Topic #1 Globalisation: operators, process and territories

Case study #1 : Oil, a globalized product

1) The most demanded commodity

A F14 jet afterburning during a take off from an aircraft carrier

An early oilfield in Pennsylvania around 1862

Since the second industrialisation, in the late XIXth century, oil has become a strategic raw material.

Supermarket shelves in Portland , Or.

Aerial view of a motorways interchange in Los Angeles, Cal. Before, and moreover after WW2, industrialized countries, and especially the USA, got accustomed to a cheap and abundant oil : Industrial development and society of abundance (which implies a massive consumption of goods and services) were needing fuel.

Per capita world energy consumption, calculated by dividing world energy consumption shown in Figure 1 by population estimates, based on Angus Maddison data.

• How has evolved the world’s energy consumption?

• To what changes do you relate this evolution?

http://news.mongabay.com/bioenergy/2007/10/leading-scientists-energy-crisis-poses.html

• What is the share of oil in the world’s energy consumption?

• What could be the feeling of developed countries about oil production in the years spanning from 1900 to 1970?

-Oil production seemed to be able to grow indefinitly. -This is typical of the "The Glorious Thirty« , 5% average annual GDP growth rate

Oil consumption per year, million of tons

BUT…

1 barrel: 159 L

The Banyas oil terminal in Syria after being ignited with 76 mm shells fired from Israeli Saar boats

Egyptian forces crossing the Suez Canal on October 7, 1973.

Reacting to their defeat against Israël during the Kippur war in 1973, the Arab countries controlling the OPEC raised steeply the oil price. It caused the « oil crisis »

Iranian students take over the US embassy in Teheran, Nov 4, 1979

52 Americans were held hostage for 444 days from November 4, 1979, to January 20, 1981.

Oil consumption per year, million of tons

During the oil crisis, developed countries have: • encouraged the development of alternative energies (gas or nuclear energy) • launched energy saving plans Due to the high prices, consumers have changed their behaviors

Ras Tanura (Saoudi arabia) world largest oil harbour during the 70’s

CMA CGM Marco Polo, world largest containership in 2012 with 16000 TEU (Twenty-foot Equivalent Unit)

On the whole, the oil demand & production has grew up dramaticaly. There are two essential reasons for this continuing growth: -first, globalization means more flows, and more flows implies more transports, which need oil. 60 % of oil is used by transports !

Bbl = Barrel of crude oil (=159 liters)

-then, globalization has triggered the industrialization of new countries (eg. China), whose industries need energy and raw materials, and in which a new frenzied middle class adopts western standards of consumption.

http://www.growthstockwire.com/2561/the-great-chindia-oil-grab

• What is the latest trend regarding oil production?

Oil consumption per year, million of tons

Production has been growing slowly since the 80’s, and is stagnating since 2005.

As a fossile fuel, oil stock will be over one day. The peak oil is the point in time when the maximum rate of extraction of petroleum is reached, after which the rate of production is expected to enter terminal decline

By 2012, what were the consequences of such a situation ?

However, predicting the peak oil’s very moment would be a bit risky… Technological improvements…

A rig near Stanley, North Dakota (USA), extract shale oil thanks to the fracking technology. Photograph by Karen Bleier, AFP/Getty Images

Perdido offshore rig in Mexico gulf : a 2500m depth drilling site

… delay the moment humanity will be short of oil.

2) The global oil system

ACTORS…

How could you describe the global oil market? • What are the main elements of

this market? • Which correspondence appears

between development and consumption?

• What are the consequences of the shift between consumption and production areas?

Source: BP Statistical Review of World Energy.

Source: BP Statistical Review of World Energy.

Mapping the global oil market shows that there are - production areas - and consumption areas. … and they’re not exactly at the same place !

Logically, consumption areas are mainly industrialized or emerging countries. (G8>50%)

This situation is not about to change since the expected reserves are still concentrated in the middle east (>60%)

- Why is the Middle East a strategic oil area? proven oil reserves

PLACES…

How do you account for the oil flows’ geography? Are the consumers or the producers the more mighty?

We can see huge oil flows between production and consumption areas. Oil remains the world most transported product (considering weight). It is a stake for an importer to secure its supplies, and a temptation for a supplier to use oil as a weapon: geopolitical issues overhang the oil market (see part 3)

What are the main means of transportation used for oil? What are the advantages ands drawbacks of each, in a geopolitical perspective ?

Ras Tanura, Saudi Arabia

FLOWS…

•Oil prices depend on demand and supply, and are mainly set in two places :

•-NYMEX : NY Mercantile Exchange, which is a stock market (photo)

•-ICE (Intercontinental Exchange, which is a forward market based in London)

OPERATORS…

•3°) Geopolitical, geoeconomic and geoenvironmental issues

•a) Oil and money : financial issues

•For producing countries, oil is a huge (if not only) source of income.

Their wealth highly depends on the prices’ fluctuations.

Oil producers invest through sovereign wealth funds.

“The QIA was founded by the State of Qatar in 2005 to strengthen the country's economy by diversifying into new asset classes.”

“its growing portfolio of long-term strategic investments help complement the state's huge wealth in natural resources.”

Biggest sovereign wealth funds

These funds invest most of their assets…. in developed countries. e.g. Qatar investments worldwide… and not only PSG soccer team.

•This money can be very helpful for the domestic economy: for example, Norway uses this money to pay pensions to retired workers. But many countries are not able to use this money efficiently, which is wasted without any profit for the population, as in Russia.

• Producing countries (mostly from the South) share the oil wealth with oil companies (mostly from the North)

Nota Bene: Upstream prices can fluctuate from 4 up to 40$ / barrel, depending on the difficulties to extract crude oil

In fact, 7 of the 10 biggest TNCs are oil companies !

• Producing countries (mostly from the South) share the oil wealth with oil companies (mostly from the North)

b) Oil and foreign policy : geopolitical issues

Many political events, and even wars, are linked to oil interests:

1st example:

- The Nigerian civil war (also known as the Biafran war), between 1967 and 1970 : the Ibos wanted to be independent, but as their territory was plenty of oil, Nigeria refused.

2nd example: - The Sudanese civil war, which has become since the country’s partition in 2011, the war between Sudan and South Sudan.

3rd example

The Gulf Wars (2nd & 3rd )

MDCs act in order to secure their oil supply

• the USA considered Saddam Hussein a threat for Kuwait and Saudi Arabia (1990),

• and finally as someone not enough reliable (2003)…

Cartoon published in Time magazine, 2003 WW2 Iwo Jima memorial in Washington

4th exemple US domestic shale gas production has dramatically increased since 2005/2007 , in the aftermath of 9/11: It is a way to reduce the country’s dependance toward the Middle East (especially Saudi Arabia, from whom came half of the terrorists). US imports from Saudi Arabia has been cut off of a third in a decade.

5th example

Pipe lines routes

Although there were some already existing Russian and Iranian pipelines, Western TNCs have invested a lot of money to support a Turkish project designed to export the Caspian oil … Turkey is percieved as being more reliable.

C) Oil and environmental issues : a global threat ?

What are the messages of those two cartoons ?

Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Thanks to an array of new or improved communication technologies, people & various organizations try to make the most of the differences existing throughout the world.

Conclusion :

• Compare the definition with the case study:

•Conclusion :

Oil is a good example of a globalised product. Its globalized market enlights:

- World wide operators (from the ship-owners to the states, including TNCs, commodities financial markets…)

- Strategic places (straits, stock exchanges, head offices, deposits, harbours…)

- Communication and transportation improvements (super tankers, <1€ for 1 t of crude oil shipped from the Middle East to Europe )

The oil global system shows quite well that globalisation includes both economical and political issues.

It reveals a complex hierarchy (who is in command: the suppliers or the customers?) and some deep moves in the world’s economy.

Moreover as a fossil and a carbon fuel, it is a symbol of a global environmental threat, which cross boundaries and calls for an international response.