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Dr. R.H. Rusli
CITI Institute

The Oil Paradigm Shift.

Since the middle of the first decade of the twenty-first century, energy security has been among the highest priorities in the security strategies and policies of developed countries. The potential risks and threats related to energy security mainly grew out of two circumstances: the predicted upcoming production peak of hydrocarbon resources vital for the modern economy, and the security of their supplies.

Two key factors in the past years, however, have dramatically changed the energy sector. The first factor is the global economic crisis of the 2010s, and the other is the strategic shock from the yield of non-conventional hydrocarbon resources. Today, energy security policy requires a paradigm shift and a new model of factors and conditions for its implementation. This article offers an analysis and assessment of the changes demanding the new paradigm of efficient energy security that is adequate to the changed realities of energy markets and global economic development.

Dr Richards told at Chatham House, that major structural shifts were now altering the balance of power amongst industry players. One of the key drivers of this shift is the demand for oil in the developing world which is projected to overtake that in industrialised countries for the first time this year. He described the recent news that China has reached the position of the world's largest importer of crude oil, surpassing the US for the first time, as a ‘paradigm shift’.

In UK terms changes are taking place in the types of companies operating in the North Sea that reflect these global changes. From a landscape dominated by the supermajors just a decade ago, the North Sea now plays host to a truly international line-up of new players – many of them national oil companies.

Dana Petroleum was acquired by KNOC in 2010, as part of an ambitious plan to reach 1.2 million barrels of oil production by 2030. It is an example in microcosm of the changing dynamics of the market. South Korea was at the forefront of a trend that saw successive historical producers in the UK North Sea change hands to serve the growing appetite of emerging economies for resources, technology, skills and expertise. China's CNOOC and Sinopec are now among the largest oil and gas producers in the UK North Sea, through their acquisitions of whole or part shares in Nexen and Talisman. The Abu Dhabi National Energy Company has also created a significant footprint through TAQA’s acquisition of upstream and midstream assets of Shell and BP, among others.”

The make-up and geography of oil is changing. The international Energy Agency (IEA), projects that several new oil types will be introduced into the market to replace the loss of nearly 50 percent of conventional oil by 2035. Yet despite expert warnings, global policymaking communities lack a comprehensive understanding of the changing composition of the oil supplies and their impact on the global climate. Brenda Pierce of the U.S Geological Survey, Jim Burkhard of HIS-CERA, the Washington Post Juliet Eilperin, and Carneige’s Deborah Gordon discussed the world of unconventional oil and the paradigm shift underway in the petroleum resources.

The risks to energy security in importing countries caused by energy-producing countries could be the result of either intentional or unintentional actions. First, the growth of unfavorable consequences from the “resource curse” increases the likelihood that producing states will intentionally act in the context of “resource nationalism.” Second, the political and economic consequences of the “resource curse” could have undesirable negative effects on political stability in energy-producing countries and thus threaten energy security. The revolutions that took place during the so-called Arab Spring in North Africa and the Middle East have proved that the main destabilizing political and economic factors in the region result from the negative effects of the “resource curse,” and they can not be considered as applying only to a specific country.

Since it is impossible to predict what impact such instability may cause, or when it is most likely to occur, destabilizing trends in energy-rich countries that are victims of “resource curse” need constant attention. This is particularly true for the energy security of the European Union, which is surrounded by energy-rich countries, including Algeria, Libya, Egypt, Syria, Azerbaijan, Iran, Turkmenistan, Uzbekistan, Kazakhstan, and Russia. These are countries that are either major sources of energy supply for the EU or represent potential sources of diversification. It could be argued that many of them show symptoms of resource curse and rentier state structures.

Some—such as Russia, Turkmenistan, and Egypt, for example—sometimes explicitly manifest behaviors of resource nationalism. The United States also faces similar risks arising from its dependence on imported resources from the Middle East and Latin America when these countries share characteristics similar to the “resource curse” (e.g., Venezuela).

The negative effects of the “resource curse” are a factor not to be underestimated in the old but still functioning paradigm of energy security while developing strategies for the diversification and security of supply. Emerging new trends in the energy sector suggest some decrease in the role of the behavior of rich countries on energy security especially petroleum resources that tied to the petrodollar.