global/corporate/about-bp/what-we-do/finding-oil-and-gas. html. 12 Mamta Badkar, “15 Countries With The Biggest Oil Reserves,” Business Insider, May 11, 2012, http://www.businessinsider.com/15-countries-with- the-biggest-oil-reserves-2012-4?op=1. 13 “Q&A: South China Sea dispute,” BBC News, Accessed December 4, 2014, http://www.bbc.com/news/world-asia-pacific-13748349.

6 as well. These waters are expected to become even more controversial as this disagreement is exacerbated by sea ice melts and as more waterways are freed for exploration.14 Climate Change In recent decades, climate change has become a significant problem and a topic of interest to politicians and scientists alike. The main issue at hand is the warming of the Earth. The Intergovernmental Panel on Climate Change reports that from 1880 to 2012, the global mean temperature has risen by 0.85°C. Countries are experiencing intense rainfalls, floods, droughts, and heat waves; moreover, “oceans are warming and becoming more acidic, ice caps are melting, and sea levels are rising.”15

These problems are not without humanity’s fault. Indeed, energy and oil consumption has been largely credited with intensifying climate change and its effects. Greenhouse gases, which are a product of combusting fossil fuels to produce energy, emit gases that trap energy in the Earth’s atmosphere and cause a rise in temperature.16

Clean energy programs, such as renewable energy, may have the capacity to slow the greenhouse heating process. Most renewable energy is derived either directly or indirectly from the sun. Solar energy can be directly used for electricity, water heating, solar cooling, and commercial and industrial purposes. It can also be used indirectly through driving wind currents, which in turn can be translated into energy via wind turbines, and through hydroelectric power, which relies on evaporation and the water cycle. Additionally, biomass from plants can be transformed into electricity, transportation fuels, and chemicals. Hydrogen itself, once separated, can be converted into electricity or burned as a fuel.17

14 “Evolution Of Arctic Territorial Claims And Agreements: A Timeline (1903-Present),” Stimson Center, Accessed December 4, 2014, http:// www.stimson.org/infographics/evolution-of-arctic-territorial-claims-and- agreements-a-timeline-1903-present/. 15 “Climate Change: Basic Information,” United State Environmental Protection Agency, Accessed December 4, 2014, http://www.epa.gov/ climatechange/basics/. 16 “Climate Change: Basic Information” 17 “Types of Renewable Energy,” RenewableEnergyWorld.com, Accessed December 4, 2014, http://www.renewableenergyworld.com/rea/tech/home.

7 Capital Markets The stock market is a platform to invest in publicly-traded companies with the hopes of profiting from the these corporations’ successes. To engage in the market, an investor purchase a share of a stock—essentially a share in or piece of the company. The more shares one has, the greater the ownership and earnings one is entitled to. Stockholders are thus allowed to make decisions in the company, depending on the number of shares they own. Essentially (though not universally), one common share is equivalent to one vote.

When a person buys a stock, he buys a percentage of the company at hand. Depending on the size of the corporation, one single share can either be a significant controlling portion or a drop in the proverbial pond. The latter is typically the case: for a large company like General Electric, even owning $1 million worth of shares does not amount to much equity as a proportion of the company’s total.18

Companies can sell shares to raise capital for expansion or for any large projects. Stocks, however, are not guaranteed investments. Indeed, if a company fails, shareholders fail just as the company does.19 If a company has a poor quarter of earnings, shareholders suffer too as share prices fall.

The Future is Now It is now 2050, and despite the best efforts of engineering and innovation in oil extraction, the globe’s conventional reserves have reached exhaustion. Dwindling supply of what for now still is the world’s chief source of energy, combined with near US$200 per barrel prices, has driven the global economy into recession for the past five years. Conversely, unmet demand and high prices mean that unconventional and unexploited reserves—most of which fall in politically disputed territories—are now especially lucrative.

This new landscape has caused the previously diverse group of energy companies around the world to consolidate into just two publicly-traded multinationals: ExxonMobil serving markets in the western hemisphere, and Sinopec serving markets in the eastern hemisphere. The virtual duopoly these corporations hold over the energy market means that they wield immense

18 “What Owning A Stock Actually Means,” Investopedia, Accessed December 4, 2014. http://www.investopedia.com/articles/basics/03/070303. asp. 19 “How Stocks and the Stock Market Work,” HowStuffWorks, Accessed November 26, 2014, http://money.howstuffworks.com/personal-finance/ financial-planning/stocks.htm.

8 influence amongst the world’s governments in addition to their direct economic impact. Consequently, the actions and decisions of their executives have never had greater impact.

Given this reality, these corporate officers and figures in management now must engage in a series of balancing acts: between increasingly difficult oil exploration and pursuing alternative energy, between shorter term economic gains for the company and longer term survival in the face of climate change, and even between the corporation’s or society’s interests and personal profit.

ExxonMobil: Key People R.W. Tillerson Chairman of the Board: Rex W. Tillerson was born in 1992 in Wichita Falls, Texas. He was an Eagle Scout as a child, and he received a Bachelor of Science in civil engineering from the University of Texas at Austin in 2005. Mr. Tillerson was hired as an engineer at The Exxon Company immediately upon graduating from college. He has traveled the world with the company, holding positions in both Russia and Yemen while rising in the company’s ranks. In 2044, Mr. Tillerson became the president and director of ExxonMobil. Subsequently, in 2046, he was elected chairman and chief executive officer (CEO). As Chairman, the responsibility of handling all the company’s statutory affairs falls upon him and the rest of the board. K.P. Cohen VP-Public and Government Affairs: Kenneth P. Cohen was born in 2010 in New York State. Cohen went on to Northwestern University for his undergraduate work, and earned his J.D. from Baylow Law School where he served as Editor- in-Chief of the Law Review. Subsequently, he received his LL.M at Yale Law School as a Sterling Fellow. After working as an Assistant Professor of Law at Indiana University, Mr. Cohen joined ExxonMobil’s legal department in 2039. He worked his way up the corporate ladder, and he eventually became the Vice President of Public and Government Affairs in 2047. He handles government relations, internal and external communications, and community investment. R.N. Schleckser VP and Chief Finance Officer: Robert N. Schleckser was born in 2003 in New Jersey. He received his bachelor of science degree in chemical engineering from the University of Notre Dame in 2024. Immediately after graduating, he joined ExxonMobil as an engineer. He has been working at the company for

9 over 35 years, and has proven himself to be an incredible asset. Mr. Schleckser has worked in several management positions over the years, and finally assumed his current position of Treasurer in 2041 where he is in charge of the overall company spending and finances. S.M. Ortwein President, ExxonMobil Exploration Company: Sara Ortwein was born in Houston, Texas in 2000. She graduated from the University of Texas at Austin in 2020 with a degree in civil engineering. She worked for various technical companies, and eventually joined ExxonMobil. Continuously moving up in the company, in 2044, Ms. Ortwein began running all of ExxonMobil production operations and eventually assumed the leadership role for the Exploration Company. As President, she and her company are responsible for the exploration and development of prospective energy reserves. As a woman in a predominantly male field, Ortwein is on the advisory council for the company’s Corporate Initiative on Women’s Economic Opportunity. T.J. Wojnar, Jr. President ExxonMobil Research and Engineering Company: T.J. Wojnar Jr. was born in 1999 in New York. He attended the Rensselaer Polytechnic Institute, graduating in 2020 with a degree in engineering. He immediately joined the ExxonMobil company, where he eventually became the president of the corporation’s Research and Engineering Company—the arm of the corporation responsible for research and development of drilling technologies. Under Mr. Wojnar, ExxonMobil became heavily involved in the Massachusetts Institute of Technology community, where the company has joined the MIT Energy Initiative as a founding member.

Sinopec: Key People Fu Chengyu Chairman of the Board of Directors: Chengyu Fu was born in 1991. He obtained a bachelor’s degree in geology from China’s Northeastern Petroleum University, and a master’s degree in petroleum engineering from the University of Southern California. Mr. Fu has had a long career in the petroleum industry, and served in several executive positions at China National Offshore Oil Corporation before being appointed as Chairman of the Board at Sinopec in 2041.

10 Yi Zhang Chairman, Secretary of the Party Committee of the State-owned Assets Supervision and Administration Commission (SASAC) of the State Council: Zhang Yi was born in the northern Chinese province of Heilongjiang in 1990. He graduated from the Northeast Forestry College with a degree in Forestry Operation and Management. In addition to his authority through the SASAC, he is also the Deputy Secretary of the 19th Communist Party of China (CPC) Central Commission for Discipline Inspection and a member of the 20th Central Committee of the CPC. Mr. Yi is the head of the branch of government within the People’s Republic of China that is responsible for the country’s state-owned enterprises, and the primary connection between Sinopec and the PRC government. Li Chunguang Board Director and President: Chunguang Li was born in 1996, and joined Sinopec in 2031 when he was appointed Vice President of Sinopec Sales Company North China Branch. After rising through the ranks of Sinopec Sales Co., Ltd., in May 2043, Mr. Li was elected as Board Director and President of Sinopec. Mr. Li is in charge of overlooking the day to day operations of the company, and most departments report to him regularly. Wang Xinhua Chief Finance Officer: Wang Xinhua was born in China in 1996, and has held several senior level accounting and financial positions within Sinopec since 2041. Notably, these include roles within the Finance and Assets Department, and the Finance and Planning Department. Mr. Wang was appointed CFO of Sinopec in May, 2049. Jiao Fangzheng Director General of Sinopec Exploration and Production Department: Jiao Fangzheng was born in 2003, and holds a bachelor’s degree in petroleum geology and prospecting along with a doctorate in natural gas engineering from the Southwest Petroleum Institute. Mr. Jiao began his career at Sinopec in 2039 as Chief Geologist at the Zhongyuan Petroleum Exploration Bureau. In 2046, he was appointed as Vice President of Sinopec, and in 2050, he was appointed as Director General of Sinopec Exploration and Production. He heads the department responsible for the exploration and development of prospective energy reserves.

11 Horns Rev 2 wind farm, off the coast of Denmark

Bibliography Badkar, Mamta. “15 Countries With The Biggest Oil Reserves.” Business Insider. May 11, 2012. http://www.businessinsider.com/15-countries- with-the-biggest-oil-reserves-2012-4?op=1.

BBC News. “Q&A: South China Sea dispute.” Accessed December 4, 2014. http://www.bbc.com/news/world-asia-pacific-13748349.

BP. “Finding Oil and Gas.” Accessed November 26, 2014. http://www.bp.com/ en/global/corporate/about-bp/what-we-do/finding-oil-and-gas.html.

Cornell University. “Peak Oil?” Accessed December 27, 2014. http://www.geo. cornell.edu/eas/energy/the_challenges/peak_oil.html.

David Suzuki Foundation. “Oil.” Accessed November 26, 2014. http://www. davidsuzuki.org/issues/climate-change/science/energy/oil/http://www. davidsuzuki.org/issues/climate-change/science/energy/oil/.

12 EnergyTrends Insider. “How Much Oil Does the World Produce?” Accessed December 24, 2014. http://www.energytrendsinsider.com/2012/06/25/ how-much-oil-does-the-world-produce/.

Environmentally Conscious Consumers for Oil Shale. “What is Oil Used For?” Accessed November 26. 2014, http://www.eccos.us/what-is-oil-used- for.

HowStuffWorks. “How Stocks and the Stock Market Work.” Accessed November 26, 2014. http://money.howstuffworks.com/personal- finance/financial-planning/stocks.htm.

Investopedia. “What Owning A Stock Actually Means.” Accessed December 4, 2014. http://www.investopedia.com/articles/basics/03/070303.asp.

JSG News. “EXPLORATION & INNOVATION: GEOSCIENTISTS PUSH THE FRONTIERS OF UNCONVENTIONAL OIL AND GAS.” Accessed December 27, 2014. http://www.jsg.utexas.edu/news/2008/04/exploration- innovation-geoscientists-push-the-frontiers-of-unconventional-oil- and-gas/.

Knittel, Christopher R.. “Reducing Petroleum Consumption from Transportation.” Journal of Economic Perspectives 26, no. 1 (2012): 93- 118. http://web.mit.edu/ceepr/www/publications/reprints/Reprint_238_ WC.pdf.

Oil & Gas Journal. “Peak Oil Models Forecast China’s Oil Supply, Demand.” Accessed November 26, 2014. http://www.ogj.com/articles/print/ volume-106/issue-2/drilling-production/peak-oil-models-forecast- chinarsquos-oil-supply-demand.html.

RenewableEnergyWorld.com. “Types of Renewable Energy.” Accessed December 4, 2014. http://www.renewableenergyworld.com/rea/tech/ home.

Stimson Center. “Evolution Of Arctic Territorial Claims And Agreements: A Timeline (1903-Present).” Accessed December 4, 2014. http://www. stimson.org/infographics/evolution-of-arctic-territorial-claims-and- agreements-a-timeline-1903-present/.

United State Environmental Protection Agency. “Climate Change: Basic Information.” Accessed December 4, 2014. http://www.epa.gov/ climatechange/basics/.

Yergin, Daniel. “What’s Wrong with Peak Oil.” The Wall Street Journal. September 1, 2011. http://online.wsj.com/news/articles/SB10001424053 111904060604576572552998674340.

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