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PETROLEUM GEOPOLITICS : A FRAMEWORK OF ANALYSIS
A Thesis Submitted for the Degree of PhD
University of St Andrews
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This item is protected by original copyright Petroleum Geopolitics: A Framework of Analysis Rupert Herbert-Burns A Thesis Submitted for the Degree of Ph.D at the University of St. Andrews April 2011 Abstract The playing field upon which actors, both state and non-state, develop strategies to secure existing supplies of oil and seek access to new ones is as systemically, politically and strategically complex is as it is geographically vast. In considering this activity, the terminology used by pundits and journalists to describe the significance of issues such as oil demand, the complexities of access to petroleum and concerns over security threats to supplies of oil is familiar. Juxtapositions such as the ‘geopolitics of oil’, ‘energy geopolitics’, the ‘geopolitics of resource wars’ and the ‘geopolitics of oil and gas’ are all familiar. But what do they mean when they use ‘geopolitics’ in this context? Thus, by extension, can petroleum geopolitics - a hybrid conceptual construction used in this thesis - be disassembled into its component parts, analysed and systematically understood. This is the aim of this thesis.
This thesis contends that the very nature of oil and gas reserves, the processes of exploration and production, and the means that govern and characterise the transportation of petroleum overland and by sea is inherently geopolitical - that some core features of geopolitical theory and key geopolitical concepts are pivotal in determining the ontology and process of the international oil business. Indeed, so central has oil been to the advancement of industrial capacity, technology, warfare, transportation and economic prosperity of states since the 20th century, it could be argued that petroleum is the single largest determinant of the geopolitics that characterises the modern international system.
In order to address the interrelationship and correlations between core aspects of the petroleum industry and causal geopolitical phenomena, I begin by advancing a framework of
analysis that systematically binds key geopolitical features and concepts – specifically:
Spatial Phenomena; Environmental Ontology; Territorial Access; Geopolitical Features;
State and Non-state Concepts; and, Strategic Resources and Geopolitics - with examples of empirical findings revealed in subsequent chapters in the thesis. Fundamentally, this process works to assess causality and correlations between geopolitical phenomena such as space and distance, sovereignty, territory, boundaries, chokepoints, resource nationalism, transnationalism, resource security and conflict, and the features and processes inherent in petroleum reserves and the exploration, production and transportation of oil and gas.
The framework is followed with a sequential analysis of the three empirical foci of the project: the ontology of oil and natural gas reserves; the planning and processes of exploration and production; and, the processes of the conveyance petroleum. I have concentrated my research to activities within Eurasia, which comprises the traditional continents of Europe and Asia, and the Indo-Pacific maritime realm, which extends eastwards from the Red Sea to the western Pacific Rim. After systematically assessing the empirical findings and examining key areas of geopolitical theory, I conclude that there is an identifiable and logical correlation between geopolitical phenomena, petroleum reserves, and the means to produce and distribute oil and gas between source and market.
Firstly, I would like to thank my supervisor, Dr. Rick Fawn, for his endless and unfaltering support for my work on this thesis over the years in which I have been studying from afar.
Despite my not being resident at the university during this project, Dr. Fawn has always managed to provide insightful, focused and pivotal advice and guidance throughout by phone and e-mail. I am particularly grateful to him for his encouragement and help during the last several months as I put in the final ‘surge’ to get the thesis ready for submission and examination.
I would also like to make special mention of my wife, Haya Herbert-Burns, who has given me the encouragement and love that I needed to see this through. Simply put, I would not have been able to complete this project without her unselfish support; my deepest love and thanks to her for everything. My profound thanks go also to all my family and friends for their support throughout.
There are many individuals that gave me very useful technical advice and guidance during the course of my studies, and to those individuals I offer my sincere thanks. I would like to like to make particular mention of the following: Bill Vlcek, Sergei Vinogradov, Mary Kettle, Amit Pandya, Mark ‘Bruce’ Roberts, Colette Finlay, Daryl Williamson, Ellen Laipson, Magnus Ranstorp, Hans Tino Hansen, James Lloyd, James Davis, Jason Franks, Paul Wilkinson, Peter Dodd, Peter Lehr, Raad Alkadiri, Robert Johnston, Rosemarie Forsythe, Sam Bateman, Scott Campbell, Tom Holroyd and Wally Mandryk.
ABOT Al Basrah Oil Terminal ACG Azeri-Chirag-Gunashli oil field APEC Asia-Pacific Economic Cooperation ASEAN Association of Southeast Asian Nations BBL/D Barrels per day BBLS Barrels BOE Barrels of oil equivalent BTC Baku-Tblisi-Ceyhan Pipeline CACP Central Asia-China Pipeline CIA Central Intelligence Agency CIS Commonwealth of Independent States CMT Ceyhan Marine Terminal CNOOC Chinese National Offshore Oil Corporation CNPC China National Petroleum Corporation CPC Caspian Pipeline Consortium CTL Constructive Total Loss DOE U.S. Department of Energy E&P Exploration & Production EBRD European Bank for Reconstruction and Development EEZ Exclusive Economic Zone EIA Energy Information Agency ENT Effective National Territory EOR Enhanced oil recovery ERT Effective Regional Territory EU European Union FPDA Five Power Defence Agreement FPSO Floating, production & storage unit FSO Floating storage unit FSU Former Soviet Union GDP Gross Domestic Product GGC Gulf Cooperation Council GNP Gross National Product GTL Gas to Liquids H2S Hydrogen Sulphide IBRD International Bank for Reconstruction and Development IEA International Energy Agency ILSA Iran-Libya Sanctions Act IMF International Monetary Fund INOC International National Oil Company IOC International Oil Company IPC Iraq Petroleum Company IPSA Iraq Pipeline to Saudi Arabia ISA Iran Sanctions Act KCP Kazakhstan-China Pipeline KCTS Kazakhstan Caspian Transportation System KHAOT Khawr Al Amaya Oil Terminal KMG KazMunaiGaz LNG Liquefied Natural Gas LPG Liquefied Petroleum Gas xv MBD Million barrels of oil per day MMBLS Million barrels of oil MMt Million metric tons MMt/y Million metric tons per year NGL Natural Gas Liquids NGO Non-Governmental Organisation NIOC National Iranian Oil Company NOC National Oil Company OECD Organisation for Economic Co-operation and Development OPEC Organization of the Petroleum Exporting Countries PdVSA Petróleos de Venezuela, S.A.
Q-Flex Class of LNG carrier with a cargo capacity of 210,000 m³ to 216,000 m³ Q-Max Largest class of LNG carrier with a cargo capacity of 266,000 m³ R/P Reserves to production ratio SCO Shanghai Cooperation Organisation SCP South Caucasus Pipeline SEC Securities and Exchange Commission SEE Strategic Energy Ellipse SLOC Sea Lines of Communication SPC Singapore Petroleum Company SPE Society of Petroleum Engineers SPM Single Point Mooring SPS Strategic Petroleum Stream Tcf Trillion cubic feet Tcf/y Trillion cubic feet per year Tcm Trillion cubic metres TSA Technical Sharing Agreement UAE United Arab Emirates ULCC Ultra Large Crude Carrier UN United Nations UNCLOS United Nation Convention of the Law of the Sea USGS United States Geological Survey VLCC Very Large Crude Carrier YtF Yet to Find
‘The spice must flow…’ – Frank Herbert1 In the second quarter of 2010, China surpassed Japan to become the second large st economy in the world behind the United States; based on current growth trends, China’s economy will eclipse that of the U.S. to become the largest in the world by 2027. 2 In 2010, India’s economy expanded by 8.5% and some observers suggest that India’s economy will grow faster than any other large country over the next 25 years.3 In 2010, the IMF projected that by 2030, Asian GDP will exceed that of the western countries within the Group of Seven major industrial economies (G-7).4 Admittedly forecasts change and economic health, even on a global scale, can wane considerably when viewed over long cycles, as evidenced by the global financial crisis that started in 2007. Nevertheless, this long-term expansion in Asia over the next two decades will require enormous quantities of energy; principally in the form of increasing imports of oil and gas for power generation and transportation.
Released in November 2010, the International Energy Agency’s World Energy Outlook 2010 (WEO 2010), which forecasts energy trends out to 2035, revealed that over this period nonOECD countries will account for 93% of projected increases in global primary energy demand; driven by faster growth rates of economic activity, industrial production, population and urbanisation, primarily in Asia. This expansion will be led overwhelmingly by China, which accounts for 36% of projected global energy use growth over the next quarter century, with its aggregate energy demand rising by a massive 75% in the same period. By 2035, China will account for 22% of total world energy demand. India’s requirements will also be considerable, with its demand amounting to 18% of total global requirements; however, the U.S. will remain the world’s second largest energy consumer behind China.5 Notwithstanding the increasing contribution of renewable forms of energy – such as bio fuels, geothermal, hydropower, solar and wind - oil and gas will continue to dominate the energy mix during this period. According to projections in BP’s Energy Outlook 2030, global oil demand is likely to exceed 102 million barrels of oil per day (Mb/d) by 2030, with nonOECD Asia accounting for more than 75% of net global increase. 6 Unsurprisingly, China is the largest driver of this growth, with consumption reaching 17.5 Mb/d by 2030, overtaking the U.S. to become the world’s largest oil consumer. Overall, non-OECD consumption is 1 projected to overtake the OECD countries by 2015, approaching some 61 Mb/d by 2030, twice the levels used at the beginning of the 1990s.7 The demand requirements for natural gas have an even more pronounced trajectory, which is forecast to be the fastest growing fossil fuel out to 2030. In keeping with the aggregate energy demand growth picture revealed above, Asia accounts for the largest increase in both production and consumption, with China driving 56% of the continent’s consumption growth.
Certainly, the petroleum demand picture depicted above is startling; however, this is only one side of the story. Demand must be met by supply, both in terms of dependable access to sources of oil and gas and a secure means of its transportation and distribution. It is the inescapable strategic importance of this reality that asks why a clear understanding of the interrelationship between petroleum reserves, its production and means of conveyance, and the geopolitics that determines, and is shaped by, this process is both essential and worthy of study.
Early 21st Century Petroleum Production and Distribution Landscape 1.1 The present-day playing field upon which actors, both state and non-state alike, develop strategies to secure existing supplies of oil and seek access to new ones is as systemically,
politically and strategically complex is as geographically vast. The range of actors includes:
IOCs, NOCs, INOCs, diplomats and statesmen, financiers and bankers, oil service companies, seismic companies, geologists, security firms, ship-owners and terminal operators, to name
some of the most common. The activities of aforementioned actors are numerous and varied:
governments need to invest in upstream projects to ensure the energy security required to sustain economies; IOCs must strive for future growth in all sectors to satisfy shareholders;
governments will endeavour to gain geopolitical advantage over vital oil transit territory to ensure conveyance control; a French IOC and a Russian INOC find themselves compelled to engage in complex gas exploration and production partnerships because of the need to share financial burdens and offshore production technology; and, militaries, INOCs and tanker crews need to cooperate and exchange information to help ensure the security of vital crude oil export routes.
When the industry is viewed in its totality, these actors and activities exist within, and combine to shape, a petroleum world that produces approximately 80 million barrels of oil per day in 113 states, worth some $7 billion. Each year, roughly 3 trillion cubic metres of natural 2 gas are produced in 90 countries, of which 240 billion cubic meters was shipped as liquefied natural gas (LNG) across most of the world’s oceans to 22 countries. Amidst an estimated global proven reserve base of 1.352 trillion barrels of oil, located in 97 countries around the world,8 a new balance of power between oil companies has taken hold that will determine much of the complexion of petroleum geopolitics for the coming decades.