The Energy Emergency
They have the money, all right. Revenues have roughly doubled in the past four years. But their governments see high prices for us as meaning more income for them, while they see investment in new capacity as risking the kind of sharp price decline that occurred in the 1990s. So the national energy firms are obliged to dedicate a big chunk of their profits to support national treasuries and various political constituencies.
Mexico has treated its oil company as a national bank vault; Hugo ChÃÂÃÂÃÂávez of Venezuela spends two thirds (that's now about $7 billion) of PDVSA's budget on populist social programs; Gazprom spends the majority of its money on nonenergy activities such as banks and media companies. Even worse, because these national companies have become a source of political patronage, they are short of skilled workers and experienced managers. National pride inhibits them from relying on the technological skills of the western companies, so they don't have the professionals needed to grow their production (with the exception of Saudi Aramco and, to some extent, Petrobras). We can no longer count on the Middle East to act as the world's energy shock absorber, raising output to meet a shortage.
So much for supply. Simultaneously, the oil-producing countries are consuming more of their own production. While China's energy appetite has grabbed the headlines, by the end of this decade alone, domestic consumption will reduce the oil exports of the producers by as much as 2.5 million barrels a day. And they are guzzlers. How could they not be when gasoline prices in places like Venezuela, Iran, and the rest of the Middle East are as little as a tenth of U.S. domestic prices, averaging between 20 and 80 cents a gallon?
The net effect of all this is that the world is going to be even more energy dependent on the Organization of Petroleum Exporting Countries and Russia. Keeping oil safe for the West once meant safeguarding supply lines from the Middle East. Now we have to build alliances and deploy ships and troops to protect other supply routes outside the Middle East, going as far as the Caspian Sea, the Andean region of South America, and West Africa.
There are other political complications inhibiting new supplies. In many countries, environmental issues have become absolutist. They conflict with the capacity to tap additional energy resources in Alaska, not to speak of the continental shelf in the waters off the lower 48 states, which, according to a recent study by the National Petroleum Council, contains enough oil to provide gasoline for 116 million cars for 47 years. Some trade-off is going to have to be considered, and this will roil the political scene forever.
As for conservation, it is not enough for the West to improve its own energy policies. Countries such as India and China must also do so. We don't know how fast these countries can and will reduce the energy intensity of their own rapid economic growth. How are we going to maintain our efforts to fight global warming by curtailing carbon dioxide when consumers in developing countries thirsting for oil will want to resort to abundant national sources of coal? They will argue that they are entitled to a phase of cheap (that is, coal) energy-intensive economic development. Is it fair, they argue, to penalize them for coming late to the development party when rich countries, during their period of rapid growth, were allowed to use as much energy as they wished with no restrictions?
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