Energy midterm

30. Resource scarcity and resource wars (M.Klare).

"Persian oil ... is yours. We share the oil of Iraq and Kuwait. As for Saudi Arabian oil, it's ours." President Roosevelt to British Ambassador (1944) Resource wars refer to armed conflicts revolving "to a significant degree, over the pursuit or possession of critical materials" According to Klare, Resource wars are driven by shrinking oil reserves. In a world seemingly awash with ethnic and sectarian strife, the author reminds that many of these clashes are over natural resources, especially oil, water, timber, and minerals such as diamonds. These conflicts often appear to be ethnic -- and indeed may have evolved into such -- but they risk misinterpretation if scholars ignore their origins in resource disputes. Klare also discusses the river systems where human demands press against limited supplies (the Nile, Jordan, Tigris-Euphrates, and Indus) as well as conflicts over timber rights and minerals in Africa and Southeast Asia. He forecasts increasing conflict in resource-rich Africa, where sales of raw materials finance mercenaries and purchases of foreign weapons. To reduce international engagement, the author proposes the creation of new international agencies focused on preventing conflict and allocating resources in periods of temporary scarcity, if necessary. Yet he fails to inform readers exactly how such agencies would accomplish their aims.

13. Rockefeller Standard Oil and the historical dominance of Seven Sisters.

"Seven Sisters" was a common term for the seven multinational oil companies of the "Consortium for Iran" oligopoly or cartel, which dominated the global petroleum industry from the mid-1940s to the mid-1970s. Preceding the 1973 oil crisis, the Seven Sisters controlled around 85 percent of the world's petroleum reserves.[4] Since then, industry dominance has shifted to the OPEC cartel and state-owned oil and gas companies in emerging-market economies. Anglo-Iranian Oil Company (now BP) Gulf Oil (later part of Chevron) Royal Dutch Shell Standard Oil Company of California (SoCal, now Chevron) Standard Oil Company of New Jersey (Esso, later Exxon, now part of ExxonMobil) Standard Oil Company of New York (Socony, later Mobil, also now part of ExxonMobil) Texaco (later merged into Chevron) Rockefeller's Standard Oil 1911 - under the Sherman Antitrust Act the US Supreme Court decision split Standard Oil into 34 separate companies Slide 1-33

20. The Nobel Brothers and Baku's oil.

1875: the Nobel brothers start activities in Azerbaijan 1879: The Brothers Nobel Oil Company "Branobel" established in St. Petersburg; owners: Ludwig, Robert and Alfred Nobel Ludwig Nobel (known as the "Russian Rockefeller") builds first oil tanker, first oil pipeline and storage reservoirs 1877: Nobels build the world's first oil-carrying steamship "Zoroaster" 1883: Construction of the Caucasus railroad completed railway system connects Baku and Batum (Western route) serves as an alternative to the northern route: by oil tankers up the Volga river. Nobel Brothers was one of the four major compaines that dominated Azerbaijani oil industry as of 1916. "For Stalin, [Baku] was the "Oil Kingdom." Baku was created by one dynasty. Swedish by origin, Russian by opportunity and international by instinct, the Nobels made their first fortune selling land mines to Tsar Nicholas I, but in 1879, the year of Baku's first "fountain" of oil, the brothers Ludwig and Robert Nobel founded the Nobel Brothers Oil Company in the town known mainly for the ancient Zoroastrian temple ... The drilling had already started; entrepreneurs struck oil in spectacular gushers. The Nobels started to buy up land particularly in what became the Black City. Another brother, Alfred, invented dynamite, but Ludwig's invention of the oil tanker was almost as important. The French Rothschilds followed the Nobels into Baku. By the 1880s, Baron Alphonse de Rothschild's Caspian Black Sea Oil Company was the second biggest producer—and its workers lived in the industrial township called the White City. By 1901, Baku produced half the world's oil—and the Nobel Prize, established that year, was funded on its profits. Its oil boom, like the Kimberley Diamond Fever or the California Gold Rush, turned peasants into millionaires overnight. A dusty, windy ex-Persian town, built on the edge of the Caspian around the walls and winding streets of a medieval fortress, was transformed into one of the most famous cities in the world. Its "barbaric luxury" filled the newspapers of Europe, scintillated by instant riches, remarkable philanthropy and preposterous vulgarity. Every oil baron had to have a palace, many as big as a city block. Even the Rothschilds built one. The Nobels' palace was called Villa Petrolea, and was surrounded by a lush park. One oil baron insisted on building his palace out of gold but had to agree to cover it with goldplate because the gold would melt; another built his mansion like the body of a giant dragon with the entrance through its jaws; a third created his vast palace in the shape of a pack of cards emblazoned in golden letters: "Here live I, Isa-Bey of Gandji." A popular singer made his fortune when a performance was rewarded by some land on which oil was struck: his neo-classical palace is now the headquarters of Azerbaijan's state oil company."

29. The growing energy demand in China, and China's investments in SubSaharan Africa.

African resources - an arena for geopolitical competition between the US and China (Klare and Volman 2006) The main reason for this is quite simple: Africa is the final frontier as far as the world's supplies of energy are concerned with global competition for both oil and natural gas (particularly the latter) becoming just as intense. All of the major Western powers have long used whatever means and influence is available to them to secure access to African oil, including economic incentives, diplomacy, and the provision of arms and military equipment. Chinese oil companies have already established a significant presence in Sudan - the Chinese National Petroleum Company (CNPC) now owns 40 per cent of the largest oil-producing company in Sudan, the Great Nile Petroleum Operating Company. Chinese energy company Cnooc announced a $2.3 billion deal to acquire a 45 per cent stake in a major off-shore Nigerian oil field China is investing in Angola China now obtains approximately 30 per cent of its oil imports from Africa China's "no-strings attached" policy = The government pledges not to interfere in the domestic affairs of African nations. With this policy, the Chinese have been extremely proficient in brokering new business deals. This method radically diverges from the standard United States approach to business in Africa, which has historically placed priority on democracy over development. Although China's policies have drawn strong criticism from Western nations on the grounds of transparency and human-rights issues, they have yielded more tangible economic benefits for both China and its African partners.

14. The Iranian roots of BP.

British financier William Knox D'Arcy negotiated an oil concession with the Shah of Persia in 1901 known as the D'Arcy Concession. "The 60-year contract gave D'Arcy exclusive rights to explore, obtain, and market oil, natural gas. In return, D'Arcy agreed to pay the Iranian government ₤20,000 in cash, ₤20,000 in stocks, and 16 percent of the annual profits." The original D'Arcy concession became the Anglo-Persian Oil Company - APOC - ŠERKAT-E NAFT-E ENGELĪS O IRAN In 1914 the government of the United Kingdom invested £2.2 million to obtain a 51 percent ownership stake in Anglo-Persian Oil Company In 1935 it was renamed the Anglo-Iranian Oil Company (AIOC) to conform with Reżā Shah's wish that foreign govts should call the country Iran rather than Persia. Iran nationalized oil in 1951 and established National Iranian Oil Company under the nationalist government of Prime Minister Moḥammad Moṣaddeq An international consortium was organized to operate and market the oil. In 1954 -the consortium granted the AIOC a 40% share of Iranian oil; another 40% was given to American oil companies, and the remainder was assigned to other European oil concerns. AIOC (renamed British Petroleum Company in 1955) received compensation for nationalized Iranian oil: ₤25,000,000 from the Iranian government

18. The New Great Game and pipeline politics in and around the Caspian region.

In the late 1990s, some journalists used the expression "The New Great Game" to describe what they proposed was a renewed geopolitical interest in Central Asia based on the mineral wealth of the region which was becoming available to foreign interests after the dissolution of the Soviet Union. While few have noticed, Central Asia and Caucasus has again emerged as a murky battleground among big powers engaged in an old and rough geopolitical game. Western experts believe that the largely untapped oil and natural gas riches of the Caspian Sea countries could make that region the Persian Gulf of the next century. The object of the revived game is to befriend leaders of the former Soviet republics controlling the oil, while neutralizing Russian suspicions and devising secure alternative pipeline routes to world markets. Players: "great powers" (US, Russia, China), regional powers (Iran, Turkey), national governments, major oil companies, and "wheelers-dealers, the operators, the finders, and the facilitators" (Yergin) The breakup of the Soviet Union reconnected a resource-rich region of Caspian Region and Eurasia to world energy markets. "In a world of growing energy demand, our nation cannot afford to rely on any single region for our energy supplies. By helping to develop the Caspian's oil and gas reserves, we not only help Azerbaijan to prosper, we also help diversify our energy supply and strengthen our nation's security", President Clinton to President H. Aliyev in 1997 Russians saw Western influence in the Near Abroad as an attempt to further undermine Russia and retard the restoration of its Great Power status. For the U.S. in early 1990s, the Caspian region was viewed as a way to diversify energy supply away from overdependence on Gulf Region. Another writer stated that the "Great Game" or the "New Great Game" implies that the Central Asian states are passive pawns in the hands of more powerful states. However, their membership of the Shanghai Cooperation Organization, established in 2001, shows that they have gained a degree of real independence, with China offering a degree of predictability unknown in the "Great Game".

23. Kashagan giant field and the challenges of delivering Kazakh energy resources to global markets.

Kashagan's recoverable reserves have been estimated at 13 billion barrels, as big as the North Slope of Alaska. Technology needed: "The petroleum resources are buried two and a half miles beneath the seabed, under enormous pressure and suffused with the same dangerous hydrogen sulfide found onshore at Tengiz." Cost is also high: $40 billion for the first phase.

4. Proven petroleum reserves and production levels in the Caspian region, Azerbaijan and Kazakhstan.

Kazakhstan total petroleum production was 1.698 million barrels per day (b/d) in 2016 (EIA). Kazakhstan had proved crude oil reserves of 30 billion barrels the second-largest endowment in Eurasia after Russia, and the twelfth largest in the world, just behind the United States. Azerbaijan produced about 850,000 barrels per day (b/d) of petroleum. Crude oil reserves are estimated at 7 billion barrels.

22. Tengiz oil deposit in Kazakhstan and the Kazakhstani choices of the pipeline route.

Large deposit of oil discovered in Tengiz in 1985 But the development of Kazakhstani oil was held back due to lack of technology Chevron got interested as the reserves were estimated at 10 billion barrels of recoverable oil In 1993, an oil deal was signed 50-50 deal in terms of ownership (later as a joint-venture Tengizchevroil - TCO) The Kazakh government's take = about 80% of the revenues. Chevron covered $20 billion investment. From 1993 to 2017, TCO made direct financial payments of about $123 billion to Kazakhstani entities, including Kazakhstani employees' salaries, purchases of Kazakhstani goods and services, tariffs and fees paid to state-owned companies, profit distributions to Kazakhstani shareholder and taxes and royalties paid to the government. Kazakh oil transportation: Main transportation route: in the initial stages, shipping by tankers to Baku through Azerbaijani and Georgian railroads to Black Sea Later the CPC—the Caspian Pipeline Consortium, via Russia...launched in 2001 Kazakhstan-China oil pipeline to take oil across eastern Kazakhstan into China's western Xinjiang region Plans to build an underwater Trans-Caspian pipeline?

9. Different types of state ownership structures and energy strategies pursued by post-Soviet states.

N1. State ownership with control. The state owns the rights to develop mineral deposits and holds the majority of shares (51%+) in production, refining, Foreign involvement in the mineral sector is limited either to participating in contracts that restrict their managerial and operational control, such as carried-interest or joint ventures, or to operating as service subcontractors. N2. State ownership without control. The state owns the rights to develop mineral deposits and holds the majority of shares (51%+) in production, refining, and/or export facilities. Foreign investors are allowed to participate through more permissive contracts, such as production-sharing agreements (PSAs), which grant them significant managerial and operational control. P1. Private domestic ownership. Private domestic companies own the rights to develop mineral deposits and hold the majority of shares (51%+) in production, refining, and/or export facilities. P2. Private foreign ownership. Private foreign companies own the rights to develop mineral deposits and hold the majority of shares (51%+) in production, refining, and/or export facilities. Turkmenistan N1 Uzbekistan N1 Azerbaijan N2 Russia P1 Kazakhstan P2

8. Variation in market structures: State monopoly vs. competitive market.

NOC Monopoly --------------- POC Competition In all countries, except the USA, the subsoil is either state-owned, or the state retains a veto on its use. Where the subsoil is state-owned, the government can either grant a monopoly right to one party or develop a licensing system.

6. Key actors in the world's oil production and trade: national oil companies, international companies and service providers.

Oil-producing states OPEC established in 1960 National oil companies (NOCs), oil companies that are primarily or completely owned by the government - e.g. Saudi Aramco Revenue‎: ‎US$311 billion (2011), SOCAR, revenue: ‎AZN 33.1 bn (2015) International oil companies are privately owned by shareholders, instead of governments. The six largest supermajors companies are ExxonMobil, BP, Royal Dutch Shell, ConocoPhillips, Chevron/Texaco, and Total. Service providers-provide services for the larger companies, such as rigs, pipes, seismic surveys, and rig operators e.g. Halliburton, for example, had revenue of $32.9 billion in 2014 and employs over 75,000 people.

15. The early cases of oil nationalizations: Mexico and Venezuela.

On March 18, 1938, Mexican President Lázaro Cárdenas signed an order that expropriated the assets of nearly all of the foreign oil companies operating in Mexico. Prior to nationalization, Mexico's oil industry was dominated by two foreign companies: Royal Dutch/Shell Company and Jersey Standard and Standard Oil Company of California (SOCAL - now Chevron) He later created Petróleos Mexicanos (PEMEX), a state-owned firm that held a monopoly over the Mexican oil industry, and barred all foreign oil companies from operating in Mexico.

17. Winston Churchill and the concept of energy security supply.

On the eve of World War I, First Lord of the Admiralty Winston Churchill made a historic decision: to shift the power source of the British navy's ships from coal to oil. He intended to make the fleet faster than its German counterpart. But the switch also meant that the Royal Navy would rely not on coal from Wales but on insecure oil supplies from what was then Persia. Energy security thus became a question of national strategy. Churchill's answer? "Safety and certainty in oil," he said, "lie in variety and variety alone." Since Churchill's decision, energy security has repeatedly emerged as an issue of great importance, and it is so once again today. The renewed focus on energy security is driven in part by an exceedingly tight oil market and by high oil prices, which have doubled over the past three years. But it is also fueled by the threat of terrorism, instability in some exporting nations, a nationalist backlash, fears of a scramble for supplies, geopolitical rivalries, and countries' fundamental need for energy to power their economic growth. In the background—but not too far back—is renewed anxiety over whether there will be sufficient resources to meet the world's energy requirements in the decades ahead. Concerns over energy security are not limited to oil. Power blackouts on both the East and West Coasts of the United States, in Europe, and in Russia, as well as chronic shortages of electric power in China, India, and other developing countries, have raised worries about the reliability of electricity supply systems. When it comes to natural gas, rising demand and constrained supplies mean that North America can no longer be self-reliant, and so the United States is joining the new global market in natural gas that will link countries, continents, and prices together in an unprecedented way. Since Churchill's day, the key to energy security has been diversification. Although in the developed world the usual definition of energy security is simply the availability of sufficient supplies at affordable prices, different countries interpret what the concept means for them differently. Energy-exporting countries focus on maintaining the "security of demand"for their exports,which after all generate the overwhelming share of their government revenues. For Russia, the aim is to reassert state control over "strategic resources" and gain primacy over the main pipelines and market channels through which it ships its hydrocarbons to international markets. The concern for developing countries is how changes in energy prices affect their balance of payments. For China and India, energy security now lies in their ability to rapidly adjust to their new dependence on global markets, which represents a major shift away from their former commitments to self-sufficiency. For Japan, it means offsetting its stark scarcity of domestic resources through diversification, trade, and investment. In Europe, the major debate centers on how to manage dependence on imported natural gas—and in most countries, aside from France and Finland, whether to build new nuclear power plants and perhaps to return to (clean) coal. And the United States must face the uncomfortable fact that its goal of "energy independence"—a phrase that has become a mantra since it was first articulated by Richard Nixon four weeks after the 1973 embargo was put in place—is increasingly at odds with reality.

19. The historical role of oil in shaping Azerbaijan's developmental trajectory: pre-Soviet, Soviet, and post-Soviet.

Pre-Soviet times: In 1806, the Russian empire occupied Baku Khanate and took monopolistic control of oil production. Later exclusive rights to produce oil were given to individuals. Oil extraction methods in those times were very primitive —mainly hand-dug wells, drilled to very shallow depths. First oil well in the world was drilled in 1846 in Baku near "Bibi Heybat" First tanker in the world was built in 1871 in Baku by Ludwig Nobel First (wooden) pipeline in the world -Baku-Batumi was built in 1905 First, exclusive rights to develop Baku oil fields were in the hands of Russian-registered businesses, and only in 1898 foreign companies were granted rights to explore and develop oil fields as well as to participate in annual bidding process. Between 1898 and 1903 British oil firms invested 60 million rubles in Baku oil fields. Foreign capital dominated the oil industry of pre-revolutionary Russia. 1848: first industrial well drilled on Absheron (Bibi-Heybat) Early 1870s: drilling of wells becomes widespread including large fields in Ramani, Sabunchu, Balakhani and Bibi-Heybat 1901: Baku produces 10.979 m tons of crude of the world's total production of 22.5 million tons >50 % of the world's oil; 95 % of Russian oil production to compare: the U.S. produces 9.1 mt During WWI and the 1917 Russian revolution: decline in oil production due to the depletion of existing oil-fields Until 1872: use of the leasing/tax-farming system (otkupchina) and direct state exploitation The oil producer (leaseholder) rents a plot of land from the landowner (khan) for short-term use (usually 5 years) and has the right to export oil Pays a fixed price to the landowner and to the Russian treasury Highly inefficient: lease payments are small; industry stagnating (between 1869-1872, the U.S. supplies 80-90 % of Russian kerosene demand) Since 1872: the private enterprise system introduced plots of oil-bearing land are transferred to private producers for a lump-sum payment after a public auction opens up free prospecting for oil on all vacant state-owned lands by locals and foreigners the new Directorate of the Mining Industry formed the oilfields grouped and sold to private individuals the new system encourages a large inflow of capital in Baku's oil industry (e.g. the Rothschild family and the Nobel brothers) as well as much-needed new technologies. As a result, by 1913: 3,500 oil wells in Baku area Four major companies dominate (as of 1916): Nobel Brothers (Branobel and other subsidiaries) Russian General Corporation "Oil" (uniting 20 Russian and foreign companies and banks) Shell (since 1907 Transnational Trust Royal Dutch Shell) and Caspian Black Sea Society as the main exporter of oil products (established in 1883 by A. Rothschild and a member of the Shell trust) Financial oil corporation Neft (Russian company). Soviet times: Since 1918, more 5 mln ton of oil accumulated in Azerbaijan. After the occupation of Azerbaijan by Bolsheviks, all oil supplies were directed to Russia. All oil assets in the country were nationalized and Azneft State company was formed. In 1920, Alexander P. Serebrovsky, soon to be known as the "Soviet Rockefeller", was named head of Azneft. In 1920, only 1800 qualified specialists worked in the Russian oil industry of which 1232 worked in Azerbaijan. The industry urgently needed technology, education and specialists. The scientific exchange started with the US, where visitors from Baku were seconded to oil-fields in Pennsylvania, Oklahoma, California, Texas, learned new methods of well deepening and exploitation. The Azerbaijan State Oil Academy was established in 1920 to train oil specialists. Between 1939 and 1940, when the Soviet Union was supplying oil to Nazi Germany, Britain and France planned a major strategic bombing offensive called Operation Pike to destroy the oil production facilities in Baku. Hitler was determined to capture the oil fields of the Caucasus, in particular Baku, as it would provide much needed oil-supplies for the German military which was suffering from blockades. The 1942 German offensive saw a determined attempt to seize the oil fields in a large scale advance into the area. The plan was to attack Baku on September 25, 1942. Anticipating the upcoming victory, Hitler's generals presented him with a cake of the region, where the piece showing Baku was given to Hitler. But the Axis forces were surrounded and eventually defeated at Stalingrad forcing a retreat from the region. 1920: Azerbaijan is seized by the Bolsheviks 272 private oil companies nationalized and merged into the Azneft state-owned company Nobels sell almost all their Russian assets to Standard Oil of New Jersey (later becomes Exxon) By 1923: foreign funds help Russian oil production achieve pre-revolutionary levels 1941-1945: AZ contributes 63.2% of the USSR total oil production plays an important role in the Soviet victory over Germany By the end of WWII: oil production declines 1947-1963: oil production stabilizes at about 21 mt/y 1948: discovery of oil reserves in the Caspian Sea shelf (the Oil Rocks deposit) another 23 offshore deposits explored, including Azeri-Chirag-Guneshli (currently supplying oil to BTC) and Shah Deniz (a major gas field) 1969: oil production declines (investments move to Siberia); recession lasts until 1985 Since 1985: a five-year period of stable production of about 13 mt. Post-soviet times: President Haydar Aliyev's strategy: use Azerbaijan's oil potential to turn the country into a real nation, and to enlist western powers in support of its territorial integrity 1994 - Deal of the Century between SOCAR and a consortium of foreign companies including BP, Amoco and Lukoil. Offshore Azeri-Chirag-Gunashli field (ACG) Two routes for Early Oil: through Russia or through Georgia? "Why choose ? Why not do both? The more pipelines, the better." Baku-Novorossiysk [Northern Route] was launched in 1996 Baku-Supsa [Western Route] launched in 1999 Nothing should be done that would "alienate" the Russians, said the president. It was too risky. A contract had to be signed with the Russians before anything else was done. (Yergin 2011)

12. Azerbaijan state oil fund, SOFAZ, and its spending and investment policies.

SOFAZ's activity is directed to the achievement of the following objectives: 1) Supporting macroeconomic stability, participating in ensuring fiscal-tax discipline and decreasing dependence on oil revenues while stimulating development of the non-oil sector; 2) Funding major national scale projects to support socioeconomic progress; 3) Ensuring intergenerational equality with regard to the country's oil wealth, accumulating and preserving oil revenues for future generations.

5. The lifecycle of a typical oil well, and Azerbaijan's "second oil boom"

Slide 1-11. The second oil boom cycle (2005-2014) in Azerbaijan's history generated $125 billion in state oil revenue The foundation of this boom was laid in 1994 when, despite resistance from many quarters Azerbaijan, managed to sign the "contract of the century" with leading oil companies. This document enabled the start of construction of the Baku-Tbilisi-Ceyhan (BTC) oil pipeline in 2000. This second oil boom has changed the geopolitical and geoeconomic situation in the South Caucasus. After the (BTC) oil pipeline, the Baku-Tbilisi-Erzurum gas pipeline was laid. Now the Baku-Tbilisi-Kars railway, which will link China and Paris, is under construction. In terms of geopolitics, these projects open new opportunities for Euro-Atlantic integration. In terms of geoeconomics, they strengthen globalization, bringing continents closer and improving Europe's energy security.

16. A global wave of nationalizations in 1970s and the establishment of the global oil cartel OPEC.

Slide 1-35,36. The Organization of the Petroleum Exporting Countries (OPEC), which then comprised 12 countries, including Iran, seven Arab countries (Iraq, Kuwait, Libya, Qatar, Saudi Arabia and the United Arab Emirates), plus Venezuela, Indonesia, Nigeria and Ecuador, was formed at a Baghdad conference on September 14, 1960. OPEC was organized to resist pressure by the "Seven Sisters" (seven large, Western oil companies) to reduce oil prices. At first, OPEC operated as an informal bargaining unit for resource-rich third-world countries. OPEC confined its activities to gaining a larger share of the profits generated by oil companies and greater control over member production levels. In the early 1970s it began to exert economic and political strength; the oil companies and importing nations suddenly faced a unified exporter bloc. In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC, consisting of the Arab majority of OPEC plus Egypt and Syria) declared significant production cuts and an oil embargo against the United States and other industrialized nations that supported Israel in the Yom Kippur War. Even after the embargo ended in March 1974 following intense diplomatic activity, prices continued to rise. The world experienced a global economic recession, with unemployment and inflation surging simultaneously, steep declines in stock and bond prices, major shifts in trade balances and petrodollar flows, and a dramatic end to the post-WWII economic boom. OPEC nations demonstrated convincingly that their oil could be used as both a political and economic weapon against other nations, at least in the short term. Preceding the 1973 oil crisis, the Seven Sisters controlled around 85 percent of the world's petroleum reserves. Since then, industry dominance has shifted to the OPEC cartel and state-owned oil and gas companies in emerging-market economies, such as Saudi Aramco, Gazprom (Russia), China National Petroleum Corporation, National Iranian Oil Company, PDVSA (Venezuela), Petrobras (Brazil), and Petronas (Malaysia). In 2007, the Financial Times called these "the new Seven Sisters". According to consulting firm PFC Energy, by 2012 only 7% of the world's known oil reserves were in countries that allowed private international companies free rein. Fully 65% were in the hands of state-owned companies.

11. Sovereign welfare funds (SWFs) and their role in managing resource revenues.

Sovereign welfare funds (SWFs) are "state-owned investment funds with mixed portfolios of foreign currencies, government bonds, real estate, precious metals, and direct stakes in—and sometimes majority ownership of—a host of domestic and foreign firms" (Bremmer 2009, 40-41) They are accumulations of assets invested worldwide, ultimately controlled by the state. Hence the name, 'sovereign': Their owners are not individuals who are subject to governments, but rather they are the governments themselves"

10. Who controls the world's oil reserves: national oil companies (NOCs) vs. international majors.

The 13 largest oil companies in the world, measured by their reserves, are owned and operated by governments - companies such as Saudi Arabia's Saudi Aramco; the National Iranian Oil Company; Petroleos de Venezuela, S.A.; Russia's Gazprom and Rosneft; the China National Petroleum Corporation; Malaysia's Petronas; and Brazil's Petrobras. State-owned companies such as these control more than 75 percent of global oil reserves and production." (Bremmer 2009, 42) "Privately owned multinationals now produce just ten percent of the world's oil and hold just three percent of its reserves. Slide 2-24,25.

27. Saudi Arabia, the "special relationships" with the U.S., and the Carter doctrine.

The Persian Gulf region was first proclaimed to be of national interest to the United States during World War II. Petroleum is of central importance to modern armies, and the United States—as the world's leading oil producer at that time—supplied most of the oil for the Allied armies. Many American strategists were concerned that the war would dangerously reduce the U.S. oil supply, and so they sought to establish good relations with Saudi Arabia, a kingdom with large oil reserves. On February 16, 1943, President Franklin D. Roosevelt said, "the defense of Saudi Arabia is vital to the defense of the United States". The "special relationship" between the United States and Saudi Arabia went back to the meeting between President Franklin Roosevelt and King Ibn Saud in the Suez Canal, in 1945 From Harry Truman onward, U.S. presidents had made the security of Middle East, and in particular Saudi Arabia and its oil, a fundamental national interest. The Carter Doctrine was a policy proclaimed by President of the United States Jimmy Carter in his State of the Union Address on January 23, 1980, which stated that the United States would use military force if necessary to defend its national interests in the Persian Gulf. It was a response to the Soviet Union's intervention in Afghanistan in 1979, and was intended to deter the Soviet Union—the United States' Cold War adversary—from seeking hegemony in the Persian Gulf region. Key sentence from the doctrine: "An attempt by any outside force to gain control of the Persian Gulf region will be regarded as an assault on the vital interests of the United States, and such an assault will be repelled by any means necessary, including military force." Carter's successor, Ronald Reagan, extended the policy in October 1981 with what is sometimes called the "Reagan Corollary to the Carter Doctrine", which proclaimed that the United States would intervene to protect Saudi Arabia, whose security was threatened after the Iran-Iraq War's outbreak. Thus, while the Carter Doctrine warned away outside forces from the region, the Reagan Corollary pledged to secure internal stability. Security-for-oil relationship between the US and Saudi Arabia: US provided training for Saudi military services and build military bases there

28. Nigeria's oil-violence nexus. How oil fuels conflict in the Niger Delta.

The current conflict in the Niger Delta first arose in the early 1990s over tensions between foreign oil corporations and a number of the Niger Delta's minority ethnic groups who feel they are being exploited, particularly the Ogoni and the Ijaw. Ethnic and political unrest has continued throughout the 1990s despite the conversion to democracy and the election of the Obasanjo government in 1999. Competition for oil wealth has fueled violence between ethnic groups, causing the militarization of nearly the entire region by ethnic militia groups, Nigerian military and police forces, notably the Nigerian Mobile Police. The role of Dutch Disease in destruction of agricultural sector: Nigeria, after nearly four decades of oil production, had by the early 1980s become almost completely economically dependent on petroleum extraction, which at the time generated 25% of its GDP. This portion has since risen to 60%, as of 2008. Despite the vast wealth created by petroleum, the benefits have been slow to trickle down to the majority of the population, who since the 1960s have increasingly been forced to abandon their traditional agricultural practices. Annual production of both cash and food crops dropped significantly in the later decades of 20th century. Cocoa production dropped by 43% for example; Nigeria was the world's largest cocoa exporter in 1960. Rubber production dropped by 29%, cotton by 65%, and groundnuts by 64%. While many skilled, well-paid Nigerians have been employed by oil corporations, the majority of Nigerians and most especially the people of the Niger Delta states and the far north have become poorer since the 1960s. Statistics: Population: 155 million people 250 ethnic groups, Christian South and Muslim North Dutch disease - oil production destroyed the once-vibrant agricultural export Ajaokouta steel complex is the poster child for revenues wasted. Built in the 1970s, it has yet to produce commercial steel. General Sani Abacha, who seized power in 1993 - a champion at corruption; it is thought that he amassed as much as $5 billion. Only 13 % of total oil revenue shared with local states The Delta - endemic poverty and ruined infrastructure; environmental degradation "Bunkering"—stealing oil from the network of pipelines and flow stations that carry the oil to barges and on to the world market Bands of young men began to attack the flow stations, drilling sites to extract money and pressure companies and local governments. They formed gangs under names like the Bakassi Boys, the Icelanders, the Greenlanders, and the Niger Delta's People's Volunteer forces; and they waged war with rival gangs, fueled by drugs, alcohol, demonic initiations, and occult superstitions (Yergin 2011)

3. Quality of oil: Sweetness and heaviness.

The sweetness of oil refers to the amount of sulfur in the oil. Oil with less sulfur is sweeter and requires less processing The heaviness of oil refers to its density. Lighter crude can be refined into higher value products, such as the gasoline (or petrol) used by car owners. Heavier crude flows more slowly and has more unwanted chemicals that must be refined out. E.g. Azeri Light

21. BTC as "the first great engineering project of the twenty-first century" (Yergin 2011).

Two routes for Early Oil in Azerbaijan's oil strategy: through Russia or through Georgia? Russian and Georgian options had one big problem: tanker traffic through the narrow Bosporus strait Swamp deal with Iran? Cheapest option (no pipeline needed) but unacceptable to the U.S. BTC - logical but very expensive and challenging to build "We don't want to wake up ten years from now and have all of us ask ourselves why in the world we made a mistake and didn't build that pipeline." - then secretary of state of USA Madeleine Albright. BTC "the first great engineering project of the twenty-first century." Four years and $4 billion later, the pipeline was finished Launched in 2006 "Petroleum had consolidated Azerbaijan as a nation and established its importance on the world stage" (Yergin 2011) Today Azerbaijan's offshore ACG field—a $22 billion project—ranks as the third-largest producing oil field in the world. Even before its completion, the pipeline was having an effect on the world's petroleum politics. The South Caucasus, previously seen as Russia's backyard, is now a region of great strategic significance. The U.S. and other Western nations have become much more involved in the affairs of the three nations through which oil will flow. The countries have been trying to use the involvement as a counterbalance to Russian and Iranian economic and military dominance in the region. Russian specialists claim that the pipeline will weaken the Russian influence in the Caucasus. The Russian Parliament Foreign Affairs Committee chairman Konstantin Kosachev (ru) stated that the United States and other Western countries are planning to station soldiers in the Caucasus on the pretext of instability in regions through which the pipeline passes. The project also constitutes an important leg of the East-West energy corridor, gaining Turkey greater geopolitical importance. The pipeline supports Georgia's independence from Russian influence. Former President Eduard Shevardnadze, one of the architects and initiators of the project, saw construction through Georgia as a guarantee for the country's future economic and political security and stability. President Mikhail Saakashvili shares this view. "All strategic contracts in Georgia, especially the contract for the Caspian pipeline are a matter of survival for the Georgian state," he told reporters on 26 November 2003. Construction of the pipeline has contributed to the economies of the host countries. In the first half of 2007, a year after the launch of the pipeline as the main export route for Azerbaijani oil, the real GDP growth of Azerbaijan hit a record of 35%. Substantial transit fees accrue to Georgia and Turkey. For Georgia, the transit fees are expected to produce an average of US$62.5 million per year. To counter concerns that oil money would be siphoned off by corrupt officials, Azerbaijan set up a state oil fund (SOFAZ), mandated with using revenue from natural resources to benefit future generations, bolster support from key international lenders, and improve transparency and accountability.

24. Venezuela as the paradigmatic "petro-state": How oil has shaped Venezuela. 25. Juan Pablo Pérez, and the 50/50 formula in oil profit-sharing. 26. Why Venezuela's efforts to diversify ("sowing the oil") were unsuccessful.

Venezuela could be described as the only OPEC "Persian Gulf country" not actually in the Persian Gulf. "The Venezuelan economy since 1920 can be summed up in a word: oil. Prior to that, it had been an impoverished, underpopulated, agricultural nation—a "cocoa-state" and then a "coffeestate" and "sugar state" (Moises Naim). Oil was discovered in 1922 -- the giant Barroso well in the Lake Maracaibo 1980s-1990s - oil generated >70% of gov't revenue Struggle over distribution of these revenues - rent-seeking "By the middle of the twentieth century, there was already a deeply rooted conviction that Venezuela was rich because of oil, because of that natural gift that does not depend on productivity or the enterprising spirit of the Venezuelan people." When world oil prices go down and the nations' revenues fall, governments dare not cut back on spending. Budgets have been funded, programs have been launched, contracts have been let, institutions are in place, jobs have been created, people have been hired. Governments are locked into ever increasing spending. Otherwise they face political backlash and social explosions. In the petro-state, no constituency is in favor of adjusting spending downward to the lower levels of income—except for a few economists who understandably become very unpopular. On the contrary, across society most hold the conviction that oil can solve all problems, that the tide of oil money will rise forever, that the spigot from the finance ministry should be kept wide open, and that the government's job is to spend the oil revenues as fast as possible even when more and more of those revenues have become a mirage. Juan Pablo Pérez Alfonzo, Venezuelan minister of energy (1959-63) Introduced the famous 50/50 formula in 1948: splitting oil profits equally between the oil companies and the host government -the 50-50 agreement set a standard and following the Venezuelan experience Saudi Arabia later demanded higher share of profits He said that "Venezuela is the perfect country that has everything that human beings desire, given by God to the Venezuelans, the most imperfect people in the world" Then he said in 1975 "I call petroleum the devil's excrement. It brings trouble...Look at this locura—waste, corruption, consumption, our public services falling apart. And debt, debt we shall have for years." Then in 1970s: First term of President Carlos Andrés Pérez in 1970s Oil prices quadrupled an increase in government spending Continued the policy of "sowing the oil" (sembrar el petroleo): putting oil revenues into government investment schemes to diversify the economy Nationalized the oil industry in 1975 as part of the wave of resource nationalism / Petróleos de Venezuela, S.A. (PDVSA), was generally run on professional grounds One of the most radical aspects of Pérez's program for government was the notion that petroleum oil was a tool for under-developed nations like Venezuela to attain first world status and usher a fairer, more equitable international order. International events, including the Yom Kippur War of 1973, contributed to the implementation of this vision. Drastic increases in petroleum prices led to an economic bonanza for the country just as Pérez started his term. His policies, including the nationalization of the iron and petroleum industries, investment in large state-owned industrial projects for the production of aluminium and hydroelectric energy, infrastructure improvements and the funding of social welfare and scholarship programmes, were extremely ambitious and involved massive government spending, to the tune of almost $53 billion. His measures to protect the environment and foster sustainable development earned the Earth Care award in 1975, the first time a Latin American leader had received this recognition. Towards the end of his first term in office, Pérez's reputation was tarnished by accusations of excessive, and disorderly, government spending. His administration was often referred to as Saudi Venezuela for its grandiose and extravagant ambitions. By the 1978 elections, there was a sense among many citizens that the influx of petrodollars after 1973 had not been properly managed. The country was importing 80% of all foodstuffs consumed. Agricultural production was stagnant. The national debt had skyrocketed. And whilst per capita income had increased and prosperity was evident in Caracas and other major cities, the country was also more expensive and a significant minority of Venezuelans were still mired in poverty. This malaise led to the defeat of AD at the polls by the opposition Social Christian Party. The newly elected president, Luis Herrera Campíns, famously stated in his inaugural speech that he was "inheriting a mortgaged country." "Japanese stereos and televisions, German cars and cameras, American clothing and foodstuffs all helped to increase Venezuela's imports by an estimated 235 percent between 1973 and 1978. The shops in Caracas catered to the newly rich by offering Limoges china, Bohemian crystal, and Italian marble". "the nation's scale of values has suffered a shameful distortion" (Betancourt) Venezuela "could die of overeating as certainly as from hunger" (Perez Alfonzo) Then in 1980s and 1990s: 1980s - a drop in oil prices and the Venezuelan economy in crisis Rising unemployment and inflation Andres Perez re-elected in 1989. In February 1989, at the beginning of his second term as president, he accepted an International Monetary Fund proposal known as the Washington consensus. In return for accepting this proposal, the International Monetary Fund offered Venezuela a loan for 4.5 billion US dollars. This cooperation with the IMF came about weeks after his victory in the 1988 presidential election, and a populist, anti-neoliberal campaign during which he described the IMF as "a neutron bomb that killed people, but left buildings standing" and said that World Bank economists were "genocide workers in the pay of economic totalitarianism". Poor economic conditions led to attempts to revolutionize the political and economic structure of Venezuela, but the implementation of the neoliberal reforms (and in particular the liberalisation of petrol prices, which caused an immediate increase in the cost of petrol to consumers and rises in fares on public transport) resulted in massive popular protests in Caracas, the capital. The protest is now referred to as the Caracazo. 1992 - military coup by Chavez which failed Perez got impeached in 1994 "Economically, Venezuela is in shock after, with oil prices under $10 a barrel," reported the New York Times in December 1998. Mid-1990s -world oil prices remain low To increase oil revenue - more oil need to be produced - foreign funds should be raised Orinoco Belt heavy crude required new technology New oil policy --- la apertura - "the opening" - inviting international oil companies to return to Venezuela to invest in partnership with PDVSA, to produce the more expensive and technologically challenging reserves. [la aperture was initiated by PDVSA president Luis Giusti] 1998 - Chavez elected president In his victory speech that night, Chávez denounced Luis Giusti as the devil who had sold the soul of Venezuela to the imperialists. "Chavez attacked PDVSA as "a state within a state" and then proceeded to subordinate it to his state, politicizing what had been the professionally run company. PDVSA's treasury became the cash box of the state, and Chávez moved financial control of the company into the central government, giving him direct control over its vast revenues. There was no accountability or transparency. He could use the money as he wanted, shifting investment from the oil industry to whatever purposes he thought best, whether social spending and subsidies for favored groups at home or pursuit of his political objectives within the country and abroad. More than ever before, Venezuela was truly a petro-state." (Yergin 2011)

7. Key players in the global mining markets.

While there are many large state-owned mining companies, in contrast to the oil and gas sector, the biggest players are mostly privately held international corporations. Some notable exceptions include state-owned enterprises like China's Shenhua, India's Coal India Limited, and Chile's Codelco. International mining majors: BHP Billiton, Rio Tinto

1. Upstream and downstream in the oil value chain 2. The concept of value chain as applied to the oil industry

upstream: exploration and production downstream: refining, marketing, and distribution By oil and gas sector value chain we mean the exploration, extraction, processing, refining, transportation and distribution of hydrocarbons, and the development of industries which make direct use of the oil and gas sector's output. To create value along the chain the value of aggregate outputs must exceed the value of aggregate inputs on a sustainable basis