Feature Report: The Geopolitics of Oil and Gas

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Redrawing the Map of the Energy World

Energy plays a unique role on the world stage, guaranteeing military strength, economic development, transportation of people and goods, and social well-being. The price of energy, and oil and gas in particular, is set by the global interplay of supply and demand. For many oil and gas producing nations, it has become such a vital part of their economy that it wields a decisive influence on politics. And in recent decades, people worldwide have woken up to the fact that energy also impacts another key issue: climate change.

China stands out as the world's new energy giant. Here, we see the Shanghai Bund from an unusual viewpoint. © THINKSTOCK

Six key factors in the geopolitics of energy are described below.

China's Rise is Redrawing Global Boundaries

Geopolitics has historically been shaped by the balance between major powers. Looking back over changes in primary energyAll energy sources that have not undergone any conversion process and remain in their natural state.. consumption – a yardstick of economic growth –, two regions stand out: the United States and Europe. In 2000, the U.S. consumed 2,269 million metric ton of oil equivalent (toe)Unit of energy measurement corresponding to the energy produced by the combustion of a ton of oil... (Mtoe) and Europe 1,853 Mtoe, accounting for nearly half of all global consumption. China, in comparison, consumed 1,161 Mtoe. By 2013, the U.S. and Europe had both slightly reduced their consumption, particularly following the 2008 financial crisis, while China exceeded 3,000 Mtoe, supplanting Europe as a global energy powerIn physics, power is the amount of energy supplied by a system per unit time. In simpler terms, power can be viewed as energy output...1.

Other countries also "emerged" between 2000 and 2013. India increased its consumption by 80% and Brazil by more than 50%. Meanwhile Russia, the twentieth century's other postwar superpower, added a mere 18% to its total. These changes have redrawn boundaries all over the world.

The U.S. is Edging Toward Energy Independence

Thanks to the shale gasShale gas is found in deeply buried clayey sedimentary rock that is both the source rock and the reservoir for the gas... boom, the U.S. is now self-sufficient in natural gas and is expected to start exporting by 2016 or 2017. Domestic crude oilOil that has not been refined. production went from covering a third of the country's needs in 2005 to 62% in 2014 (See Close-Up: The U.S. Shale Oil and Gas Revolution). The U.S. new-found self-sufficiency could lead it to take less interest in the internal struggles of the Middle East and even partially disengage. But it seems unlikely that, after so many decades of protecting the Gulf, it would so readily abandon it to other foreign interests (See Close-Up: Forty Years of Oil and Gas Geopolitics).

Fossil Fuels will remain at the Center of Geopolitics for Decades to Come

3,000 Mtoe: China's energy consumption in 2013

One of the looming questions for the coming decades is how to supply enough energy to meet growing demand from emerging economies or, put simply, how to ensure access to resources. According to the baseline scenario put forward by the International Energy Agency (IEA)An independent, intergovernmental organization founded within the framework of the OECD..., fossil fuels (coalCoal is ranked by its degree of transformation or maturity, increasing in carbon content from..., gas, oil) will continue to make up 76% of the global energy mixThe range of energy sources of a region. in 2035, compared to 81% in 2011 (See Infographic: Global Energy Mix from 1990 to 2035)Given that fossil fuels are traded internationally, controlling supply is expected to remain a coveted privilege among world powers. 

Climate Change is Throwing a Monkey Wrench into the Energy System

The established energy system was dealt a serious blow when a new factor entered the equation: the very real threat of climate change. People quickly began wondering how our reliance on fossil fuels could ever be reconciled with a reduction in greenhouse gas (ghg) Gas with physical properties that cause the Earth's atmosphere to warm up. There are a number of naturally occurring greenhouse gases... (GHG) emissions. According to the Intergovernmental Panel on Climate Change (IPCC)Body established by the United Nations Environment Programme (UNEP) and the World Meteorological Organization (WMO) in 1988..., preventing average global temperatures from rising by more than 2°C above pre-industrial levels by 2100 will require more than just a reduction in GHG emissions – it will require net zero emissions from 2060 to 2100. This is currently the topic of multilateral discussions being overseen by the United Nations (U.N.).

Renewable energies are expected to account for nearly a third of electricity production by 2035.

Renewables and Nuclear Energy are Gaining Ground

Apart from emitting only small amounts of carbon dioxide, renewables and nuclear energyEnergy produced in nuclear power plants. The enormous amount of heat released during fission of uranium atom nuclei is transferred to water... have the advantage of being location-specific and, by extension, of not stirring geopolitical tensions, even though manufacturing the equipment remains a high-stakes economic issue. Renewables, particularly photovoltaic solar energyEnergy produced by the photovoltaic effect., are witnessing fast expansion in China, Europe and the U.S. The IEA scenario predicts that they will make up nearly one third of total power production by 2035, hydropower included. Nuclear power is expected to maintain a steady presence, albeit much further eastward in China, India and Russia.

Technologies and Innovation are Potential Game Changers

With each new crisis, technology progresses to offer solutions in areas such as energy efficiencyIn economic terms, energy efficiency refers to the efforts made to reduce the energy consumption of a system..., effective use of biomassIn the energy sector, biomass is defined as all organic matter of plant or animal origin... and heatIn the field of statistical thermodynamics today, heat refers to the transfer of the thermal agitation of the particles making up matter..., electric-powered mobility, production of unconventional and hard-to-access oil and gas and carbon capture and storage. This gives major industrial groups a responsibility for developing these technologies and, consequently, a role to play in geopolitics.

Advances in technology are the driving force behind innovation, which is reflected in the new global balance of power. China is no longer the world's factory, and has gradually moved its focus from "Made in China" to "Designed in China". In fact, according to a December 2014 report by the World Intellectual Property Organization (WIPO), the world's second-biggest economy was responsible for a third of the 2.6 million patent applications filed worldwide across all sectors in 2013.2 

 

Sources :

(1) Enerdata interactive map

(2) The WIPO report