geopolitics of energy: new trends in the energy...

Geopolitics of Energy:

new trends in the energy

scenario

Luiss Guido Carli, Roma

14 November, 2016

Outline

• Defining variables: Geography, Politics, Energy

o What is Geopolitics

o What’s new in politics: geostrategic trends

o New trends in the energy scenario

• Matching variables: major energy trends

o Russia after the Crimea crisis

o MENA and the Gulf: persisting uncertainty?o Some examples: Libya, Syria, Yemen and Iran

o The shale gas (r)evolution and the development of LNG market

• Connecting dots

Defining variables:

Geography, Politics, Energy

What is Geopolitics

“Geopolitics may be defined, crudely, as the

influence of geography upon politics : how

distance and terrain and climate affect the affairs

of states and men. Because of geography, for

example, Athens was a thalassocracy – a sea

empire – whereas Sparta was a land power”

Sir Halford MackinderDirector of the London School of Economics and founding father of geopolitics

(1861-1947)

A minimal definition of Geopolitics

A comprehensive definition of Geopolitics

• Geopolitics is the study of behaviors of States throughout

the relation among politics and geography, in past, present

and future times.

• This discipline considers that land and sea areas, as well as

population, locations, natural resources, are of strategic

and pivotal value in defining international relations at

political and economical level.

• Energy geopolitics is a recent evolution of the traditional

geopolitics, which considers energy crucial in defining geo-

strategical relations.

The energy geopolitics “toolbox”

• Politics to know interests and players

• Geography to know places and borders

• Energy to know available resources and technologies.

These three variables have to be matched to produce

a good geopolitical analysis

…but it is not an easy task…

…many data and information…

…from data to wisdom…

…sometimes there are good examples…

…other times, bad ones…

What’s new in politics:

geostrategic trends

Europe’s persistent decline

2011 2014

Russia-Ukraine crisis and the Crimean war

ISIS declares the Islamic Caliphate

Ebola becomes a global health crisis

International negotiations over the Iranian nuclear program

Attempting appeasement in U.S.-Cuba relations

Elections in India

U.S. Elections 2016

China’s GDP overcome USA’s

The price of oil plummeted

New trends in the energy

scenario

Global population and GDP increase

BP Energy Outlook 2035, February 2015

Primary energy consumption growth slows

BP Energy Outlook 2035, February 2015

The slowdown in demand growth from industry

BP Energy Outlook 2035, February 2015

Fossil fuels continue to provide most of the world’s energy

BP Energy Outlook 2035, February 2015

Energy supply is boosted by unconventional oil and gas

BP Energy Outlook 2035, February 2015

Shale gas and tight oil are thought to be abundant

BP Energy Outlook 2035, February 2015

Drivers of tight oil and shale gas supply in the US

BP Energy Outlook 2035, February 2015

The shifting geography of supply and demand

BP Energy Outlook 2035, February 2015

Picking the main energy trends

BP Energy Outlook 2035, February 2015

• Russia remains the world’s largest primary energy exporter

and the second largest oil and gas producer, with net

exports of 712 Mtoe and total oil and gas production of 1236

Mtoe by 2035.

• The Middle East remains the largest net energy exporter,

but its share falls from 46% in 2013 to 36% in 2035. The

share of production exported, however, declines from 70% to

63% by 2035 as regional demand grows faster than supply,

increasing the domestic utilization of oil. It is projected that

the region’s population will expand 37% by 2035 and that

GDP grows by 88%.

• US switches from being a net importer of energy, to a net

exporter this year (2015).

Matching variables: major

energy trends

Russia after the Crimea

crisis

• Russia remains the world’s largest primary energy exporter

and the 2nd largest oil and gas producer, with net exports of 712

Mtoe and total oil and gas production of 1236 Mtoe by 2035.

• Russia’s primary energy production grows by 14% between

2013 and 2035. The country’s share of global energy

production declines slightly, from 10% in 2013 to 9% in 2035.

• Natural gas production (75 Bcf/d in 2035) is the second

largest in the world. Yet, unlike in the US (the largest

producer), most production comes from conventional reservoirs.

• Fossil fuels account for 87% of primary energy

consumption in 2035, slightly below 2013. Natural gas

dominates the fuel mix with 53% - the same as in 2013.

Russia: facts & figures

BP Energy Outlook 2035, February 2015

Estimated US, Russia and Saudi Arabia petroleum and

natural gas production, 2008-2013

EIA Annual Energy Outlook, 2013

Dear old European customers

Gas prices in Europe ($/tcm): not a market-based approach

…through the north stream pipeline…

…through the blue stream pipeline…

…and through Ukraine

2014: Russia took over Crimea from Ukraine

First move: EU-US sanctions to Russia

EU-Ukraine-Russia: other instruments of retaliation

Russian countermove: looking for new partners

Cooperation with China

Pleasing Chinese appetite for energy

MENA and the Gulf:

persisting uncertainty?

• Among exporting regions, the Middle East remains the largest

net energy exporter, but its share falls from 46% in 2013 to

36% in 2035.

• The middle east will be the second supplier of LNG (2014-

2020) after the US. In the decade (2020-2030) Middle East

production will expand.

• Middle East output increases by a little over 5 Mb/d by 2035.

• The share of production exported, however, declines from

70% to 63% by 2035 as regional demand grows faster than

supply, increasing the domestic utilization of oil.

MENA and the Gulf: facts & figures

BP Energy Outlook 2035, February 2015

BP Energy Outlook 2035, February 2015

Keeping supply disruption in MENA/Gulf Region

Instability in the Middle East, a major risk to oil markets

• Since the advent of the Arab Spring in 2011, supply disruptions

have once again become a key feature in oil markets, reaching 3 Mb/d

in 2014.

• Libyan production fluctuated throughout the year, civil war limited

output from Syria, unrest continued in Nigeria, the Sudan and

Yemen, and international sanctions on Iran limited output.

• Total supply disruptions in 2014 were well above the historical

average of roughly 400 Kb/d. The historical peak in supply

disruptions -of a little over 4 Mb/d- was reached in 1991, as a result of

the Iraq-Kuwait war and the collapse of the Soviet Union.

• Heightened levels of geopolitical risk and uncertainty suggest

that supply disruptions may well remain elevated through the

medium-term.

Keeping supply disruption in MENA/Gulf Region

Some examples: Libya,

Syria and Iran

Libya is a member of the

Organization of the Petroleum

Exporting Countries, the holder

of Africa's largest proved crude

oil reserves, and an important

contributor to the global supply

of light, sweet crude oil.

Libya: proved reserves

Libya's rank as a producer and

reserve holder is less significant

for natural gas than it is for oil.

In 2011, Libya's oil exports suffered a total disruption during the civil war, and the sporadic

production that occurred was consumed domestically. Libya's oil production recovered in

2012, but remaining lower than levels prior to the civil war. In 2013 and 2014, Libya

experienced major swings in its crude oil production. Libya typically exports most of its

crude oil (70% to 80%) to European countries, with Italy being the leading recipient.

Libya: imports and exports of oil&gas

Libya's natural gas production was almost entirely shut in 2011. Natural gas production

soon recovered in 2012 and stayed relatively unchanged in 2013. About half of its natural

gas production is exported to Italy via the Greenstream pipeline.

Syria’s energy challenge

Syria's oil and natural gas production has declined dramatically since March

2011 because of the conflict and because of the subsequent imposition of

sanctions especially by the United States and European Union.

Syria: imports and exports of oil&gas

Syria's crude oil exports have declined significantly since 2011, and the

country is having difficulties importing refined petroleum products.

Syria does not currently possess the ability to export liquefied natural gas

(LNG), nor are current production levels sufficient to justify exporting natural

gas volumes via pipeline.

• Iran holds the world's fourth-largest proved crude oil reserves

and the world's second-largest natural gas reserves. Despite the

country's abundant reserves, Iran's oil production has

substantially declined over the past few years, and natural gas

production growth has slowed: international sanctions have

profoundly affected Iran's energy sector.

• Sanctions have resulted in cancellations of new projects by a

number of foreign companies, while also affecting existing projects.

Following the implementation of sanctions in late-2011 and mid-2012,

Iranian production dropped dramatically.

• Although Iran had been subject to four earlier rounds of United

Nations sanctions, the much tougher measures imposed by the

United States and the EU have severely hampered Iran's ability to

export its oil, which affected Iran's oil production.

Iran facing international sanctions

Iran: imports and exports of oil

Iran: imports and exports of oil

Iran is the 2nd proved natural gas reserve holder in the world, behind Russia. Iran holds

17% of the world's proved natural gas reserves and more than 1/3 of OPEC's reserves.

However, the vast majority of Iran's gas reserves are undeveloped and exploration is not a

priority of the iranian Government

Iran: imports and exports of gas

The shale gas (r)evolution

and the development of the

LNG market

World Shale Resources

U.S. ENERGY INFO. ADMIN, (June 2013), available at http://www.eia.gov/analysis/studies/worldshalegas/pdf/fullreport.pdf

Shale resources are widely dispersed throughout all regions of the world, but

the United States has the best conditions

Shale Oil and Shale Gas resources

US supremacy in shale gas production

McKinsey Global Institute, July 2013

US shale gas resources

U.S. Energy Information Administration, EIA www.eia.gov/oil_gas/rdp/sgale_gas.pdf

US natural gas production by source

EIA Annual Energy Outlook, 2014

• From 2006 to 2013, US shale gas production grew from 29 Bcm to 265 Bcm(increase from 5.5% to 38.7% of total US natural gas production).

• The US shale revolution had a material impact on global LNG markets and trade,albeit indirect and partially offset by other major global events such as theFukushima earthquake in Japan.

• US shale production contributed to a substantial reorientation of the global LNGmarket by removing many projected US LNG demand from the market.

• The increase of shale production progressively reduced the US appetite forimported LNG from Qatar and other supply sources. This occurred just as QatariLNG production capacity grew to its peak, Russia and Yemen joined the fleet ofglobal suppliers and the global financial crisis and surging oil prices in 2008-2009precipitated a global softening of energy demand.

• Finally, the Fukushima accident (03/11) led the Japanese Government to shutdown all nuclear reactors, re-tightening the global LNG markets that began toreverse these trends. LNG imports grew of about 25% to support the thermalpower needed. The Japanese LNG demand has absorbed the global surpluses.

Shale gas as a game changer

Sheiks vs. Shales

Global LNG Trade in 2006

Before the shale boom became well-established in 2010, US was

considered the global LNG import market

ENERGY LAW JOURNAL, Volume 35, No. 2 2014

Global LNG Trade in 2013

After the shale gas revolution, the US became global exporters, mostly

converged to the Asian market

ENERGY LAW JOURNAL, Volume 35, No. 2 2014

Price Evolution for Oil, Natural Gas, and LNG

Before 2011 LNG oversupply contributed to the decline of spot price for natural gas

in NW Europe and short term price for LNG in Asia.

This, combined with high oil price and oil index

Bloomberg Energy, 2014