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Energy Security: Potential for EU-GCC Cooperation neither has happened, and if anything, we have witnessed a toughening of conditions for the IOCs. Considering that four out of five countries holding the largest reserves (Saudi Arabia, Iran, Iraq and Kuwait – roughly half of global reserves) are almost entirely off limits, major shifts in the distribution will be possible only if the policies of one or more of these countries were to change. In 2009, Iraq conducted two rounds of bidding, which led to the awarding of 10 service contracts (that is, contracts that do not offer the IOC the possibility of booking reserves) at conditions that are judged as extremely demanding for the companies involved. The future of these contracts is still clouded in uncertainty, but one thing is clear: for the foreseeable future, the IOCs will not have access to equity oil in Iraq. The Kuwaiti government appears to have given in to opposition from the Parliament and renounced “Project Kuwait,” which it had pursued for more than 15 years; but the domestic political situation may evolve and a shift in policy may occur. Finally, Iran has sought greater involvement of the international oil companies for years and blames international sanctions for the difficulties it has encountered. In short, resource nationalism may be viewed as rather normal behavior on the part of governments of oil-producing countries. It may have multiple manifestations and comes in degrees, rarely entirely excluding IOCs from access to resources. Resource nationalism is a manifestation of the fact that each producing country wishes to maximize its share of the rent and limit the companies’ share of the same. It is a market relationship in which each side’s bargaining strength shifts over time. It is a banality to say that more investment would go into finding and producing oil if governments renounced some of their share of the rent and allowed companies to get more of the same. In this sense, resource nationalism restricts oil production; but this is the outcome of producing countries protecting their interest, which is obviously their right to do. Depletion Policies 4 Historically, we find instances in which governments of oil-producing countries conflicted with international oil companies because they felt the latter under-exploited the resources entrusted to them, and in some cases on the other hand, overexploited them. Iraq is a clear case of a long-standing conflict with the international oil companies due to various sources of tension, including that the Iraqi government felt that companies were sitting on its oil resources, without adequately exploiting them. In turn, companies were not willing to invest in Iraq because of persisting conflicts on issues related to taxation and control. The Iraqi nationalization of 1973 was motivated, among other things, by the desire to significantly expand production and exports. Accordingly, Iraqi oil production grew rapidly for the rest of the 1970s, until the war with Iran broke out and production was negatively affected. In most contemporary cases, the international oil companies wish to maximize short-term production provided that good field management practices are followed – it is the local government that in some cases prefers to slow down exploitation and keep more of the oil in the ground. Saudi Arabia is the main case in point. The Kingdom has enunciated a strategy of not exceeding a production level which it may confidently maintain for a period of at least 50 years: no profit-maximizing company would consider such an extended plateau, as the discounted value of oil to be produced 50 years from today is normally deemed very low. According to some statements, Saudi Arabia believes that the maximum level of production defined in this way is 15 million b/d, including some use of currently non-proven reserves. More recently, King Abdullah of Saudi Arabia instructed the national oil company not to further increase capacity, but rather to keep resources for future generations: the impact of this is not entirely clear at the time of writing. However, no other producing country has a similarly clear-cut and explicitly enunciated drawdown strategy. Most producing countries seek to increase their production and exports, while at the same time more or less respecting OPEC quotas
– but compliance with the latter is less than perfect. Outside the Gulf Cooperation Council (GCC), practically all producing countries are concerned with maximizing their production and exports and adopt what they consider appropriate policies to this end. Some countries that at one stage had adopted a resource nationalist attitude later changed course and allowed international oil companies back in. Three notable cases in point are Venezuela, Algeria and Qatar. The Russian Federation may also be included in this list, if we consider the shift in policy that followed the collapse of the Soviet Union. Of these four cases of re-opening, only one has remained unaffected by further changes in policy - that is Qatar. Conclusions on Resource Nationalism In most cases, resource nationalism appears to be motivated by rent maximization. Hence, we see more restrictive policies adopted when prices are increasing, because the producing country’s government feels that whatever arrangements are in place do not allow the country to obtain its “fair share”; and at the same time the government and/or the national oil company will enjoy larger financial resources and will feel that they can undertake whatever investment is needed on their own, without recourse to IOCs. Conversely, when oil prices are low, increasing export volumes will be more important and financial resources for investment will be scarcer: the contribution of IOCs is more attractive. The range of attitudes depends primarily on structural factors rather than political or ideological inclinations. Some countries – primarily those endowed with larger reserves – find nationalist attitudes more attractive than others, while a large number of countries – notably those endowed with relatively smaller reserves – never seriously considered excluding IOCs. It may appear that some countries are prisoners of ideological limitations which they would like to shrug off but cannot (Mexico? Kuwait? Iran?). But then one should not underestimate the nationalist sentiment in domestic public opinion (Russia, Venezuela, Iraq, and Kuwait). Looking towards the future, no fundamental Threats to Oil Supply Security shift is to be expected in the current pattern. Rather, there will be oscillations, with some countries opening up at times and closing off at other times, depending on circumstances such as price levels, availability of resources, need for expensive EOR technology and the like. At the same time, some countries will surely remain almost entirely closed, and others will continue to rely on IOCs, as they have done until now. In the light of recent developments in Iraq, it is likely that this crucially important country will open its doors only marginally. IOCs will be allowed to operate on the basis of production sharing agreements in the Kurdish region in North Iraq; but elsewhere in the country they will be confined to service contracts. Now that several large service agreements have been concluded, Iraqi production may well increase rapidly. Much will depend on the implementation of these agreements and on the improvement in security conditions in the country. 1.1.2 Restrictions on exports Resource nationalism restricts access to resources to national players; restrictions on exports are policies through which exports of oil and gas are controlled even if access to resources is not limited and IOCs are allowed to invest and operate. Generally speaking, the existence of restrictions on exports will discourage IOCs from investing in the country. Export Policies In some cases, we see countries adopting policies that simply prohibit export of hydrocarbons. This is seen most frequently in the case of natural gas – in some cases also for specific petroleum products such as gasoline – as a move to protect domestic supplies. Policies banning or restricting the export of natural gas are notable and more widespread than commonly realized. The rationale is very simple: natural gas is a resource which should be reserved to fuel national development. Countries producing both oil and gas frequently view oil as destined primarily for export, and gas as reserved for domestic consumption.
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(Parliament) which favors the use o
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of unconventional gas, has already
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Geopolitical Issues of Europe’s F
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• • • • • • • • •
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SESSION V: Renewable Sources in EU-
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• technologies, overall technical
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Figure 2: Overview of Opportunities
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onshore (378 TWh/yr), large-scale h
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world. Hence, renewable energy supp
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case. Figure 8 shows the developmen
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Overview of RES Characteristics and
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keep the RES surcharges for the ene
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in the electricity sector, particul
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References • • • • • •
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Gulf Research Center Foundation
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