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A QUARTERLY JOURNAL FOR DEBATING ENERGY ISSUES AND POLICIES CONTENTS

Issue 64 February 2006 Economic Implications of the Oil Price Increase Roger Van Noorden Hassan Hakimian We are starting 2006 with a look at the way in which the high Walid Khadduri − page 3 current price of oil might affect our economic expectations and Environmental Issues how the oil producers are dealing with this sudden increase in their Malcolm Keay revenues. This will be a subject of particular interest to those of our Benito Müller − page 10 readers who can easily recall the experiences of the 1970s. We also have two articles dealing with aspects of environmental policy, one The Role of Technology in reducing E&P Costs that looks at the role of technology in reducing EP costs and one Mark Andersen − page 14 that looks at Gas Strategies for suppliers of the Atlantic Basin. The Strategies of non- Roger Van Noorden looks macro­ syphoned off into stabilisation OECD Gas Producers economically at the oil price funds rather than being spent. Hadi Hallouche, Michael increase. He picks out three Nevertheless, the way in which Tamvakis and Bryan Train − apparent problems, sets out an the very extensive remainder is page 16 answer to each and then discusses spent is crucial. It is needed in Personal Commentary these answers. The three problems social expenditure generally rather Charles Henderson – page concern the United States’ trade than in the over-supplied military 19 deficit, the persistent budget investment. Youth unemploy- deficits of many Western econo- ment is the most acute challenge Asinus Muses − page 20 mies and the absence of inflation. for Middle East governments. Although all three have so far Inflation remains a threat, as do been under relative control and property and local stock exchange have not as yet upset international prices. The outlook remains un- economic balances he concludes certain. that we are not necessarily out of Walid Khadduri considers the situ- the wood. ation of the Arab oil producers, Hassan Hakimian looks at the particularly in their ability to ab- problem of managing the new sorb the new streams of revenue. wealth from the producers’ point One hopeful sign is the privatisa- of view and questions whether tion of state companies and public this time they can make a positive investment opportunities provided and lasting effect on their do- by family firms, although the mestic economies. He finds some national oil companies themselves evidence that this is so. One remain out of bounds. Another is hopeful sign is, for instance, that the policy focus on debt reduction some of the extra revenue is being and restructuring. While money OXFORD ENERGY FORUM FEBRUARY 2006 is for the most part being invested locally or with gas rather than oil reserves, those with regionally there is, however, a grave danger undeveloped gas reserves and those who are from stock market and property speculation, niche players. Their geographical location and and there is always the threat presented by the the extent of state involvement in their opera- ever-present problem of regional politics. tions are further elements in defining how best individual countries should develop their gas Looking to the environmental issues, Malcolm reserves. Keay raises the important question of how to measure progress. As he points out, govern- Lastly, the Personal Commentary in this issue ments are at present unable to measure outputs is by Charles Henderson who muses on the from policy decisions even though the desired nature of the so-called Gas Crisis in the UK, a outputs are easy enough to state. He gives the particularly appropriate subject in the light of examples of energy efficiency and renewables the more recent problems highlighted by the and shows how neither is subject to any mean- actions of Gazprom in Ukraine. ingful measurement. His message is brutal – if governments want to take climate change seri- ously they will have to start taking measure- Contributors to this issue ment issues seriously. A more enthusiastic message comes from Mark Andersen is Executive Editor, Benito Müller in his report from the latest Schlumberger Oilfield Review, Houston ‘Kyoto’ meeting (working under the peculiar Hassan Hakimian is Associate Dean, Cass acronym of COP/MOP) in Montreal. First, Business School, City University, London the Marrakesh Accords were adopted; second, a compromise was reached on the question of Hadi Hallouche is at the Centre for Shipping, compliance with the Kyoto targets; third, the Trade and Finance, Cass Business School, City Clean Development Mechanism was improved; University, London and, finally, an agreement (of sorts) was reached Charles Henderson recently retired as on negotiations for a post-2012 regime. None Chairman of Total in the UK of this was certain before the delegates arrived. Malcolm Keay is Senior Research Fellow at the Turning to the capacity of technology to reduce Oxford Institute for Energy Studies E&P costs, Mark Andersen points out that Walid Khadduri is Economic Editor of al- from 1981 to 2003 E&P costs reduced by two- Hayat newspaper thirds. Now they are rising, but he describes some of the ways in which technical develop- Benito Müller is Senior Research Fellow at ment has been able (and hopefully will continue the Oxford Institute for Energy Studies and to be able) to reduce these effects. Furthermore, Managing Director of Oxford Climate Policy some of these new developments are the result Michael Tamvakis is at the Centre for Shipping, of research by the service companies, so that Trade and Finance, Cass Business School, City there is now good reason for a greater and University, London more willing cooperation between the oil and service companies. Brian Train is at the Centre for Shipping, Trade and Finance, Cass Business School, City We also have an article by Hadi Hallouche, University, London Michael Tamvakis and Bryan Train on the strategies of non-OECD gas producers in the Roger Van Noorden is a Fellow in Economics Atlantic and Middle East. Their analysis leads at Hertford College, Oxford and a Governor them to define gas producers in terms of those of the Institute for Energy Studies

 OXFORD ENERGY FORUM FEBRUARY 2006 Economic Implications of the Oil Price Increase

Roger Van Noorden Domestic Product suggested by the other contrasts. In 1973 the North Sea Maastricht agreement. If a single Continental Shelf had not been devel- considers some country operated at this level it would oped, so there were not the benefits to have been under pressure to reduce offset the rise in the price of oil. The macroeconomic government spending, but the recent main difference, however, in the UK implications deliberate weakening of the Growth is that in the labour markets of the and Stability Pact suggests there 1970s union power and wage indexing Three Problems is safety in numbers. In Italy, for implied that price rises fed quickly example, which has had 20 percent into rises in earnings, and this second- While my undergraduates learn their more inflation than Germany since ary effect then had a major impact macroeconomic theory they are the Euro was established in 1999, a on prices. The wage indexation came encouraged to follow three real life conventional macroeconomic response from a particular form of incomes problems, as the statistics emerge would be a cut back in spending policy, the ‘threshold’ in operation month by month. The good students and a raising of taxation to induce a from November 1973 to November ask whether and how the three slowdown of the economy. With so 1974, whereby increases above 7 problems are connected. many countries in the same position percent in prices led to matching in- The first problem is why the dollar no collective pressure is being applied creases in wage rates. So far in the UK remains strong when the US trade to individual countries which can during this period of oil price rises deficit has just established a new promise to bring down their budget there has been no appreciable feeding monthly record of $68 billion. The deficits over a period of years. While through of energy prices to earnings. second is how so many Western it might be expected that interest rates This has been due in part to the lack economies function with persistent should rise in countries with persistent of pressure on the labour supply. Net government budget deficits of more budget deficits − so that governments immigration is running at 200,000 a than 3 percent of their Gross Domes- can induce private sector lending to year, and this is about the same as the tic Products. The third is to account cover their deficits − governments annual job creation. Earnings figures for the non-emergence of inflation, have in fact been fortunate in being are rising only at around 3.9 percent given the similarities between the cur- able to borrow at record low real per year − a level justified by adding rent rises in energy prices and those of interest rates. The nominal yields on productivity gains to the inflation 1973−74 and 1978−79. ten-year government bonds are below rate − and are not an independent 3.5 percent in the Euro area. source of inflation. In the Euro area The Immediate Answers as a whole wage inflation is likely to be gentle and price inflation subdued. There is an immediate and well That argument would however suggest understood answer to the first prob- “With so many countries that higher energy prices would have lem. Although the US current account a greater impact on the United States, deficit has risen to about 6 percent of in the same position no collective pressure is being where growth above 3 percent a year Gross Domestic Product, and there continues and the labour market is are also deficits in the UK and Eastern applied to individual tighter. Europe, there are corresponding countries” surpluses in other countries being recycled back into the US Capital Will these Immediate Answers Account. Both the Asian economies Continue to Hold? On the third problem we have to and Russian and OPEC economies recognise that the world has changed A first pass through these three could choose to increase domestic since the 1970s. Consumer spending problems, then, is disturbing for consumption levels but are instead on fuel (for transport and housing students of macroeconomics. The choosing to invest their surpluses in energy) has fallen in that time from USA is not suffering the conse- the United States, where domestic 8 percent to about 4.5 percent of quences macroeconomics students consumption continues above the level total spending. In advanced countries would expect to follow from its high of production. spending on oil equivalents is declin- consumption level; European industr- On the second problem, out of the ing as a proportion of Gross Domestic ialised countries can operate long-term ‘old Europe’ (pre-accession) countries Product, falling from 6 percent to 3 government budget deficits without France, Germany, the UK, Italy, percent in the USA between 1970 and interest rates being driven up; the Greece and Portugal are running 2003. The effect of an oil price rise is doubling of oil prices is not expected government budget deficits above no longer so dramatic, therefore. In to lead the world into increased the maximum 3 percent of Gross the particular case of the UK there are inflation.

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The first conclusion is the shakiest. That there must still be inflation to from outsourcing supply to Asia The Asian countries, especially Japan, come from the doubling of the spot and Eastern Europe. This counter- Singapore, Korea and Taiwan, are price of oil from $20 a barrel at the proposal is not very strong, though, putting their surpluses into dollar beginning of 2002, or from $30 a bar- since outsourcing predates the recent bonds, as is China in order to prevent rel at the beginning of 2004, to nearly oil price rise while inflation has been its currency from appreciating. If these $60 now, comes from the persistence broadly unchanged. It seems likely countries come to expect that the of the causes of the rise. Demand is that oil price rises are still working dollar is about to fall, however, such still growing from China in particular, their way through the system. investment would seem foolhardy. The but is growing worldwide. Supply Even so there may not be a rise in expectation of a falling dollar could of refined oil will be lessened for the inflation indices, since monetary then quickly become a self-fulfilling several years by refinery damage from policy cannot be assumed to remain one. The OPEC countries can justify hurricanes in the Gulf of Mexico. At unchanged. The Policy Committees of the recycling of their surpluses into the same time there are lags before Central Banks will raise interest rates the USA on the grounds that given price rises in oil are felt in the wider to control any inflation. If incipient the lead of the Asian countries it economy arising from the writing of inflation were to emerge it would is rational to do likewise. But this long-term contracts at lower prices in be countered by a tighter monetary reasoning would lead to a withdrawal the past, and probably from hedging, policy. In that case it is all the more of funds if the Asian countries decided although all hedging contracts have likely that the effect of the oil price to diversify their investments away counter-parties. Further, users of oil rises in OECD countries will be felt from the United States. are still absorbing price increases in in restricted manufacturing output and reduced profit margins, rather than damped demand rather than emerging passing them on. In the UK the in general inflation. producer input price index is running “In the Euro area as a at 13 percent and the producer output whole wage inflation is price index at 2 percent year on year. likely to be gentle and price That is not a gap that can persist. “Only if no inflation inflation subdued.” There is another argument for there emerges will it be possible being lagged effect still to come in to keep interest rates at that many prices are affected only their present low levels.” indirectly by rises in the oil price. The second conclusion is influenced The immediate effect of a rise in costs in the Euro area and the UK by the could be reflected quickly in petrol determination of the interest rate by Professors Robert Barsky and Lutz prices. Indeed it is possible to raise Kilian (Journal of Economic Perspec- the European Central Bank and the petrol prices at the pump as soon Bank of England’s Monetary Policy tives, Fall 2004) examine the evidence as there is general awareness of a for surges in the oil price causing US Committee, with control of inflation shortage of refining capacity, say. But the main policy target. If governments recessions since 1970. The recessions transport and distribution costs then of November 1973, January 1980, are no longer free to raise interest work their way through more slowly rates to attract long-term financing July 1981, July 1990 and March 2001 to the costs of raw materials, and only do follow periods of rising oil prices. then they will eventually have to use then through the manufacturing goods fiscal policy to rectify the budget po- They quote an estimate of Rotemberg used as inputs for other goods, and and Woodford that a 10 percent in- sition, inducing deflation just as much then the wholesale and retail systems, as would a policy of raising interest crease in oil prices results in less than with costs absorbed initially at each 0.5 percent reduction in gross output. rates. Only if no inflation emerges stage. The ultimate dependence of will it be possible to keep interest It is of course hard to tell whether any final good on oil and the lag a reduction of output comes from rates at their present low levels. In the before its price is affected by the price UK the Chancellor’s projections of a lower or delayed investment, from a of oil at the start of the supply chain reduction of demand following higher lower current debt to Gross National is a complicated calculation involving Product ratio have been met with prices or from the policy taken by the input-output tables and time lags for monetary authorities in response to scepticism. Assuming the oil price each process. remains around $60 a barrel there is rises in oil prices. still some inflation to come, though it Against the argument that there is Overall there can be a gentle and is not expected to accelerate. Suppose, inflation still to come is the counter- long-term response of consumers to however, that the dollar depreciated. proposal that the current inflation rate high energy costs, such as trading This would raise the price of oil in of 2 to 3 percent already takes account down to more economical cars or dollars and lower US demand. This of the rising oil price, since without lower temperatures in houses, but would spark a raising of energy prices, the rise in the oil price the indices any such effect is swamped by the and eventually the broader price would be reflecting the downward continuing rise in demand from indices. effects of cheaper goods arising fast growing economies. The most

 OXFORD ENERGY FORUM FEBRUARY 2006 plausible scenario is that suggested by at home and left most of the region’s the relative size of these economies forward rates − that oil will continue governments with swelling public and their willingness – or ability – to at around $60 a barrel for another debt, incomplete and extravagant absorb them internally. The oil pro- three years. In that case inflation will show-case projects, worsening income ducers’ current-account surpluses are be higher next year than it would distribution and largely undiversified expected to reach 25 percent of their otherwise have been, but then the economies. GDP on average (compared to China’s inflationary pressure will drop out of 6 percent). Saudi Arabia is expected to Almost three decades on and with the year to year comparisons. record surpluses as big as one-third of the recurrence of exceptionally high its GDP. The same is expected of the That leaves the big uncertainties oil prices, the challenge is still on to large oil producers outside the Middle over the recycling of surpluses into ensure the oil windfall can be utilised East with Russia and Norway likely the US dollar, the strangest part of the for genuine economic diversifica- to record current account surpluses macroeconomic scene today. Not only tion and reduction of the exporters’ of about 13 percent and 18 percent of is it unlikely that the mutual interest dependence on oil in the long term. their GDP, respectively. of the surplus countries, in propping In fact, the opportunity cost of failure up overspending in the USA, is likely is higher now, partly because of the to persist, but the longer it goes on the imperative to avoid past mistakes and worse the resulting correction will be. partly because of the size of the oil “the challenge is still on bounty, which is much larger now. to ensure the oil windfall Table 1 shows Middle Eastern oil can be utilised for genuine producers’ cumulative revenues in ap- proximately five-yearly intervals since economic diversification” the mid-1970s. It can be seen that – measured in today’s dollars – the revenues for the most recent period But are things different now and (2000−05) amount to almost half the can the oil bounty be managed more total revenues for the entire two-and-a advantageously this time to make half decades between 1974 and 1999. a lasting effect on the producers’ Hassan Hakimian The GCC states have increased their domestic economies? In other words, share from about two-thirds to almost can the oil money be turned into a looks at the domestic three-quarters of these revenues, thus blessing or will it be another opportu- context of managing doubling their annual oil income nity squandered? compared to the early 1970s (and Leaving aside foreign savings and the oil wealth quadrupling over the late 1980s). spending on imports, the answer to this key question depends on how Only a thin line divided the last expe- In most oil producers, these revenues wisely or prudently extra revenues rience of oil boom in the Middle East form the mainstay of public finances are deployed internally. The form and from the wider economic crisis that (in the GCC states their share of pattern of such utilisation, in turn, engulfed the international economy government revenue reaches as high as depends on four sets of highly inter- in the 1970s. Indeed, OPEC’s golden 90 percent). Invariably, public policy, related issues: age of unprecedented opulence and i.e. what governments do with these prosperity is still widely associated sums, is crucial. a) How much of the extra revenue is with global financial instability and The real impact of these staggering spent (and how much is saved)? the deep-seated recession that swept sums is, however, much larger given b) At what pace does extra spending much of the rest of the world, princi- pally the oil-importing nations in the west. Table 1: Oil Exports Revenue, Middle Eastern Countries (1974-2005) The less than successful management (Billions of 2005 US dollars) of oil revenues then had, however, % Average Annual as much to do with their interna- Total GCC GCC tional recycling as with their domestic deployment and absorption. Even 1974–1979 776.5 64.7 83.7 before oil prices had plunged to new 1980–1984 743.4 75.7 112.6 lows by the mid-1980s, the scale 1985–1989 337.2 69.3 46.7 of economic wastage was evident. 1990–1994 510.6 70.5 72.0 Mounting supply-side bottle-necks, 1995–1999 576.9 73.4 84.7 spiralling inflation, widespread 2000–2005 1,384.6 73.2 169.0 wastage and conspicuous consumption fuelled macroeconomic imbalances Source: IMF.

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take place (a short-term spending the GCC countries (down from 1.36 with short-term supply shortages and spree or a more measured approach in 1973 to 0.34 in 2004). Such is, in bottlenecks, this provided a lethal favouring long-term investment)? fact, the order of caution exhibited potion for inflation as real productive c) Who controls and disposes such this time – in a region not best known capacity lagged behind over-blown expenditure?; and for its public sector size and frugality demand. – that the IMF even advocates a mod- One key lesson from the 1970s was d) What form does additional ex- est increase in their spending. penditure take (productive versus that there is a limit to how much of unproductive spending; current ver- Second, the question of how fast the extra money may be absorbed sus deferred consumption; physical spending should take place depends within the domestic economies in the infrastructure versus human capital; at least partly on how long the oil short term without building up infla- etc)? bounties are expected to last, and tionary pressures. The rush to spend partly on the nature of such expendi- could, in other words, make both Early indications point to a different ture. Lumpy and resource-intensive fiscal and monetary policies ultimately story so far, suggesting that some investments, for instance, can lead self-defeating if all it did was to push lessons may have, indeed, been learnt to supply bottlenecks in key sectors prices up. from the past. (transportation, construction and First, it appears that oil producers are utilities) and risk major disruptions far more cautious in their spending if oil revenues dry up. They can also habits now than they ever were at the exacerbate problems of over-capacity “most oil producers still height of the 1970s’ oil boom. This is in the economy if they are based on lag behind considerably in evident, to some extent, from Figure optimistic assumptions regarding terms of their comparative 1 which depicts major producers’ the supply response elsewhere in the fiscal surpluses as a percentage of economy. social and human their GDP. It can be seen that, with This is why the third issue – which development indicators” the exception of Iran and Nigeria, all particular internal agencies control other producers (including Russia) the additional income and expenditure are running healthy balances on their – is equally important for the speed, Interestingly, it is this same issue budgets – an indication of the restraint volume, composition and management that differentiates to a large extent with which public finances are man- of such spending. In the 1970s, extra the current experience of oil boom aged despite the extra oil revenues. oil incomes acted as a direct vehicle from that in the past. In many oil- For smaller GCC states, the average for expansionary fiscal policy as ad- producing countries, only part of the budget surpluses are around 6 percent ditional revenues accrued to national revenue is now made available for for 2005. oil companies and boosted the public budgetary purposes, as a myriad of oil Based on current patterns of expendi- sector’s coffers directly. But extra oil stabilisation funds siphon off excess ture, the IMF projects the spending incomes also stoked expansionary revenues leaving general government multiplier (the fraction of additional monetary policy by boosting the cen- budgets to cope with much more oil revenue spent by governments) tral banks’ reserves and enlarging the conservative oil price projections. to be much lower now, especially in domestic monetary base. Combined Although these funds were set up to equip oil exporters to deal with the Figure 1: Oil Producers’ Budget Balances, 2001 and 2005 type of austerity that followed the price collapse of the late 1990s, and 20 despite the fact that their operation can in practice be politicised and 2001 2005 15 heighten inter-governmental conflict (as in Iran where the disbursement of such funds requires parliamentary 10 approval and thus increases tension with the government), they can be 5 effective in limiting the short-term % of GDP impact of oil revenues. Even in states 0 with more profligate spending habits, such as Russia and Nigeria, part of the -5 sums ‘set aside’ in this way is used for special developmental purposes or to -10 pay back external debt. Saudi Kuwait Bahrain Qatar Oman Iran Russia Nigeria Arabia But no matter how measured domestic absorption is or what processes it Source: Global Insight. takes, it is its composition (what

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their living standards, the litmus test Figure 2: Selective Public Sector Expenditures – Oil Producers, 2000–04 to spending restraints may yet come from intensified struggles over the 10 Health expenditure Military expenditure Public spending on education shaping of social priorities (this is ar- guably the case in Iran where control 8 over oil resources played a key role in the new government’s rhetoric and electoral strategy). 6 As for smaller states with ambitions to become regional financial and

% of GDP 4 trading centres, the road ahead is not without its bumps either. The threat 2 of inflation, the demon of the 1970s, cannot be totally discounted here, 0 although it is more embedded in the GCC Non-GCC Others booming stock exchanges and over- heating property markets. Indeed, if Figures are averaged over the period. Non-GCC includes: Iran, Algeria, Libya. and when the bubble is burst, despite Others include: Russia, Norway, Mexico, Indonesia, Nigeria and Venezuela. their considerable financial reserves, Source: World Bank, Development Indicators. the consequences will not be too dissimilar to the 1997 Asian crisis – a money is spent on) that ultimately mineral riches, most oil producers still stark reminder that oil can indeed be a decides the opportunity cost of the lag behind considerably in terms of beast – yet again in a disguise! oil wealth – now as in the past. In their comparative social and human the 1970s, much of the oil wealth development indicators. financed extravagant projects with low According to the United Nation’s returns, lavish physical investments Human Development Report, the and military and technical hardware broad Education Index for the Arab with limited shelf-life. Despite the countries as a whole was only 0.65 restrained spending seen so far, it is in 2003 compared to 0.83 for East quite likely that this will be the site Asia and the Pacific and 0.72 for all of much future strife, especially in LDCs. Similarly, female literacy (as a the more populous oil producers with proportion of females above the age both greater appetite and internal of 15) is, on average, 76 percent in capacity for absorption of the funds. the GCC states – only moderately Figure 2 shows the major oil produc- higher than the level attained in lower Walid Khadduri ers’ expenditure on health, education middle-income countries (71 percent) and the military in recent years and considerably below that of assesses the oil price as a proportion of their GDP in a China’s (86.5 percent). Most signifi- increase from the comparative light. Most strikingly, it cantly perhaps, in spite of the recent can be seen that the GCC’s military surge in oil income, most countries Arab point of view expenditure (at about 9 percent of face high rates of unemployment GDP) is well in excess of expenditure (conservatively estimated at around 13 There are three differences between on health and education in this sub- percent in two of the big producers the current rise in oil prices and that region, and almost five times higher – Saudi Arabia and Iran – and likely of the seventies. than military expenditure in other, to be much higher among the youths). First, the impact on the world non-OPEC, producers (relative to By all accounts, it would require high economy this time is much more their size Oman, Kuwait and Saudi and sustained growth rates (of about 7 limited. A range of $55−60/bbl WTI Arabia were, indeed, among the top percent) to reduce the unemployment price appears to be acceptable to the six military spending nations in 2003). rate in the Arab world and Iran. consumers, and has not made much of By contrast, military expenditure is This may suggest that the question a dent in most economies. much smaller in countries such as of how much to absorb (and over Second, the price increase has been the Norway and Mexico, where it is, what period) is far from determined result of market factors, due to short- respectively, only one-fifth and one- by technical considerations of how to ages in certain petroleum products, tenth, of expenditure on health and optimise long-term macroeconomic the lack of upgraded refineries, and education. stability and growth. In countries with the high rise in demand made pos- This issue epitomises a wider paradox. larger, and much younger, populations sible by sustained economic growth Despite their staggering natural and with growing aspirations for lifting in the industrial economies and the

 OXFORD ENERGY FORUM FEBRUARY 2006 significant growth in leading develop- a gradual and smooth transition to a There are, however, more fundamental ing economies. more liberal and competitive economic economic factors involved. One can- Third, the producing countries system. The only exception amongst not ignore the fact that global interest – unlike in the seventies − are now this group has been the legislation rates have been very low during the investing a large amount of the oil of the Hydrocarbon Law in Algeria, past few years, major stock markets revenue in their own countries and which has put the petroleum industry hardly moving beyond a narrow range regions. Much has also been invested on a new course, with the Ministry month after month, and returns being globally, but there is an absence of the of Energy acting as a supervisory and rather limited. re-cycled ‘petro-dollar’ phenomenon policy-making body, while independ- In fact, there was no exodus of Arab that dominated the headlines previ- ent agencies regulate and oversee the money from the West after 9/11 as is ously. work of the state-owned Sonatrach popularly assumed. People did not and the international oil companies; cash their assets and transfer them This article will focus on the last and Sonatrach operates on equal terms factor and describe how the Arab to their countries. The new money, with international firms, with no more however, that was being made as a countries are dealing with the oil price monopolistic powers but with more increase of the last three years. result of the new cycle of the high oil independence than before. prices mainly stayed home. In the Gulf countries, as well as Egypt Different Experiences and Jordan, a different experience There is no uniform pattern as to how is taking place. There has been a Arab producing countries have dealt determined effort to privatise state- “There are today over 100 with the present oil price cycle. Some owned firms, encourage Initial Public firms in the Gulf region are still struggling to create a sem- Offerings (IPOs) of new companies, and re-structure the economies. The ready to increase their blance of a stable state. Others have capital or be transferred to adopted various degrees of economic purpose, though not stated publicly, is reforms, provided enough opportuni- to assist in the distribution of wealth a public holding company.” ties to encourage local investments among a larger sector of the popula- and are trying to use the process to tion. This process started before 9/11, redistribute wealth in their countries. but has speeded up since then. The reason for this is simple to The politics of each state have played There is a common pattern here, understand. First local and regional an important role in determining the though with differences between real estate, and then the stock markets, process that each has followed. one country and the other. Mobile earned investors double, and even companies were among the first IPOs triple, digit returns, profits much in the region. This was followed by higher than could be earned abroad. the gradual privatisation of public The easing of credit facilities by local “the producing countries utilities (power and water). Finally, banks, the encouragement of the – unlike in the seventies − family firms are going public, along privatisation process and the rise of with the rise of luxurious housing major construction firms attracted are now investing a large developments, tourism projects and the attention of the local and regional amount of the oil revenue private energy firms (gas distribution investors. This interest spread from in their own countries and and sales, drilling, upstream services the large and wealthy families to and tankers). There are today over the middle class and any owner of regions” 100 firms in the Gulf region ready to resources. increase their capital or be transferred Former US President George Bush, in to a public holding company. The one Iraq, an extreme case, has hardly seen a speech in Kuwait sponsored by the sector that remains out of bounds is National Bank of Kuwait in mid- one major development project, main- the national oil companies (NOCs). ly because of the lack of security, and December 2005, commented that Gulf partly for the absence of an effective Cooperation Council (GCC) markets, government in the past three years. Money Staying Home with a $900 billion capitalisation and $3 billion in daily liquidity, were no However, there are also the examples A complex set of factors has attracted longer local or illiquid. Stock markets of Algeria, Syria and Libya. These Arab investors to look for oppor- in Gulf countries became an instru- three countries have made interesting tunities domestically and regionally, ment of investment, speculation and sounds about structural economic instead of globally. There is, of course, quick wealth throughout the region. reforms and market liberalisation, but the fear after 9/11 that their money This phenomenon was not restricted it has become obvious that strong is not safe abroad, or that there are to the nationals of a single country, and well-entrenched domestic interest too many regulations that make it but GCC citizens, residents in the groups are hindering such moves. cumbersome, if not suspicious, for Gulf and foreign investors. There are simply too many interests an Arab investor to establish a global invested in the old regime to allow presence. The new wealth dynamic has been

 OXFORD ENERGY FORUM FEBRUARY 2006 created by the rise in oil prices and wider segments of the population and There is also the rise of inflation, the revenue generated in the past few the increasing influence of fundamen- with prices of rent, real estate and years. However, equally important talist and radical religious groups who fuel increasing by as much as 20−30 is the management of the local try to use this phenomenon to their percent in countries like Qatar economies. In the seventies, the main advantage. and the UAE. The rise of the euro concern was how to deal with the Furthermore, the national oil compa- compared to the dollar has contrib- major bottlenecks following the mega nies are investing billions of dollars in uted to this high rate, as have the contracts awarded to build infrastruc- new production capacity and refiner- ‘bottlenecks’ resulting from the high ture and public utilities. Ships had to ies. The cost per barrel these days is global demand for raw materials and wait days and weeks to unload their much higher than before. The fear equipment which has driven the cost cargo, and in some cases helicopters among Arab oil professionals is for of local contracts way beyond their had to be used to carry the freight another slump in world oil demand original estimates. from the ships to the docks. with the Arabs being left alone carry- Finally, and despite the fact that Arab Today, the focus is on how to reduce ing the can. While this has happened entrepreneurs have taken the initiative the debt, restructure the economies, before, this time around it would be and have begun investing region- change the laws to attract investments, far more costly than previously. ally whenever there are profitable and sign bilateral and multilateral Moreover, lurking in the background opportunities, there are still many agreements that expand commerce is the phenomenal rise in the regional bureaucratic and political hurdles in with industrial countries within the stock markets. The profits achieved in developing regional markets with a rules of the World Trade Organiza- 2005, paper or real, are unprecedented. free flow of capital, goods, labour and tion. A large segment of the middle and firms. This situation is accentuated lower middle class mortgaged their by the fact that corruption remains homes, sold the jewellery of the wife rampant and the politics as gloomy and invested whatever savings were and dismal as one can ever remember. “The majority believe that available in the stock markets. The Religious and sectarian parties are as long as oil prices remain problem is that much of the money is gaining both in the ballot box and high, the stock market will in small unprofitable companies, and in the streets; there are no signs of many of the decisions were made on a breakthrough in the region’s two be attractive.” hearsay and rumours. At end-2005, main conflicts − Palestine and Iraq; the market started to decline. The and there are signs of trouble in Syria public debate is whether this was a and the fear of an armed conflict According to IMF data, oil export ‘technical correction’ or the beginning over the Iranian nuclear programme. revenue in the ten largest Middle East of a major fall. The majority believe Such developments do not bode well oil-exporting countries was around that as long as oil prices remain high, for long-term investment despite the $200 billion in 2003, approximately the stock market will be attractive. availability of a healthy cash flow. $450 billion in 2005 and is expected to rise to $500 billion in 2006, an increase of 150 percent over 2003. Forecasts for GCC GDP annual growth in 2006 are around 8−10 per- cent, with expansive budgets, scores of Recent OIES Publications capital projects, particularly in health and public education, and with the windfall profits used to reduce debt. NG 9, Pricing and Demand for LNG in China: Consistency between LNG and Pipeline Gas in a Fast Growing Market Problems Ahead by Akira Miyamoto & Chikako Ishiguro, There is no question that the way available to download from wwww.oxfordenergy.org oil funds are being invested this time around is greatly different to what took place in the seventies. The problems are also different. NG 10, Future Natural Gas Demand in Europe: The Importance of the Power Sector The unemployment rate among the youth in the various Arab countries is by Anouk Honoré still at an all time high of 35 percent. available to download from wwww.oxfordenergy.org While this unacceptable rate was probably there three decades ago, and was tolerable, it is more critical now, with the spreading of wealth across

 OXFORD ENERGY FORUM FEBRUARY 2006 Environmental Issues

Malcolm Keay energy efficiency’ as well as ‘half the dynamic and complex systems; the additional 15−25MtC savings we are various interactions and feedbacks considers the problem likely to need by 2020’. Yet today, need to be taken into account. The two-thirds of the way through the government itself argues that im- of environmental Kyoto period, the UK is not in a posi- proved productivity creates, rather targets tion to say what its energy efficiency than destroys jobs (i.e. increased measures are achieving. labour efficiency increases demand Measurement sounds like the sort of The problem is not new. A few for labour). Yet on energy efficiency, technical detail best left to the anorak- years ago, the Environmental Audit it takes the opposite view; it uses clad experts – of passionate interest to Committee (Tenth Report, session top-down and bottom-up calculations, them, perhaps, but of no great impor- 2003−2004), commented that of the sort it would reject out of hand tance in the wider scheme of things. in relation to productivity, based on Yet a few moments’ thought will show A central theme emerging from this the assumption that energy efficiency how wrong that view can be. It is a report is the difficulty of assessing reduces demand for energy. basic tenet of management that ‘if you progress on energy efficiency in can’t measure it, you can’t manage it’. the absence of robust and reliable Furthermore, everyone involved with energy projections and systematic policy analysis knows that measuring ex post appraisals of the impact of “The problem is that public policy outputs is difficult – it specific policy measures…Indeed, there is no automatic link is always possible to measure inputs in dealing with energy efficiency, between improvements (how much money is spent; how there is a sensation of standing on many schools or hospitals built?), but shifting sands. in energy efficiency and relating that to outputs (how does More recently the House of Lords reductions in greenhouse this affect standards of education or Science and Technology Committee gas emissions.” health?) is very complicated − and reported in July this year that little often not even tried. had changed: ‘the Government appear At first sight, climate change might to have no clear view on how to More accurate measurement involves seem more favourable ground for measure, and thereby manage [energy considerable methodological difficul- measurement. The overall objective is efficiency]’. ties, from whatever end you approach clear enough – reducing greenhouse The problem is that there is no the issue. To examine bottom-up gas emissions – and there are tangible automatic link between improvements impacts properly, sophisticated analy- milestones and targets on the way, in in energy efficiency and reductions sis is required – taking account of the form of Kyoto and other obliga- in greenhouse gas emissions. Energy such issues as income and substitution tions, so the desired outputs of policy efficiency does not necessarily reduce effects; free-riding; principal/agent are easy to define. Yet the old problem energy use – indeed by effectively slippage; persistence; gaming; appraisal of linking inputs (expenditure on, say, making energy services cheaper it may optimism; the impact of new services energy efficiency or renewables) with increase consumption. Careful analysis and so on. In practice, virtually none those outputs remains – and, until of the links between efficiency and of this is done – it is very expensive that link can be made, governments energy demand, and hence emissions, and difficult to undertake. In the past, cannot seriously plan the measures is required. this did not matter much, since the they require to meet their targets. At aim was to improve efficiency rather In other areas this is well understood. present, they are unable to do so. than reduce demand as such. Now, For instance, in relation to labour when the aim is to reduce emissions, A clear example is energy efficiency. efficiency (productivity), it is clearly a much more determined approach is Energy efficiency has been a centre- wrong to make the simple top-down called for. In practice, however, the piece of government energy policy calculation that an improvement in government does not measure the at least since the ‘Save It’ campaign productivity of, say, 1.5 percent a outputs of energy efficiency interven- of the 1970s, and central to climate year means the loss of an equivalent tions in any rigorous way. Instead, it change measures since the early 1990s. number of jobs. Similarly, at least concentrates on measuring inputs (for The expected outputs have been since the times of the Luddites, no one example, insulation installed, compact quantified – the UK Energy White has advanced a bottom-up calcula- fluorescent light bulbs distributed) Paper says ‘we expect more than tion, adding up the impact of all the and simply assumes that they achieve half the reductions in our existing efficient new machines installed across the expected results. Climate Change Programme – around the economy, as a way of estimating 10MtC by 2010 – to come from levels of employment. Economies are Top-down measurements are no easier

10 OXFORD ENERGY FORUM FEBRUARY 2006

– partly because of the many con- But even if it were met, what savings been); whether this increase is offset founding factors, such as movements would it realise? The measurement by wind power during the minority in energy prices, changes in industrial problem here is that renewables are of hours during which it operates is structure and so on, but also because being introduced into a dynamic and uncertain, especially given the losses the government’s energy projections responsive electricity market. It can- in operating efficiency across the are essentially econometric. They not be assumed that all other things system caused by the intermittency of incorporate a factor known as autono- will remain equal, apart from the wind. mous energy efficiency improvement, renewables themselves − the savings The impact depends on what new a steady but undifferentiated increase can only be measured by looking at plant is displaced. To take a simple in efficiency. There is no easy way of the impact on the whole electricity example: If the UK were to meet its knowing, ex ante, whether an energy system, including non-renewable 2020 aim of 20 percent of electricity efficiency measure or programme will sources. from renewables with wind only, the increase that rate of improvement; or, Sustainable Development Commis- ex post, whether an energy efficiency sion calculates that 26 GW of wind gain was the result of policy measures. “But the short-run power would be needed, equivalent In other words, as the Committees problems are relatively (because of the intermittency of wind) complained, there is no clear baseline, to around 10 GW of alternative plant. and therefore no way of knowing straightforward compared What investment if any would it what effect energy efficiency measures with the longer-term displace? Wind advocates normally are having. There is also no evidence issues” assume that investment elsewhere that measurement is getting any in the system would be unaffected, better. It is difficult to see anything but this seems very implausible. The more than the triumph of hope over Even in the short run, that impact introduction of a significant volume experience in the statement in the is difficult to measure. It involves a of wind power, with its intermittent Government’s Climate Change Review calculation of what the renewables output, inevitably reduces the load that: ‘Since 1990, carbon dioxide replace when they are operating. This factor of other plant on the system emissions from the household sector depends on the rest of the system. and increases the uncertainty about have fallen by about 3%. On the basis During the last century, when coal whether it can operate for long of current policies, carbon dioxide was virtually always at the margin in enough to remunerate the investment. emissions are expected to decline by UK generation, renewables genera- The incentives to build new plant about 16% between 1990 and 2010.’ tion could be regarded as displacing would be substantially reduced; the coal. Increasingly this century, as gas temptation to retain older plant, Renewables, one of the government’s takes a greater place in the generating despite its lower efficiency and higher other key measures, raise analogous system, wind may find itself displac- emissions, would increase. problems. It is not in principle dif- ing gas-fired generation. That would, So the impact of wind would be to ficult to measure the physical output in itself, more than halve the CO2 reduce investment elsewhere, but the from renewable sources. Furthermore, benefits from wind generation. question is by how much – the 10 support for renewables leads to GW of fossil equivalent, the 26 GW increased, rather than lower, prices, But the short-run problems are rela- tively straightforward compared with of total wind power or some other so one might expect some positive (possibly higher) figure? The new feedback in terms of carbon mitiga- the longer-term issues. A programme for new capacity stretching into the plant displaced is likely to be new tion. Yet here too there are enormous CCGT capacity (as the government methodological problems. future will have an effect on the composition of the system by displac- assumes in its business-as-usual The practical issues are relatively well ing other new investment, which in projections). As this would operate recognised – will the desired quan- all probability would either be new at up to 60 percent efficiency and tity of plant be built and perform as (and therefore highly efficient) gas would probably replace older coal expected? The facts that: all previous stations, or even nuclear. The nominal plant operating at around 35 percent renewables targets have been missed; CO savings would fall – indeed if efficiency, enormous cost-effective 2 CO savings, which would otherwise the practical problems are daunting (as nuclear were displaced there would 2 pointed out in another recent report be no savings at all. Even if new fossil have taken place, would be foregone. from the Science and Technology plant were displaced, there would be The effect could be to reduce, or even Committee on ‘Renewable Energy: a significant penalty, because the new eliminate, any savings from the wind Practicalities’); and that there have investment would have raised system when it actually operated. been a number of recent announce- efficiency. If the composition of the Similar uncertainties arise with ments of problems with major system changes as a result of a wind other climate change measures – for renewables projects all reinforce the programme, emissions will rise for the instance with combined heat and general belief that the government’s whole time of operation (as compared power. Governments usually praise 2010 target will be missed. with what they might otherwise have its high potential efficiencies – up to

11 OXFORD ENERGY FORUM FEBRUARY 2006 90 percent − and compare that with track to meet their targets. Most of Benito Müller reports the efficiency of existing fossil power the rest are set to fail; a small number plant (say, around 35 percent). But might meet the target if planned new on the Montreal this is triply misleading; measures work as expected (which, as Climate Change • First, because in practice CHP explained above, is unlikely). Outside plant rarely reach the high levels of the formerly centrally planned econo- Conference efficiency that are technically pos- mies, other countries with Kyoto sible. As the Digest of UK Energy targets, like Japan and Canada, are in Between 28 November and 10 Decem- Statistics shows, CHP schemes in an even worse position. ber 2005, the capital of the Canadian the UK have an average efficiency Even in the two countries which are province of Quebec hosted what was of around 70 percent. generally expected to be an important on track, the causes of CO2 emis- • Second, because CHP stations sions reductions are to be found session of the annual United Na- produce heat as well as power elsewhere than in their climate change tions climate change conference, an expectation reflected in a record at- – indeed heat is usually their main programmes − in the UK, all the CO2 output. In the UK, for instance, emissions reductions since 1990 took tendance of almost 10,000 participants. heat output is on average about two place in the early 1990s, primarily The reason for this was, on the one and a half times greater than power, as a consequence of the dash to gas hand, its being the first session of the so a comparison with power only in power generation, i.e. as a result governing body of the Kyoto Protocol plant misses the main part of the of liberalisation rather than climate – known as ‘Conference of the Parties picture. change policies. Sweden has a target serving as Meeting of the Parties to of + 4 percent for overall greenhouse the Kyoto Protocol’ (COP/MOP) • Third, because comparing existing emissions. Although it is on track, – signalling the full legal implementa- plant with new CHP investment ig- tion of the Protocol, and, on the its CO2 emissions have increased by nores the significance of investment around that much since 1990. Given other, the fact that, by coincidence, displacement. New CHP plant is it was also the year in which the that it managed to reduce CO2 emis- normally installed at a time when a sions by about 40 percent during the Kyoto Protocol required the launch of decision has already been made to preceding 15 years (i.e. in 1975−1990, negotiations on industrialised country replace existing plant; it is therefore as a result of its nuclear construction commitments for the period after likely to displace alternative new programme, and the substitution of 2012, when its current initial commit- investment, rather than the exist- electricity for oil in heating – this ments expire. ing plant (which would have been trend continues to influence the retired anyway). Since new heat And, although not completely unex- figures) that is hardly an overwhelm- pected, it was seen as a good omen plant may have efficiencies of 90 ing achievement. percent or so, and new power plant when the forty odd decisions of the up to 60 percent, the comparison In short, if governments want to take ‘Marrakech Accords’, the Kyoto does not necessarily favour CHP. climate change seriously, they will Protocol rule book – named after the have to start taking these measurement Moroccan host city of COP7 (the Again, therefore, the result may well issues seriously. It will cost money 2001 seventh session of the Confer- be that there is little or no emissions to do so, but that can be no excuse ence of Parties, the governing body saving in practice; as with its other for not trying. The present situation, of the UN Framework Convention main policy measures, unless ways can where they rely on policies whose on Climate Change) where they were be found of measuring the impacts impacts they cannot measure, and fail finalised – were adopted without more accurately, governments really to achieve the reductions they expect, objection at the beginning of the have little idea whether the promotion benefits no one, neither the economy Montreal meeting. of CHP makes a contribution to their (there is no way of knowing if the climate change targets. The mid-conference resolution of measures on which governments are another issue, on which agreement had The analysis could go on, but it would relying are cost-effective); nor the not been possible at Marrakech, was only reinforce the message – that gov- environment (Kyoto countries are much less expected. The issue was, in ernments are not able to measure the missing their greenhouse gas targets essence, whether the consequences of impact of their climate change policies and undermining their credibility for non-compliance with the Kyoto Pro- or forecast the results in terms of future regimes). tocol targets should be legally binding emissions. As a consequence, although penalties, or some form of ‘rehabilita- they have both targets and supporting tion’ measures. In practical terms, the policies in relation to climate change, argument boiled down to the manner whether those policies contribute to in which the draft compliance instru- meeting the targets is essentially a ment would be adopted. For binding matter of chance. penalties, it had to be adopted as an It is therefore no surprise that only amendment to the Protocol, for non- two countries in the EU-15 are on binding consequences an adoption by

12 OXFORD ENERGY FORUM FEBRUARY 2006 decision of the COP/MOP would be more at stake. As mentioned, it was But precisely because of the ex- sufficient. also meant to initiate the negotiations plicit limitations on its ambitions, Saudi Arabia had tabled a controver- on the future of Kyoto beyond its one should not get too carried away sial proposal ahead of the meeting first commitment period. And what about the Bush administration ‘hav- that adoption of the compliance made Montreal a historic meeting ing blinked’, as one observer put it, instrument should be by way of an was that the Kyoto Parties decided to or even having changed their mind amendment to the Protocol alone and initiate formal negotiations to adopt on either the Kyoto Protocol, or not through a COP decision. The industrialised country targets for a the usefulness of the UN process reason why this was more than just a period beyond 2012. as a whole. The only way for the legalistic point is that an amendment international community to engage This was historic because it finally with the USA in a meaningful manner would require separate ratification by gives the business sector, particu- the Parties to the Protocol, a process on climate change in general, and to larly in the industrialised world, the address US emissions in particular, which experience has shown could regulatory certainty indispensable take years. Without its adoption, is to bypass the White House, and for the investment decisions required instead deal directly with the many the Protocol and its carbon trading to solve the climate change problem. instruments could not actually be sub-national entities – be they cities, Energy infrastructure investments, states, and even groups of like-minded implemented. The Saudi proposal, in in particular, are medium to long- short, could have easily led to a last states – who are willing to take on term and thus much more in need of serious mitigation efforts, such as the minute derailment of the whole Kyoto regulatory certainty than other types process. As it happens, the Conference group of north-eastern states that have of investments. The Kyoto Protocol introduced a carbon cap and trade made a classic compromise, namely has now moved on from being merely system for their utilities. to adopt the compliance instrument a potential ‘one-period wonder’ to by decision now, and at the same time the one and only multilateral regime schedule discussions on adoption as which is here to stay. an amendment, to be concluded at “The Kyoto Protocol COP/MOP3 in 2007. ‘Finally,’ – as Stéphane Dion, the Canadian Environment Minister and has now moved on from Conference President – reminded the being merely a potential delegates in his conference closing ‘one-period wonder’ to the “With the adoption of the statement, ‘we have achieved what Marrakech Accords and many claimed was unattainable, a deci- one and only multilateral sion launching a dialogue on long-term the compliance regime, the regime which is here to cooperative action to address climate stay.” Kyoto Protocol became change by enhancing implementation fully operational.” of the Convention.’ The reason why this was felt to be impossible was Indeed, given that the emergence of that it actually includes the United such regional trading systems is highly States, who until the very last moment With the adoption of the Marrakech likely to lead at some point to a US- categorically refused to enter into any Accords and the compliance regime, wide system – due to pressures from discussion on future action under the the Kyoto Protocol became fully the sectors involved regarding inter- aegis of the United Nations, to the operational. Yet the Conference went state competitiveness and regulatory point of actually walking out of the further by also adopting improve- streamlining – the most important step negotiations, in an act of brinkman- ments of some of its elements, in forward for the Kyoto Parties with ship, at one stage of the negotiations. particular the Clean Development regard to engaging the USA would be There is no doubt that getting them to Mechanism (CDM), an emission to integrate these regional US schemes finally agree to some dialogue – if only trading mechanism in which develop- with their own schemes, so as to one that is ‘non-binding’ and explicitly ing countries can attract much needed ensure that an international compo- not meant to lead to negotiations of investment in clean development nent and Kyoto compatibility is from new commitments – is a tremendous projects from (industrialised) Kyoto the outset built into these prototypes personal success for M. Dion, and it Parties in return for emission credits of such a US-wide scheme. is understandable that he considers generated by the projects. The CDM this to represent ‘a major victory for But the main ‘message from Montreal’ in its initial form had proven to have the global community. Now national to the world has to be that the Kyoto some bottlenecks which were unlikely governments will have the forum to Protocol, with its emission caps and to let it develop its full potential. exchange experiences and analyse trading mechanisms, is not only fully These achievements, by themselves, strategic approaches and to free our operational, but is the only viable would have been sufficient for the imaginations to find further innovative existing multilateral effort to combat first COP/MOP to have been deemed solutions that I know we are capable greenhouse gas emissions, and, most a success. Yet, at Montreal, there was of.’ importantly, that it is here to stay!

13 OXFORD ENERGY FORUM FEBRUARY 2006 The Role of Technology in Reducing E&P Costs Mark Andersen

The global demand for oil has consid- of oil. This is a reversal of a trend that two-dimensional (2D). While this was erably reduced the cushion of excess began about twenty years ago. Be- happening, acquisition and processing supply of the past. While demand tween 1981 and 2003, the price of oil of seismic data were achieved more continues to rise, productivity from fell and then fluctuated around a low quickly; the overall efficiency in established fields has continued to level. Over the same period, inflation- seismic activity improved by about fall because of natural decline. The adjusted F&D costs fell by as much as tenfold. exploration and production (E&P) two-thirds. As exploration targets, such as industry must steadily add production During this same period, the oilfield satellite fields, became smaller, to counter both trends. service companies assumed a greater the quality of seismic data had to E&P companies are increasing activ- role in developing new technologies, improve to resolve small or ambigu- ity to meet the demand, and OPEC while striving to bring down F&D ous features. WesternGeco recently countries have announced plans to costs. Much of the reduction in these introduced high-fidelity Q (mark of increase production. For example, costs can be attributed to newly WesternGeco) single-sensor seismic Saudi Arabia plans to increase its oil deployed technologies, particularly acquisition and processing methodol- production capacity from 11 to 12.5 three-dimensional (3D) seismic data ogy. Rather than grouping signals million b/d by 2009, with the poten- and extended-reach and horizontal before processing, each receiver signal tial for a later increase to 15 million drilling. The E&P industry relies on is captured for processing individu- b/d. At the time of the announcement seismic, drilling, logging, completion, ally. This tremendous increase in data in 2005, the country was producing stimulation, testing, modelling, and allows for correction of surface effects 9.5 million b/d. monitoring methods that were not and heterogeneities and results in The Saudi petroleum minister widely available a decade ago; some much higher resolution. cited application of technology as were not available at all. To the extent an important aspect of the strategy. that technology can reduce costs, its Indeed, technology is key to the con- application extends the life of a field, tinuing success of the E&P industry makes smaller fields economical and “technology is key to the throughout the world. Advances in can even enable the redevelopment of continuing success of the technology have enabled the energy fields that have already been aban- E&P industry throughout doned. In addition, new technology sector to provide for today’s energy the world.” needs, but further advancement will is essential for the development of be necessary to meet future needs. The unconventional sources of hydro- challenge is not only to locate new oil carbon − such as oil sands, tight-gas Yet, despite the tremendous increase resources, but also to produce more reservoirs, coalbed natural gas, and in the amount of information proc- from existing resources. even gas hydrates − that will play increasingly greater roles in meeting essed, WesternGeco has delivered data Both challenges require new solutions. future hydrocarbon demand. to operators within days of complet- The easy oil has been found, and in ing survey acquisition. In contrast The effect of new technology to many cases, already produced. New with the weeks, months or even years reduce overall cost and improve oil is being sought in extreme loca- that seismic processing consumed in efficiency can best be illustrated by tions − ultradeep water, high-pressure, the past, this rapid delivery means examining a few specific examples. high-temperature formations, and that decisions concerning drilling These include 3D seismic acquisition, arctic areas − or in small accumula- or development can be made soon advanced drilling methods, time-lapse tions in more conventional locations. after acquisition. The resolution is seismic acquisition, behind-casing Furthermore, in mature fields, the significantly better than conventional petrophysical analysis, and intelligent industry must manage production seismic sections, helping to resolve oil fields. decline in a manner that maximises thinner features, and visualising net-present value without jeopardising exploration-drilling targets that would ultimate recovery. This includes deal- High-Fidelity Seismic Data and otherwise be missed. ing with technology deployed many Designer Wells to Access New Accessing these thin features requires years ago that might limit options Reserves new technologies so that a well today. Seismic acquisition grew rapidly in trajectory can follow almost any path. In recent years, accessing these more the 1990s as 3D seismic data offered Novel downhole motor technol- difficult-to-reach resources has led to a new way to reduce finding and ogy has made directional drilling an increase in the finding and develop- producing costs. Eventually, most practical. State-of-the-art measure- ment (F&D) cost of each new barrel offshore activity was 3D rather than ments-while-drilling (MWD) and

14 OXFORD ENERGY FORUM FEBRUARY 2006 logging-while-drilling (LWD) tools In addition, the shale loosened by the in the North Sea. Companies in that and their immediate interpretation exits and reentries into the formation area report that they have more than provide the information necessary to created well completion problems, recovered the cost of repeat surveys, steer a wellbore within specific strata. increasing costs even more. also called four-dimensional (4D) seis- These tools were improved during PDO shared information about mic acquisition, by locating bypassed recent decades to reach their current this difficult drilling task with oil and improving recovery. The level of operations. Schlumberger, who were at the time utility of time-lapse seismic surveys In the 1990s, rotary steerable systems developing a new tool that it was felt rests on the difference in seismic (RSS) helped operators set new would be vital for PDO’s drilling attributes caused by changes in fluid records in extended-reach drilling. success. This open communication content or porosity. The differences This technology facilitates directional between companies led to the acceler- may be caused, for example, by water control and steering of the bit while ated development of the tool, since movement as oil and gas are produced, continuously rotating the entire it was known that there was a client or by formation compaction. drillstring. Steering is accomplished eagerly waiting to use it. For example, in the Norne field, in a unit behind the bit by activat- offshore Norway, Statoil commis- ing three pistons, separated on the sioned a series of high-fidelity Q circumference by 120°, in the proper time-lapse surveys. Because of the sequence to force the bit in the correct “In the past few years, rapid turnaround in processing − direction. time-lapse seismic within a few days of completion of With the ability to drill in almost any monitoring has become an the monitor survey − Statoil had time direction, steering based on real-time to adjust horizontal-well drilling plans data becomes important to optimise important technology” to avoid a water zone in a planned the path in the reservoir. MWD and well, avoiding a costly problem well. LWD tools provide petrophysical Another source of reserves may be data that locate the bit within specific PDO was the first company to use the even closer at hand. Existing wells strata. Placing a measurement collar new PeriScope 15 (mark of Schlum- may have hydrocarbon accumula- nearer the bit decreases the time lag berger) directional, deep imaging tions behind casing that were not between finding out where the bit has while drilling service, deploying it in accessed by perforating, either because just gone and drilling ahead. New, the Shuaiba field. This tool propagates the accumulation was considered far-seeing LWD technology is now electromagnetic signals and uses a uneconomical at the time, because helping drillers understand where unique array of transmitters and a full suite of logs was not acquired the bit is about to go, and to detect receivers to determine the direction of before casing, or because the well is lithology or fluid interfaces up to 4.5 bed boundaries and water zones up so old that the oil or gas resources m away. This helps access hydrocar- to 4.6 m away from the tool. Real- were missed by the logging techniques bon assets in locations that previously time measurements from this tool available at the time. Geological com- were difficult or costly to produce. determined that the low-permeability partmentalisation may have isolated zone lay just 2.5 to 3 m below the For example, in Oman, Petroleum resources that the existing completion top of the Shuaiba reservoir. Guided was expected to drain, but didn’t. Development Oman (PDO) wanted by PeriScope 15 measurements, PDO to drill into a thin rim of attic oil in a drilled the well horizontally for 1,300 Until recently, obtaining detailed Shuaiba carbonate reservoir. Veering m, averaging 1.2 m beneath the Nahr petrophysical information in forma- off course upward into the mechani- Umr interface. By placing the well tions behind casing in a well was cally unstable Nahr Umr shale would so close to the top of the formation, virtually impossible. After many likely complicate well construction PDO added reserves of attic oil that years of development, Schlumberger and completion or even jeopardise the would otherwise be inaccessible. With introduced a new set of behind-casing borehole itself. 100 percent of its horizontal sec- logging tools. These tools, introduced Previous attempts to place a wellbore tion placed in the upper zone of the starting in 1999, evaluate bypassed just below the Shuaiba-Nahr Umr reservoir, this well has produced oil at pay near existing wells. Measurements boundary relied on conventional LWD significantly higher rates than the field are available for formation porosity, tools. With their shallow depths of in- average. Results such as these indicate density, acoustical properties, lithol- vestigation, these older tools provided the tremendous value of new technol- ogy, and pressure. Fluid samples and little advance warning that the well- ogy for accessing reserves previously formation dynamics data can also be bore was about to cross the boundary thought uneconomical. acquired. Since the wells and infra- between the high-resistivity reservoir structure already exist to access these and the low-resistivity shale. This fre- resources, costs are often minimal, Advanced Reservoir Monitoring quently resulted in unintentional exits comprising logging and recompletion from the reservoir, requiring a turn to In the past few years, time-lapse costs. steer the trajectory back down to the seismic monitoring has become an In mature fields, additional production Shuaiba. This cost time and money. important technology, particularly or improved economy for produc-

15 OXFORD ENERGY FORUM FEBRUARY 2006 tion may be available simply by of permanently installed monitoring operator was not entirely open about optimising production and designing systems and increased productivity its problem and the resulting solution cost-effective workovers in existing from wells. Many companies are, was poorly adapted. Either way, both wells. A detailed field study in a however, implementing operation sides lose. mature area can distinguish good support centres, which is an important Operators and the service industry candidate wells from bad, and may step toward development of an intel- must communicate and cooperate to provide guidance for converting more ligent oil field. speed technology development. The wells into good or excellent producers The E&P industry is often character- example described earlier of the rapid or for decreasing water cut, often with ised as conservative, taking longer to adoption of Periscope 15 technol- minimal investment. Then, a skillfully adopt new technologies than other ogy by PDO shows the advantage planned workover programme can industries, such as consumer electron- of openness for both sides. Greater boost production without the cost ics and pharmaceuticals. This is often service company effort and faster of drilling new wells. Time-lapse justified by the huge investments nec- operator adoption will have beneficial seismic monitoring can also be used to essary for developing new fields, the effects that can be further enhanced by optimise scheduling of workovers and long lead times between discovery and closer cooperation across the industry. maintenance. first production, and the low margins Technology development and deploy- The ultimate in field optimisation may on oil and gas that were present until ment will be key in controlling future be achieved through development of recently. However, our technology exploration and production finding intelligent oil fields. These fields have adoption rate must improve. and development costs. monitoring devices downhole and Of all research and development The twin demands of declining at surface, a data-gathering system, projects undertaken by the oilfield production and increasing consump- software with sufficient intelligence to services industry today, only one in tion must be met with boldness and indicate problems, and control devices ten becomes commercially viable. Of determination. While the mandate to act on the information obtained. the other nine, one or two don’t make of the service industry is to provide Elements of such a system are in place it because they were overly ambitious quality tools and services to meet the at different locations, but there has from a technical standpoint. The rest challenges of obtaining additional oil been no large-scale implementation of fail for one of two reasons: either the and gas, operators must be equally real-time data delivery in an intelligent service company misunderstood the bold in applying these technologies oil field. Companies are still assess- problem technically and therefore to get those resources out of the ing the trade-off between the cost addressed the wrong market, or the reservoir.

Strategies of non-OECD Gas Producers in the Atlantic and the Middle East Hadi Hallouche, Michael Tamvakis and Bryan Train

Introduction This international natural gas trade, Furthermore, the emergence of a either through pipelines or in tankers short-term and spot trade is increas- in the form of Liquefied Natural ing in prominence with a large order The international gas market is Gas (LNG), has traditionally been a book for the shipyard industry, undergoing a quiet revolution, by any rigid one, due to its regulated market including super-tankers (up to standard. Gas is the most environ- structure and its capital-intensive, 250,000m3) to fulfil the demand for mentally friendly fossil fuel and is the front-loaded nature; with Long Term the long distance transportation of most efficient for power generation. Contracts (LTCs), Take-or-Pay (ToP) LNG. This has increased consumption for provisions, destination clauses and gas dramatically, as in the image The changes in the Atlantic market prices indexed to oil prices. The inter- of the Dash for Gas in the UK. At are interesting. Market liberalisation national LNG market has also been the same time, domestic production in Europe is creating a stronger a geographically divided one, with has reached its limitations in many corporate identity for previous Atlantic and Pacific markets virtually consuming markets. The resulting utility monopolies on the continent. distinct from one another. growth in the international trade of Upstream liberalisation in some the fuel of the twenty-first century This is changing, slowly but surely. producing countries, like Algeria, comes at a time of high oil prices and LTCs, which will remain the back- is also slowly drawing institutional at a time of reform and liberalisation bone of the industry, are becoming boundaries between the State − the of the gas and electricity markets in shorter in duration with ToP provi- shareholder − and the National Oil many consuming markets, notably the sions diminishing and destination Company (NOC). A major develop- EU. clauses being phased-out in Europe. ment also in the Atlantic market is the

16 OXFORD ENERGY FORUM FEBRUARY 2006 emergence of the US market, which, commercialisation of gas reserves in to capture the market share. Interest- like the UK, is a liberalised one with countries deemed to be ‘gas rich, oil ingly, the countries that Venezuela gas-gas competition, a new situation poor’. and Iran will seek cooperation with to for most producers. The potential develop their gas industry are those for the US market in terms of LNG very same ones against whom they Gas rich, Oil poor exports is as uncertain as it is big. will compete, e.g. Algeria and Qatar. Indeed, the USA has been attracting Algeria and Qatar are seen as pioneers within gas trade in the Atlantic, the an overwhelming proportion of short- Geography term trade in the Atlantic, including driving force behind this development a number of cargoes originally ear- being the fact that resources were Oil is an internationally liquid market, marked for the EU market under diverted towards gas as a means of gen- with transportation only represent- LTCs that were diverted. erating income. Moreover, this has also ing a fraction of its landed cost. Gas been driven by the lower quotas within pipelines, however, are only economic These changes represent new chal- OPEC of both countries, which are for short distances and relatively high lenges and opportunities for the not considered large oil reserves hold- volumes; and LNG end-prices are industry players and call for new ers in comparison with other members. heavily dependent on cost of trans- strategies. Former monopoly utilities Indeed Qatar and Algeria rank as ninth portation, which in turn is dependent in the EU are moving closer to fields, and tenth of eleven members in terms on distance to market. Countries with whilst NOCs are moving closer to the of reserves and are, respectively, first closer proximity to market, and those end consumer and the International and third gas exporters within OPEC. with a coastline, are better equipped Oil Companies (IOCs) are taking Indonesia, not an Atlantic exporter, has for the natural gas and LNG trade positions both in liquefaction, regasifi- the lowest oil reserves within OPEC than others. With the high oil/gas cation and shipping. and is the second largest exporter of price environment that we have today, Atlantic market producers are gas within it. gulf producers are positioned to sell heterogeneous in more than one sustainably to both the Atlantic and Both Algeria and Qatar with their re- respect, ranging from established Pacific market. spective NOCs (Sonatrach and Qatar players (Algeria, Nigeria, Libya and Petroleum, respectively) recognised Qatar), ‘new’ entrants (Egypt, Oman, that gas and not oil was strategically Niche Players Trinidad & Tobago) and potential to their competitive advantage and entrants (Equatorial Guinea, Angola, Oman and the UAE as well as have sought to develop their trade Venezuela and Iran). These producers’ Equatorial Guinea and Angola, if infrastructure and their market share strategies depend on a number of and when they will enter the market, earlier than others, which makes them factors, such as: are niche players. They have smaller today market leaders. reserves but they benefit from other infrastructure or from proximity to Resources Oil rich, Gas rich: The ‘Sleeping markets. The reserves profile of these The gas reserves that NOCs either Giants’ countries does not allow them to have own or control differ in importance a significantly larger market share. Iran and Venezuela on the other from oil. Oil reserves for those Their strategy will therefore be to hand, due to larger oil reserves have producers who are members of OPEC maximise revenues, most probably benefited from larger quotas within are important in that they are one of through maximisation of output and OPEC and thus received higher the variables on which their OPEC diversification of gas outlets. Trinidad revenues from oil than those from quotas, and therefore production, and Tobago did supply 75 percent of gas. Logically, this has made the depends. Gas reserves are only impor- the LNG to the US market in 2004 development of natural gas infrastruc- tant, from a trade perspective, insofar but with a relatively low R/P ratio (19 ture less of a priority than the oil as a Long Term Contract can actually years), they are likely, too, to follow upstream. As a result, in spite of their be honoured. From a strategic per- the revenue maximisation route. high gas reserves (Iran has the world’s spective, countries with larger reserves second largest reserves and Venezuela tend to aim for market share whereas has reserves comparable to those of Pipeline/LNG flexibility seekers countries with smaller reserves tend to Algeria, OPEC’s largest exporter of The United States has emerged as an aim for revenue maximisation. gas), these two countries’ export pro- important potential importer in the That being said, the relative reserves file remains limited. Iran is, to date, Atlantic. In fact, it has attracted a are, with hindsight, important. a net importer and Venezuela is only large proportion of the short-term, Producers with high oil reserves starting to develop its pipeline and and spot, cargoes that were traded have less incentive to develop their LNG infrastructure. These countries within the last two years. A number gas reserves, particularly during can, in the long term develop strong of LNG regasification terminals are times of low oil prices. It is this market shares but in order to do that, being built, or have been proposed. particular point that has been a prime they need to utilise their economies of This makes LNG cargoes for the USA driver leading to the development and scale – high volumes, low margins − seem more valuable, if more risky.

17 OXFORD ENERGY FORUM FEBRUARY 2006

For North African players (and even development. Hydrocarbons represent start operations in 2013. for Nigeria, if the NIGAL project, 70 percent, 45 percent, 80 percent and Moreover, countries following a a pipeline linking Nigerian fields 45 percent of their fiscal revenues, policy of economic diversification with Algerian export infrastructure respectively, and 95, 80, 93 and 75 have used their gas reserves in order through Niger, sees the light), having percent of their export revenues, to develop value adding gas intensive a portfolio of pipeline and LNG al- respectively. This is to illustrate the industries in the fields of GTL, CNG lows them to play the arbitrage game importance of the state company, in and Aluminium to name a few. Exam- between the EU and the USA. So far, particular, and the hydrocarbon sector ples include Nigeria’s Escravos GTL only Algeria has this flexibility with in general, to the economy of these facility in conjunction with Chevron 35 bcm of pipeline exports through countries. It is in the economic agenda and Sasol, Oman’s Aluminum and the two pipelines to Italy and Spain of many countries to diversify the Fertilizer developments and Qatar’s (and two others planned), and 26 bcm sources of their revenues. This can Oryx GTL facility. There is a tender of LNG exports in 2004. With the translate into either a maximisation process for a GTL project in Algeria inauguration of the Greenstream and of total revenue from hydrocarbons, due to be awarded in 2006. the Arab Pipeline, Libya and Egypt which can then be reinvested into are also joining this club. Within infrastructure, industry or education; the Gulf, pipeline/LNG flexibility or a quest for market share, with the Concluding Remarks is also sought, particularly with the sustainability, relative predictability The heterogeneity of national produc- Indian market looking increasingly and strategic value that it entails. The ers of gas will have an important attractive. Iran, which already exports State’s foreign policy and the NOC impact on the corporate identity of 3.52 bcm of pipeline gas to Turkey, is strategy influence each other. many so-called national oil companies, looking with the Pakistani and Indian and vice versa. The very nature of governments into the building of the Vertical and Horizontal Hedgers the gas industry, and its growing Iran-Pakistan-India pipeline, while importance for NOCs in the Atlantic having a number of LNG liquefaction Algeria and Qatar’s exports in gas will and the Gulf, coupled with the plants under planning. Qatar, too, is grow, but with new players entering fundamental changes that the natural considering pipeline outlets for its the market, their market share will be gas industry is quietly undergoing, is gas, including discussions to build an challenged. In order to maintain their creating a pool of strategies between offshore pipeline to India. competitive edge, Sonatrach and QP the potential aggressive market share should go (and are going) closer to the grabbers, players with high reserves end consumer by investing in ship- and low exports, the niche players who The State, the Economy and the ping and re-gasification capacity. The NOC will seek to maximise revenues with corporate identity of the NOCs here no major market share ambitions, the The State’s relationship with the NOC becomes important as they compete in LNG/pipeline arbitrageurs and the is multifaceted. As a shareholder, the international market. For example, mature players, who will continue to the State has some control over the Sonatrach is a shareholder in El Ferrol look outside to expand their resource management of the company and its terminal in Spain and has booked base, to move closer to the end con- strategy. The degree of independence capacity in the Isle of Grain terminal sumer and to capture profit potential that the NOC management has differs in the UK. Qatar Petroleum, through in other gas markets. The corporate from one producer to another. The its partnership with ExxonMobil, is map of the gas trade industry, par- State also has a role of Sovereign a shareholder in the Adriatic LNG ticularly the NOCs, is an important power and, as is the case of Algeria terminal in Italy and the South Hook subject for observation, especially with under the new hydrocarbons law, as terminal in the UK, to name only the current oil price environment. upstream regulator. In this capacity, these. Sonatrach owns or co-owns the taxation, legal and investment six LNG carriers and two on the regimes in place have an important orderbook. Qatar Petroleum owns, impact on the company in terms of its co-owns or operates five carriers and Recent OIES Book commitments/opportunities to invest, there are reports of up to ninety ships nationally and internationally, and under order for the next decade. These The Future of Russian Gas how it ‘competes’ with international two companies may also take posi- and Gazprom companies. In effect, the institutional tions in so-called ex-terminal business, boundaries between the state and the i.e. with utilities. Jonathan P. Stern NOC are important in determining Sonatrach has a competitive disad- the strategy of the latter. vantage to QP in the Pacific Market, Published by the Oxford Foreign policy and the national although its investment in the Camisea University Press for OIES economy have an important effect on field in Peru is a geographical hedge, the big picture. Algeria, Iran, Nigeria through which it will capture a small ISBN 0-19-730031-6, pp. 270, and Venezuela have large populations market share in the Pacific market £39.50/$75.00 (inc. p&p). and are at a determining stage of their when the LNG terminal is expected to

18 OXFORD ENERGY FORUM FEBRUARY 2006

Not so long ago I was invited by my term forward prices have also risen pipelines being full with gas carried gas supplier to enter into an agreement sharply. for contracted users. Or it could be to fix my unit charge for gas for the that pipeline owners are deliberately next five years. I assume that it was In the face of this situation the gas keeping utilisation of the system below a general invitation to all British Gas consuming part of industry is extremely capacity. This is something that the EU customers; possibly competitors were anxious, is talking about suspending Commission is investigating, egged on making similar approaches. production or transferring to lower cost by the UK government and the Office This has caused me, and no doubt countries, and calling on the government of Fair Trading. many fellow consumers, to face up to to do something about it. The media are The second question (why LNG is the dilemma confronting industrial and stirring it. And the government is trying going elsewhere) must surely be because electricity generating users of gas; do to calm things down. the USA (post Katrina) and Spain are we buy on the spot market or do we seeing higher prices than are being bid buy forward? What is going to be the by the UK. The problems of third party course of gas prices over the years? And access to terminals would seem in this of course it has raised the question in case to be fanciful. my mind – what does British Gas think Personal Industry can probably understand about these questions? One might think all this and wants the government to that British Gas is expecting prices to Commentary do some thing about it. The govern- fall back. But we domestic consumers ment cannot see what it can do in this are offered a break clause in the event Charles Henderson liberalised market, except to try to of a price fall. So what is British Gas dispel any panic about the possibility of up to? Perhaps it is hoping to lock in interruptions in supply, and to prepare customers for the long term back to all consumers for higher prices in the back with its long-term purchase con- The key fact to keep in mind in as- medium term. I say this because once tracts. But this only works if the price sessing this situation is that the UK gas the LNG terminals and pipeline con- of gas is going to rise. If it falls British market is uniquely liberalised. If supply nections are in place the UK will be Gas is stuck with high prices under looks like falling below demand, prices taking its prices from a world market its purchase contract and a defecting will rise to suck in imports whether it for LNG and from a European market clientele. So do we conclude that British be through the Interconnector or as for pipeline gas. The latter market is at Gas is taking a gloomy view of the path LNG; and demand will fall as industrial the moment driven by prices indexed of future gas prices? users of gas switch or suspend produc- to oil; but it is surely only a matter of Mercifully as I am no longer a part tion (something they may well do even time before the two markets become of government or of the oil and gas if they have long-term supply contracts, one. Either way, prices in the UK look industry I do not need to worry unduly since it may be more profitable to set to stay high, and there is nothing the about the answers to this conundrum. sell the gas than to produce). And of government can do about it. Industry of But if I were in either of those places I course the traded market will become course can take evasive action by nego- would be very perplexed. upwardly volatile. tiating long-term contracts, by hedging Broadly speaking the situation seems All very good in theory, you might in the forward market, or at the extreme to be as follows: say, but in that case why is the Inter- closing or relocating plant. connector not full, delivering gas from And what is the answer to my own • Gas supplies from the UKCS are Europe sucked in by the higher prices? domestic conundrum in the light of all declining and at a faster rate than And why are LNG cargoes destined for this? Accept a five-year fixed price. quite recent predictions. the UK being diverted to other destina- • Imports can come in through the tions? There is a school of thought that Interconnector (whose capacity has the answer to the first question is that Forthcoming Publication been recently upgraded); as LNG European gas suppliers are restricting (the Isle of Grain terminal is oper- supplies to the UK in spite of the higher ating and more capacity is on the prices because over there the markets Gas Prices in the UK: way); and in due course through new are not fully liberalised. It is an odd Markets and Insecurity of connections with Norway. argument, implying either that a cartel Supply • Until these projects are fully op- is operating to keep prices below the erational a cold winter could see level that could be achieved, or pos- Philip Wright demand exceeding supply. sibly that governments are leaning on • We have limited stocks. the suppliers to restrict exports. I am Published by the Oxford • We are experiencing some untypical not convinced. Another more plausible University Press for OIES cold weather. theory is that third party access into • The spot price of gas has risen dra- the trans-European pipeline systems ISBN 0-19-929965-X, pp. 192 matically. is being restricted by operators. This £50.00/$90.00, due April 2006 • The one month forward and longer- may be the natural consequence of such

19 OXFORD ENERGY FORUM FEBRUARY 2006 Asinus Muses

Empty Promises day, so soon there won’t be any time Supply Contract for, amongst other left for working. things, five integrated umbilicals. A EU countries have agreed to reduce separate contract will cover umbilical their energy consumption by 1 percent On the Horns of a Trilemma tubes and umbilical terminations. ‘Only per year from 2007 for nine years, but reputable and sound Respondents will not face any court action if they Asinus always looks forward to Shell’s should apply for this pre-qualification fail. That seems a pretty safe decision global scenarios and the latest one, tender’. It sounds like a great diver- for Ministers in office in 2005. which takes us to 2025 (if we ever get sification opportunity for struggling there) is represented by what looks Health Service Providers. Wind Economy like a three-bladed propeller with an equilateral triangle imposed on its cen- Reflections A large wind farm planned for an off- tral shaft. The blades are called ‘Low shore area of the Welsh coast has been Trust Globalisation’, ‘Open Doors’ and Asinus has recently been deflected from postponed because it’s not economic. ‘Flags’, and the points of the triangle reaching a critical inflection point in The easy solution is for the subsidy to ‘Market Incentives’, ‘The Force of his life, but hopes that BP, in a similar be increased – please wait for further Community’ and ‘Coercion, Regula- situation with its Renewables Business, announcements. tion’. This represents, amongst other will get there satisfactorily. things, the triple dilemma, or ‘trilemma’, Cold Comfort with which we are faced. So that at least Common Market solves that. The IPE has been renamed ICE Futures. While driving on holiday recently Asi- They must know something about the Coal Unthroned nus found that the price of diesel was Gulf Stream that the rest of us don’t. over 30 percent cheaper in Spain than UK Coal has established that ‘the pa- in the UK, and gasoline just under 30 On the Ball rameters were there for us to enter the percent cheaper. French diesel price wind farm market’, i.e. that the subsi- was about half way between the two The EU Commision has at last discov- dies seemed to be sufficient. They are and gasoline somewhat closer to UK ered, so it says, serious problems in the also turning some old mine areas into prices. In France and Spain diesel is functioning of Europe’s energy markets. business parks and shopping centres cheaper than gasoline, in the UK it is They will continue their enquiry and (where presumably some other satisfac- more expensive. All this is of greater will ‘identify adequate remedies’. That tory parameters exist) but all this, says or lesser value to the respective Finance sounds really encouraging. Mr Mace, their Finance Director, is an Ministries, and almost certainly makes ‘add-on to the coal business’. It just no difference to the environment. Quick as a Flash shows what it takes to be a coal miner these days. Drug Drillers Dr LeClerc, President of the New York Public Library, is reported as saying Walking the Carbon Trail Asinus reads with some alarm that the that ‘all the paradigms are shifting at use of, and indeed the manufacture of, the speed of light’. Not bad for a word Spurred on by BP advertisements methamphetamines is so common on that has only recently, well relatively, Asinus has been trying to calculate how US oil rigs that it’s having an effect on been reinvented by management con- his carbon footprint compares with that the cost of oil production. Mr Wals- sultants. of some of his friends, but he turned mith, director of oil and gas training at out to be so technically impaired that the Mid-Continent Oil and Gas Train- Perpetual Immobility he couldn’t work out the result from ing Center pointed out that meth users the carbon footprint calculator thought- may go through a Superman stage when Did you know that on every weekday fully supplied by BP online. they believe themselves to be invincible, more than 1 million vehicles drive into which, if you are ‘working with hun- New York where they must deal with Birth Pangs dreds of tons of steel and thousands 40,000 intersections before they can of pounds of explosive pressure’ is, to even find a parking spot. ‘Rush hour’ SNEPCO (Shell Nigeria E and P) has say the least, a danger to anyone in the already extends for 7 to 8 hours per recently advertised for an Umbilicals neighbourhood.

Oxford Energy Forum. ISSN 0959-7727. Published by Oxford Institute for Energy Studies, 57 Woodstock Road, Oxford OX2 6FA, United Kingdom. Registered Charity 286084. Tel: (0)1865 311377. Fax: (0)1865 310527. E-Mail: [email protected] EDITOR: Ian Skeet. Annual Subscription (four issues) £40/$75/a75. © Oxford Institute for Energy Studies, 2006. Indexing/Abstracting: The Oxford Energy Forum is indexed and/or abstracted in PAIS International, ABI/IN- FORM, Fuel and Energy Abstracts, Environment Abstracts, ETDE and CSA Human Population and the Environment 20