Energy Pack 4 - global management of oil and gas

Oil surplus

• Some countries have a surplus of oil. 

• Saudi Arabia produces 10% of oil used globally but only consumes 3%.

• Russia also produces 11.5% of global oil but only consumes 3%.

• Generally the Middle East produces 19.5% yet only consumes 5%.

Oil deficit

• However, some countries have a deficit of oil. The USA produces 12.5%  yet consumes 22%. Similarly, China produces only 3.5% of global oil and uses 10%

 

• This explains why the Middle East and Russia export the most oil. Middle East exports 15 million barrels per day, Russia 7.4 million barrels per day.

 

• On the other hand, USA imports 8.4million barrels per day. Europe = 9.6 million barrels per day. China 11.3 million barrels per day.

OPEC

Has 81.5% of world's reserves of oil but only produces 33% of supply, suggesting supply is being held back.

They do this to keep the price of oil artificially high and hold geopolitical power over consumers.

 

IN THE FUTURE,  US, Russia and China will have used up much of their oil reserves. OPEC will be in a dominant position to supply oil and can charge even more.

 

Non OPEC countries are moving to renewable and nuclear energy sources to avoid these high prices. Also new technology is being invented to extract oil unconventionally such as fracking, tar sands and tight extraction.

Oil as a weapon

For example; during the 1973 Arab-Israeli war, the West gave Israel modern weapons and therefore OPEC placed an embargo on oil as they wanted the West to agree to stop supplying Israel with weapons.

Another example is in 2024, Iranian/Houthi rebels are sinking Western ships carrying oil in order to put pressure on Western governments to stop supporting Israel. Houthi rebels are a proxy for Iran as Iran funds and supplies them with drones and missiles. This has resulted in price of oil jumping by 3% since start of attacks.

Closure of the Strait of Hormuz by Iran demonstrates how oil can be used as a weapon because restricting this key shipping route, which carries around 20% of global oil trade, has caused sharp price increases and given Iran economic and political leverage over oil-importing countries.

players controlling the price of oil

• MNCs own drilling rights and refineries and have the  storage capacity so they can decide how much oil product to sell at one time: E.g.

• National governments. E.g. Venezuela (1st/2nd biggest reserves) and so can join a cartel to control the price and limit sales. China also has bought exclusive drilling rights in Angola in return for giving them roads and infrastructure projects.

• Also, western countries such as America have started to store oil in case there is a disruption to supply . USA has largest strategic reserve of meaning that if there was a war, they could supply the US military with enough oil for 3 months. If there is another embargo placed on oil, America and Europe can flood the world market with oil to replace lost supply. US also has treaty to supply Israel with oil for 5 years if they are cut off by OPEC.

• New players e.g. countries like America developing new unconventional techniques to produce more oil. US's fracking and horizontal drilling has uncovered new reserves for the country which undermines OPEC's ability to control prices. Canada also uses tar sands which by 2030 will produce 16% of the oil North America needs.

New technology

• Canada uses tar sands to extract oil. Largest reserves of tar sands found there, by 2030 16% of North America's oil could come from here.

• Energy intensive process as takes equivalent of 1 barrel of oil to produce 3 barrels of crude oil from tar sands. Produces lots of greenhouse gases.

• Takes 2-5 barrels of water to produce every barrel of oil.

• Leaves behind lots of waste and destruction.

• So far, 470km of woodlands have been removed to allow for tar sand mining.

TNCs

• BP extracts 9% of total oil produced in the world and transports 5% of all oil around the globe. It also supplies 13% of all petrochemicals globally.

• Operates in 6 continents, 80 countries and employs over 10,000 staff.

• BP produces and distributes the oil within states that do not have the technology to extract and refine oil into petrol. It then pays a percentages to the state. This can enrich poor countries who cannot afford the primary investment required to produce their own energy and become energy secure.

• BP has the money to invest in new technology to extract even more oil.

• However, this has gone badly wrong since 2010 Deep Water Horizon explosion/leak. This cost the company $61 billion.

• Cheap oil prices also make this expensive form of extraction less profitable… this is what OPEC wants by flooding the markets with cheap oil and thereby reducing price.

reducing reliance on oil - economic reasons

The UK uses more oil than it produces, meaning imports are needed.

Price volatility and energy security means that oil prices fluctuate due to global events, making the UK more vulnerable to supply disruptions.

Would save them money in the long term as investing in renewables is cheaper than constantly importing oil.

reducing reliance on oil - political

National security and geopolitical stability - UK dos not want to depend on hostile states such as Iran and Russia for oil.

 25% of Europe's crude oil is from Russia but EU wants to reduce Russian imports to put economic pressure on Russia.

Signed up to NetZero Agreements

reducing reliance on oil - environmental

As oil is a fossil fuel, burning it contributes to climate change.                                                                                        

Extraction and transportation of oil risks oil spills.                                                                                                           

Particulate matter from diesel is linked to asthma and cancer.

management of gas

• Gas is a popular fuel in the 2020s as it is cheaper per kilojoule than oil. It is also very pure as it only releases co2 and water vapor when it burns.

 

• Russia has the most gas reserves in the world, it has more than double what Iran has which is the country with the 2nd biggest reserves in the world.

 

• GAZPROM is an MNC controlling 92% of Russia's gas. It is state owned by the Russian government. Provides 25% of Europe's gas. 80% of GAZPROM's gas went through Ukraine. 8 European countries got 100% of their gas from GAZPROM. In 2009 was the 3rd largest corporation in the world.

Governments and price of gas

Governments influence the price of gas through geopolitical control of supply routes. Russia has used gas as leverage against Ukraine, cutting supplies in 2006 and 2009 during disputes linked to Ukraine’s pro-EU political shift and its move away from Russia’s sphere of influence. This disrupted flows into Europe because much of the gas passed through Ukraine.

Germany became heavily dependent on Russian gas, with around half of its supply coming from Russia, and developed long-term infrastructure links through pipelines such as Nord Stream 1 and the planned Nord Stream 2, which was designed to bypass Ukraine and increase direct Russian-German energy trade.

However, Nord Stream 2 was destroyed in 2022, reducing Russia’s ability to bypass Ukraine but also increasing uncertainty in European gas markets, forcing Germany and other EU states to compete for alternative supplies such as LNG, contributing to higher prices.

new technology

New technologies have increased global gas supply by allowing extraction from previously inaccessible or uneconomic reserves, such as tight gas and offshore fields beneath the seabed in areas like the North Sea and the Gulf of Mexico, where advanced drilling techniques are required.

Hydraulic fracturing (fracking) and horizontal drilling have also unlocked shale gas trapped in impermeable rocks, significantly increasing production in countries such as United States.

In addition, Liquefied Natural Gas (LNG) technology allows gas to be cooled to around −162°C, reducing its volume by about 600 times so it can be transported efficiently by tanker over long distances, creating a more globalised gas market.

fracking industry

The growth of the fracking industry has transformed gas management by increasing domestic supply in countries such as United States, reducing reliance on imports, lowering prices through increased competition, and making gas markets more flexible and less dependent on long-term pipeline contracts.

government role in fracking

• US gov helped fund research into horizontal drilling techniques to improve fracking technology.

• Gave tax breaks for drillers that amounted to $10bn since 1980

• Federal support for oil and gas was 5x more than support for renewables

TNCs role in fracking

TNCs play a major role in fracking because they provide the finance and technology for high-risk shale gas extraction, for example ExxonMobil has invested heavily in US shale basins such as the Permian Basin, using horizontal drilling and hydraulic fracturing to access gas trapped over 2–3 km underground, increasing US shale gas output to over 700 billion cubic metres per year and turning the United States into one of the world’s largest gas producers.

Downsides of fracking

Fracking has environmental downsides such as groundwater contamination, methane leakage and induced seismic activity, for example in parts of the United States (e.g. Oklahoma), where increased small earthquakes have been linked to wastewater injection from shale gas extraction.

gecf

• GECF is a forum of 15 countries which produce and export gas such as Russia, Iran and Nigeria. Tried to be similar to OPEC.

• This was unsuccessful as more countries have reserves of + produce more gas than oil. It is a less concentrated fossil fuel.

• There are also more unconventional methods of extracting gas such as tight extraction, fracking, LNG

• Gas is also mainly used for generating electricity so there are many alternatives to gas if the price becomes too high.