February 13th, 2007:

This material was prepared as part of the project The World Around Russia: 2017. The project is being implemented by a group of experts, headed by Sergei Karaganov, from the Council on Foreign and Defense Policy, the Department of International Economics and International Politics of the Higher School of Economics, the Institute of Strategic Studies and Analysis (ISSA), the Institute of Europe and other organizations, with the support of Rio-Center. The main authors of this material are Vagif Guseinov, ISSA Director; Alexei Denisov, ISSA Deputy Director; and Alexander Goncharenko, expert with the Socio-Economic Information Bureau.

The global energy market is going through large-scale changes, some of which may reach their final phase by 2017. There are increasing signs that the traditional code of relations between energy producers and consumers, established in the last quarter of the 20th century, is becoming a thing of history. Mechanisms for regulating the global energy market no longer work. Competition between consumers, fueled by the emergence of new powerful players, like China and India, is obviously increasing.

Oil fields that are situated close to the developed countries, where oil price-hikes in the 1970s-1980s prompted oil production, are now near exhaustion. Today, large-scale investment is required in new oil-bearing areas in West Africa, Central Asia, the Caspian region and Russia in order to replace depleting oil fields. A new energy reality is taking shape in the world.

GENERAL SITUATION

The world’s key energy players include:

The United States – the world’s largest oil consumer (24.6%). It imports more than one half of the oil that it consumes. The United States is also the world’s leading importer of natural gas (16% of global imports);

The Middle East accounts for 61% of global oil and 40.1% of natural gas reserves, which makes it a crucial regional factor in the energy strategies of the world’s largest consumers;

The largest oil producers in the Middle East are Saudi Arabia (22% of global proven oil reserves, 13.5% of global oil output), Iran (14.9% of proven natural gas reserves, 11.5 of proven oil reserves), Iraq (9.6% of proven oil reserves), and Qatar (14.3% of proven natural gas reserves);

Russia possesses 26.6% of global natural gas reserves, 6.2% to 13% (according to different estimates) of global proven oil reserves, and about 20% of known coal reserves. The country is the world’s leading pipeline gas supplier and the world’s No. 1 oil exporter (together with Saudi Arabia). More than 90% of Russian energy exports today go to European countries;

China, the world’s fastest growing energy consumer, accounts for 31% of global oil consumption growth in 2004. In the past 40 years, oil consumption in China has grown more than 25 times over and is now at 8.55% of global consumption;

The EU, which accounts for only 3.5% of global proven gas and less than 2% of proven oil reserves (mostly in Norway and the UK). At the same time, oil and gas deposits in Europe are exploited far more intensively than in other parts of the world, which leads to the rapid depletion of reserves. Western Europe consumes 22% of the world’s oil supplies, while Germany is the world’s second largest gas importer (14%). The main problem for the EU is its growing dependence on energy imports: by 2030, oil imports to the EU will grow from 76% to 90%, gas imports from 40% to 70%, and coal imports from 50% to over 70%.

Today, the situation on the global energy market is characterized by the following factors:

• oil is a global source of energy, and natural gas is primarily a regional source, while coal is a local source of energy;
• while consumption of hydrocarbons is growing rapidly, there will not be alternative energy sources in the foreseeable future;
• a rapidly rising need for energy resources in the emerging Asian economies amidst their ongoing economic development, rapid population growth, and the extremely high energy usage of national economies;
• the widening gap between the volume of hydrocarbon consumption (growth) and production (decline) in developed countries;
• limited production growth opportunities increase market destabilization risks;
• the global economy is experiencing a shortage of oil and natural gas;
• a shortage (temporary) of oil refining and transport facilities, together with a lack of additional oil production capacities;
• large industrial consumers are showing a marked interest in alternative energy sources;
• the growing importance of liquefied natural gas production and delivery projects;
• interest in nuclear energy is reviving in some countries;
• in the past few years mergers have been occurring exclusively within the limits of one country or a common geopolitical space as assets available for mergers and acquisitions are decreasing; and growing political risks in hydrocarbons-rich regions.[1]

The global energy situation is marked by a deepening of contradictions that will remain throughout the period under review.

The conflict potential inherent in the distribution of oil resources in the world is the primary cause of geopolitical tensions. While the main consumers of oil are highly developed countries or emerging giants, the bulk of global hydrocarbon reserves is concentrated in a relatively small group of developing countries or transitional economies. This contradiction is a basic factor in the behavior of key market players. Such large consumers as the U.S., the EU and China are concentrating both economic and political resources on expanding on the same market, which leads to competition between them. The fact that the majority of resource-rich countries are politically unstable sets the stage for future upheavals on the world energy market, while opening some opportunities for Russian expansion. read more

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