I want to thank Mr Raul and Mr James on their comments. I appreciate your interest and time. Other than reflecting on Mr James' comments, in this post I will talk a bit about some issues currently on my mind - 1) China's bid for Unocal, a highly sensitive issue, 2) Australia's increasing dependency on imported oil, a highly ignored issue by Australian media.
Mr James, you asked what literary review entails? Well, let me say that it is a very troublesome thing to do, and it involves going through all the academic literature that has been written on the topic I am looking at in my PhD. In my particular case, this is oil and bargaining. Therefore, I need to critically discuss most important and relevant academic literature on oil and bargaining. It takes at least 10,000 words, or a full chapter, to do this. There has been so much written about oil, especially in the wake of 1970s oil shocks. After that, when the oil prices dropped from $36 a barrel to $12 a barrel in 1986, people lost interest in writing about oil. Interest returned lately, with high oil prices, and a lot of talk about incoming "peak oil". Since oil, as a non-renewable energy resource won't be able to be used as our main source of energy forever, experts disagree on when peak in oil production will occur. Some argue that this will be very soon - Deffeyes (author of Hubbert's Peak and Beyond Oil) argues that this is taking place now. Colin Campbell, Jean Laherrere, Paul Roberts, Matthew Simmons and others argue that it will take place by the end of this decade. ALL governments and Big Oil, and some academics (Huber, Peter Odell) argue that it will not happen until some time in future - say 2020 or later.
If anyone's interested on this issue I can refer you to a few interesting books:
1) Matthew Simmons, The Twilight in the Dessert - he offers an argument that Saudi
Arabia's production will decline very soon - very scary for the world economy
if this is true! I am expecting a compelling answer from Saudi officials.
2) Deffeyes' abovementioned books are a good read as well.
3) Colin Campbell, The Coming Oil Crisis
4) Richard Heinberg, The Party's Over
5) Peter Odell, Why Carbon Fuels Will Dominate the 21st Century - This is the
other side of debate by the most respected academic on oil in Britain. This guy
publishes a book on oil every few years and has been doing that for decades.
There's many more out there. If interested let me know and I can provide you a more detailed list.
I do not intend to offer a definitive answer to this highly debated question on "peak oil" as it is almost impossible to answer. I can say one thing though. The oil production in most of the major OECD oil producers, United States, Norway, United Kingdom, and Australia has peaked. In the US this ocurred in 1970, elsewhere it occured much later - UK (1999), Norway (2001), Australia (2000). OECD countries where production hasn't peaked as yet are Mexico, Canada, and Denmark and Italy (which are very small producers). The oil production in the US in 2004 is 64% of what it was in peak year (1970); in Norway it is 93% of what it was in its peak year; in the UK it is 70% of what it was just 5 years ago; and in Australia it is 67% of what it was just 4 years ago. I did not come up with this statistics on my own - they come from BP's Statistic Review of Worled Energy.
Other interesting current literature on oil entails connection between oil and war. The argument is that major world powers are in increasing competition for oil which is highly concentrated (for example in the Middle East and the Caspian), in the countries usually unfriendly to the West. Michael Klare argues that the US, Russia and China will go through a geopolitical struggle for control of these resources in times to come. His books "Resource Wars" and "Blood and Oil" are excellent reads on that - highly recommended. Lutz Kleveman talks about the "New Great Game" taking place in the Caspian and Central Asia, between major powers.
We can already see bits of this happening. China is trying to get hold of any oil available in the market. It is making friends with "rogue states" - Iran, Sudan, and so forth. A highly contentious issue with the US. Take a look at the countries with which China signed oil and natural gas deals with: Algeria, Angola, Argentina, Brazil, Canada, Cuba, Ecuador, Egypt, India, Indonesia, Iran, Iraq, Italy, Kazakhstan, Kuwait, Libya, Mongolia, Myanmar, Nigeria, Oman, Papua New Guinea, Peru, Russia, Saudi Arabia, Syria, Sudan, Taiwan, Thailand, Turkmenistan, Uzbekistan, Venezuela, Vietnam, and Yemen.
Now, China is trying to buy Unocal, one of the largest oil "independents" in the US, which has 1.8 billion barrels of oil and gas reserves located mainly in Asia - Indonesia, Thailand, Bangladesh. It offered about $2.6 billion dollars more than Chevron Texaco - an American major (in the rest of the world it is called Caltex, with corporate HQ in Singapore). Out of $20.6 billion offered by the Chinese National Offshore Oil Company (CNOOC) for Unocal, $7 billion comes from the government at 3.5% interest rate in 30 years - ridiculous considering US Treasuries go at 4.2% interest rates. There is a huge debate in the US about whether to sell Unocal to Chevron Texaco or CNOOC. Time will say what will happen. There is some talk that if Unocal doesn't go to the CNOOC, in retaliation the Chinese will buy European Airbus planes rather than Boeing. We will see more of Chinese assertiveness in future - I guarantee that. Until 1992, China was a net oil exporter. It started importing in 1993 and now it imports almost half of what it consumes - an amazing growth. Its production is right now peaking around 3.5 million bpd, and consumption was at 6.7 million bpd in 2004. Since growing economy means growing oil consumption and growing oil imports, China will do anything to secure oil inflows. It is building an expensive pipeline from Kazakhstan, it will build an expensive pipeline from Russian Far East, it built a port in Pakistan to monitor sea traffic passing through the Straits of Hormuz, and so forth. The American reaction is to be seen. I currently see confusion in the US over China issue. But conflict would not be out of question - American imports stand at 13 million bpd and are growing.
Other issue I wanted to touch is Australia's growing dependency on imported oil and the lack of attention paid to this issue by the media. Chack this out: in 1985 Australia was a net oil EXPORTER. In 2000, Australia produced 809,000 barrels per day, and in consumed 837,000 bpd. Hence it had to import just 28,000 bpd - not much. In 2004, Australia produced 541,000 bpd and it consumed 858,000 bpd. It had to import 317,000 bpd. While this is nothing compared to what the US (13,000,000 bpd), Japan (5,300,000 bpd), or China (3,200,000 bpd) import, Australia's economy is also smaller than China's, Japan's and America's economies. More problematic issue is that statistics show that the consumption will rise in future, and the production will fall. Hence, more oil will have to be imported. Yet, nothing about it in the media or from the government.
Till my next post, any comments highly welcome.