Advertisement

Geostrategic Challenges in the Oil and Gas Sectors

  • Volkan Ş. Ediger
  • Istemi Berk
Chapter

Abstract

This chapter identifies the major geostrategic challenges that have emerged during the last two decades and assesses their implications for the global oil and gas sectors. The historical development of oil prices shows that there have been two major periods of volatility, 1973–1986 and 1998–present, each of which was preceded by two relatively stable periods. The two oil price shocks of the 1970s that were triggered by geopolitical events had long-term effects on global politics and economics. Major oil and gas producers faced the challenges of declining consumption on the demand side, as consumers turned to alternative energies, energy efficiency improved, and non-Organization of Petroleum Exporting Countries (OPEC) oil supplies increased. The crisis in the 2000s, on the other hand, had similar but more intense consequences, deeply altering the structure of oil and gas markets. We identify two major challenges facing the oil and gas industry: energy substitution and resource scarcity. While the substitution of coal and renewables threatens to reduce oil and gas demand, resource scarcity is expected to promote the development of unconventional hydrocarbon resources such as shale oil and gas and heavy oil. Unlike in the 1970s, oil consumption did not decline when oil prices peaked in the 2000s. Moreover, the recent fall in oil and gas prices created a fiscal challenge for conventional producers, such as OPEC countries, and non-OPEC countries like Russia and Mexico, whose governmental budgets depend on export revenues. These fiscal challenges are expected to increase competition between national oil companies (NOCs) and international oil companies (IOCs), necessitating structural change in the governance of the industry. The NOCs are expected to continue dominating the industry and due to the increasing intervention of the corresponding governments, the next decades could experience a rise in state capitalism not only in major oil and gas producing countries but also in the global energy business.

Keywords

Oil and gas sectors Geostrategic challenges Structural changes NOCs and IOCs State capitalism 

Notes

Acknowledgement

The authors would also like to thank Dr. John Bowlus, Visiting Scientist, Kadir Has University, Center for Energy and Sustainable Development (CESD), and Duygu Durmaz, Strategy Development and Research Center, for critically editing the manuscript.

References

  1. Baffes J, Kose MA, Ohnsorge F, Stocker M (2015) The great plunge in oil prices: causes, consequences, and policy responses. Policy research note no 1. World Bank, WashingtonGoogle Scholar
  2. Bower JL, Leonard HB, Paine LS (2011) Capitalism at risk: rethinking the role of business. Harvard Business Review Press, BostonGoogle Scholar
  3. BP (2016) BP statistical review of world energy 2016. http://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html. Accessed 13 Mar 2017
  4. Bremmer I (2009a) State capitalism comes of age: the end of the free market? Foreign Aff 88(3):40–55Google Scholar
  5. Bremmer I (2009b) State capitalism and the crisis. McKinsey Q. http://www.mckinsey.com/industries/public-sector/our-insights/state-capitalism-and-the-crisis. Accessed 13 Mar 2017
  6. Bremmer I (2010) The end of the free market: who wins the war between states and corporations? Eur View 9(2):249–252CrossRefGoogle Scholar
  7. Butler E (2011) The geopolitics of merger and acquisition in the central European energy market. Geopolitics 16(3):626–654MathSciNetCrossRefGoogle Scholar
  8. Campbell CJ (2015) Oil age: energy in transition. In: Wright JD, Hodgson DG (eds) International encyclopedia of the social and behavioral sciences, vol 6, 2nd edn. Elsevier, AmsterdamGoogle Scholar
  9. Campbell CJ, Laherrère JH (1998) The end of cheap oil. Sci Am 278(3):60–65CrossRefGoogle Scholar
  10. Carney RW (2014) The stabilizing state: state capitalism as a response to financial globalization in one-party regimes. Rev Int Polit Econ 22(4):838–873CrossRefGoogle Scholar
  11. Cassidy D, Lohman A, Weissgarber P (2001) Focus on growth vs. cost key to oil company merger success. Oil Gas J 99(10):20–24Google Scholar
  12. Champion M, Blas J (2016) Putin’s oil and gas deals magnify military power in Middle East. Bloomberg Newsl 20(12):2016. https://www.bloomberg.com/news/articles/2016-12-20/putin-s-oil-and-gas-deals-magnify-military-power-in-middle-east. Accessed 13 Mar 2017Google Scholar
  13. Du M (2014) China’s state capitalism and world trade law. Int Comp Law Q 63:409–448CrossRefGoogle Scholar
  14. Ediger VS (2000) Probable developments in the twenty first-century petroleum industry and possibilities for Turkey. TAPG Bull 12(1):1–17 (in Turkish)Google Scholar
  15. Ediger VS (2011a) New world order in energy and Turkey. Akademi Forumu no 67. TÜBA-Turkish Academy of Sciences, Ankara, 62 p (in Turkish)Google Scholar
  16. Ediger VS (2011b) Energy transition periods: lessons learnt from the past. The oil era: emerging challenges. ECSSR (The Emirates Center for Strategic Studies and Research) Publications, Abu Dhabi, pp 175–202Google Scholar
  17. EIA (2014.) What drives crude oil prices? https://www.eia.gov/finance/markets/crudeoil/spot_prices.php. Accessed 13 Mar 2017
  18. EIA/ARI (2013) World shale gas and shale oil resource assessment. Prepared for: U.S. Energy Information Administration U.S. Department of Energy Prepared by: Advanced Resources International, Inc. 4501 Fairfax Drive, Suite 910, Arlington, VAGoogle Scholar
  19. Elm M (1992) Oil, power, and principle: Iran’s oil nationalization and its aftermath. Syracuse University Press, New YorkGoogle Scholar
  20. Emerson S (2015) The geopolitics of lower oil prices. In: EIA conference, Jun 2015. http://esaie.x2webs.net/wp-content/uploads/2015/02/emerson.pdf. Accessed 13 Mar 2017
  21. Epstein G (2010) The winners and losers in Chinese capitalism. https://www.forbes.com/sites/gadyepstein/2010/08/31/the-winners-and-losers-in-chinese-capitalism/#63cd49e1688b. Accessed 13 Mar 2017
  22. Evensen D, Stedman R, Brown-Steiner B (2017) Resilient but not sustainable? Public perceptions of shale gas development via hydraulic fracturing. Ecol Soc 22(1):8CrossRefGoogle Scholar
  23. Fattouh B, Poudineh R, Sen A (2016) The dynamics of the revenue maximization—market share trade-off: Saudi Arabia’s oil policy in the 2014–15 price fall. Oxf Rev Econ Policy 32(2):223–240CrossRefGoogle Scholar
  24. Fisher P (2008) NOCs and IOCs: it’s too complicated for simple answers. World Oil 229(5):131–134Google Scholar
  25. Fletcher S (2002) Merger done; ConocoPhillips now 3rd largest US oil firm. Oil Gas J 100(37):42Google Scholar
  26. Gause FG (2015) Sultan of swing?: the geopolitics of falling oil prices. Brookings Doha Center, Doha. https://www.brookings.edu/wp-content/uploads/2015/03/En-Gause-PDF.pdf. Accessed 13 Mar 2017
  27. Gingrich A, Banks M (2006) Neo-nationalism in Europe and beyond: perspectives from social anthropology. Berghahn Books, New YorkGoogle Scholar
  28. Goeller HE, Weinberg AM (1976) The age of substitutability. Sci New Ser 191(4228):683–689Google Scholar
  29. Golubkova K (2016) Russia signs Rosneft deal with Qatar. Reuters Newsl. http://www.reuters.com/article/us-russia-rosneft-privatisation-idUSKBN13Z0QB. Accessed 13 Mar 2017
  30. Guardian (2016) The Guardian view on the geopolitics of falling oil prices. https://www.theguardian.com/commentisfree/2016/jan/13/the-guardian-view-on-the-geopolitics-of-falling-oil-prices. Accessed 13 Mar 2017
  31. Hartley P, Medlock KB (2008) A model of the operation and development of a national oil company. Energy Econ 30(5):2459–2485CrossRefGoogle Scholar
  32. Henderson J, Mitrova T (2015) The political and commercial dynamics of Russia’s gas export strategy. OIES report NG 102. Oxford Institute for Energy StudiesGoogle Scholar
  33. Hoyos C (2007) The new seven sisters: oil and gas giants dwarf western rival. Financial Times, 12 Mar 2007. https://www.ft.com/content/471ae1b8-d001-11db-94cb-000b5df10621. Accessed 13 Mar 2017
  34. IEA (International Energy Agency) (2013) Resources to reserves 2013: oil, gas and coal technologies for the energy markets of the future. IEA, ParisGoogle Scholar
  35. Ike CB, Lee H (2014) Measurement of the efficiency and productivity of national oil companies and its determinants. Geosyst Eng 17(1):1–10CrossRefGoogle Scholar
  36. James CLR (1986) State capitalism and world revolution, 4th edn. Charles H. Kerr Publishing, ChicagoGoogle Scholar
  37. Janjigian V (2010) Communism is dead, but state capitalism thrives. Forbes, 22 Mar 2010. https://www.forbes.com/sites/greatspeculations/2010/03/22/communism-is-dead-but-state-capitalism-thrives/#15577caa7cb9. Accessed 13 Mar 2017
  38. Khan MI (2017) Falling oil prices: causes, consequences and policy implications. J Pet Sci Eng 149:409–427CrossRefGoogle Scholar
  39. Klimina A (2014) Finding a positive vision for state capitalism. J Econ Issues 48(2):421–429CrossRefGoogle Scholar
  40. Lin LW, Milhaupt CJ (2013) We are the (national) champions: understanding the mechanism of state capitalism in China. Stanford Law Rev 65:697–759Google Scholar
  41. Linde CVD (2000) The state and the international oil market: competition and the changing ownership of crude oil assets. Kluwer Academic, BostonCrossRefGoogle Scholar
  42. Lyons G (2007) State capitalism: the rise of sovereign wealth funds. J Manag Res 7(3):119–146MathSciNetGoogle Scholar
  43. McNally R (2017) The history and the future of boom-bust oil prices. Columbia University Press, New YorkGoogle Scholar
  44. McNally R, Levi M (2011) A crude predicament: the era of volatile oil prices. Foreign Aff 90(4):100–104Google Scholar
  45. Meadows DH, Meadows DL, Randers J, Behrens WW III (1972) The limits to growth: a report to the club of Rome (1972). Universe Books, New YorkGoogle Scholar
  46. Musacchio A, Lazzarini SG (2012) Leviathan in business: varieties of state capitalism and their implications for economic performance. Harvard Business School working paper 2012, pp 12–108Google Scholar
  47. Noguera-Santaella J (2016) Geopolitics and the oil price. Econ Model 52:301–309CrossRefGoogle Scholar
  48. Odell P (1997) Restructuring the world’s oil markets-the options. Pipeline 6:22–25Google Scholar
  49. Olivera A (2009) Innovation urged in NOC, IOC relations with suppliers. Oil Gas J:27–28Google Scholar
  50. Otillar SP, McQuaid KA (2008) Recent developments in Brazil’s oil and gas industry: Brazil appears to be stemming the tide to resource nationalism. Houston J Int Law 30(2):259–287Google Scholar
  51. PGJ (2011) Keep eye on unconventional plays, aggressive NOC spending, IOC restructuring. Pipeline Gas J 238(4):38–91Google Scholar
  52. PIW (2013) Petroleum intelligence weekly top 50 companies. Energy Intelligence GroupGoogle Scholar
  53. Salameh MG (2004) Oil crises, historical perspective. In: Cleveland CJ (ed) Encyclopedia of energy, vol 4. Elsevier, Amsterdam, pp 633–648CrossRefGoogle Scholar
  54. Shadrina E (2013) State capitalism and Russia’s energy policy in Northeast Asia. J Soc Sci 6(2):65–123Google Scholar
  55. Sharafedin B, Kobzeva O (2016) Russia’s Gazprom neft, Iran’s NIOC agree Iranian oil field studies. Reuters Newsl 13(12):2016. http://www.reuters.com/article/russia-iran-energy-rosneft-oil-idUSL5N1E82D1. Accessed 13 Mar 2017Google Scholar
  56. Showstack R (1998) Oil company mergers raise concern among some geoscientists. EOS Trans Am Geophys Union 79(51):625–626CrossRefGoogle Scholar
  57. Sovacool BK (2014) Cornucopia or curse? Reviewing the costs and benefits of shale gas hydraulic fracturing (fracking). Renew Sust Energ Rev 37:249–264CrossRefGoogle Scholar
  58. Stephens B(2016) Trump’s neo-nationalists. Wall Street J, 21 Nov 2016Google Scholar
  59. The Ecologist (1972) A blueprint for survival. Published in January 1972, occupying all of The Ecologist 2(1)Google Scholar
  60. The Economist (2012) The rise of state capitalism, 21 Jan 2012. http://www.economist.com/node/21543160. Accessed 13 Mar 2017
  61. The Economist (2016) The new nationalism, 19 Nov 2016. http://www.economist.com/news/leaders/21710249-his-call-put-america-first-donald-trump-latest-recruit-dangerous. Accessed 13 Mar 2017
  62. Tordo S, Tracy BS, Arfaa N (2011) National oil companies and value creation, Vol I. World Bank working paper no 218. The International Bank for Reconstruction and Development/The World Bank, WashingtonCrossRefGoogle Scholar
  63. Watkins E (2008) Khodorkovsky’s independence. Oil Gas J, 7 Jul 2008, p 38Google Scholar
  64. Yergin D (2016) Oil prices are at the mercy of geopolitics. Financial Times, 20 Jan 2016. https://www.ft.com/content/5c6e1840-bed2-11e5-9fdb-87b8d15baec2. Accessed 13 Mar 2017
  65. Yetiv SA, Fowler ES (2011) The challenges of decreasing oil consumption. Polit Sci Q 126(2):287–313CrossRefGoogle Scholar
  66. Young C (2003) How to create the next-generation national oil company? Oil Gas J 101(35):26–28Google Scholar

Copyright information

© Springer International Publishing AG, part of Springer Nature 2018

Authors and Affiliations

  • Volkan Ş. Ediger
    • 1
  • Istemi Berk
    • 2
  1. 1.Kadir Has UniversityIstanbulTurkey
  2. 2.Dokuz Eylul UniversityIzmirTurkey

Personalised recommendations