Security risks to energy production and trade The problems of the Middle East

This article examines the security risks to Middle East oil trade to try to answer two questions: Can armed forces defend oil installations? And if destroyed, could the military restore oil production and trade in the Middle East? The paper concludes that the Persian Gulf oil installations are largely indefensible although conventional forces will help deter attacks against the region. As long as the Persian Gulf remains the principal conduit for oil shipments from the Middle East, the threat of force against the Strait of Hormuz or the Gulf would be enough to disrupt oil trade. One of the best strategies is to build oil pipelines across Saudi Arabia to divert supply away from the Persian Gulf. Ultimately, however, security of Middle East Oil must be treated as a political rather than logistical problem. Only when internal Arab conflicts are resolved can the risk of terrorist or military attacks on oil installations diminish.     

Oil and natural gas prospects: Middle East and North Africa

The MENA region is endowed with enormous resources of oil and gas, rendering it the world′s richest region in this regard. Endowment differs from one country to another with few countries are almost dry; however the economic benefits proliferated to almost every country in the region. In spite of some doubts being cast about the amount of proven oil reserves, these with improved technology and new discoveries are increasing year after another. With no long term feasible alternatives to oil for transport and the increasing trade in LNG, the region′s importance as a world′s leading supplier of fossil fuels will continue for decades to come.However, these favourable prospects hide many challenges facing the MENA region, among them is the difficulty in mobilizing investment funds for sustaining and increasing output to feed growing global demand. Growing local demand, due to the proliferation of subsides, is another worrying aspect that already caused few countries with modest resources to become oil importers instead of exporters, with larger exporters decreasing their surplus output. The region is also still mainly dependant on foreign technologies and skilled manpower. Regional cooperation in oil and gas networks and electricity interconnections is still modest.The region has a long history of conflict; correspondingly it is a major importer of armaments which is increasingly eating a lot of its surplus income. With the political and social changes presently taking place in many MENA countries, due to the Arab spring and continuation of local conflicts, the sustainability of supplies from the region are increasingly a source of worry to MENA exporters and its many importers. It is also causing increasing involvement of the super powers in regional affairs.     

Security of supply and regulation of energy networks

In recent years, the security of energy supplies has re-emerged as a central issue in the energy policy arena in the UK and elsewhere. This re-emergence takes place against a backdrop of increased liberalisation of the energy markets, so that security of supply needs to be revisited within this context. Security of supply is multifaceted, but is often discussed in terms of physical availability of energy sources and their commodity price risk. This paper discusses the relationship between security of supply and network regulation—that is, how the energy networks, and appropriate regulation of them, can contribute to security of supply in liberalised energy sectors. Energy networks are predominantly natural monopolies and as a result are generally subject to regulatory oversight. We discuss a range of issues and trends that pose challenges and opportunities to network regulation and which call for new and innovative measures. The paper identifies a number of areas where network regulation can play a significant role in increasing the security of supply of future energy systems.     

A panel cointegration analysis of the demand for oil in the Middle East

This article applies recently developed panel unit root and panel cointegration techniques to estimate the long-run income and price elasticities for oil in the Middle East. The results for the panel indicate that demand for oil is highly price inelastic and slightly income elastic in the Middle East. There is considerable variation in the results for the income variable across countries, with the coefficient on the income variable statistically insignificant for several countries. The coefficient on the price variable is statistically significant in all cases with the expected sign and the price elasticity is uniformly low. While the results for the income variable differ across countries, the results for the panel as a whole suggest that the demand for oil in the Middle East is being driven largely by strong economic growth, while consumers are largely insensitive to price changes.     

Armed conflicts in the Middle East and international oil company returns

We investigate the effect of armed conflicts in the Middle East, which are representative geopolitical events, from an event study perspective. Specifically, we analyze the impact of conflicts in the Middle East on the stock returns of international oil companies in the countries engaged in the conflicts. We examine the stock returns of the top nineteen oil companies in nine countries during four conflicts from 1990 to 2011. By applying the market model of the event study methodology, we find that the abnormal returns of the companies in countries that did participate in the conflicts were higher than those of the companies in countries that did not participate. Furthermore, among the companies in countries that participated, those in the U.S. had higher stock returns than those outside the U.S. These findings suggest that political factors, such as military engagements, can have a statistically significant impact on oil company returns.     

Future European gas supply in the resource triangle of the Former Soviet Union,the Middle East and Northern Africa

A steady increase of natural gas demand can be observed in Europe over the last decades. Due to the European obligation to reduce greenhouse gas emissions in the framework of the Kyoto Protocol, the trend toward natural gas is expected to continue in the future. The increased consumption is faced by comparably low indigenous gas resources within Europe, so that the dependency of Europe on gas imports from abroad will rise in the future. In addition to the existing supply sources Russia and Algeria, gas resources from the Middle East and the Caspian and the Central Asian regions may be supply options to cover Europe's gas demand in the future. Against this background, possible natural gas supply options as well as the transport infrastructure to and within Europe are discussed regarding their technical capacity and their costs. With the help of a cost-minimization model of the European gas supply system, the gas flows and the infrastructure capacity development up to the year 2030 are analyzed. In a sensitivity analysis, the impacts of demand variations on the choice of supply sources are studied.     

Price and prospects for oil : Carrying the burden of excess capacity in the 1980s and beyond

The continuing decline in world oil prices will not be halted in the short term, and prospects for the long run are not encouraging. There is a problem of unprecedented gravity in the surplus capacity of the oil industry. A glut of 10 million bbl/day of crude oil remains unsold, the cohesion of the OPEC cartel is becoming more strained, and a sizeable proportion of refinery plant has been taken off-stream. The basic difficulty is that high interest rates have curbed international capital formation and depressed demand. Upward pressures on the US dollar have been created by the deficit on US domestic and external accounts, and have retarded the recovery of the global economy. Today the cost of money exceeds the factor price of oil, and the market is highly unstable. The devastating costs of carrying surplus capacity are likely to survive through the 1980s.     

Joint stockpiling and emergency sharing of oil: Arrangements for regional cooperation in East Asia

The East Asia region includes three of the world's top five oil-importing nations—China, Japan, and the Republic of Korea. As a consequence, international oil supply disruptions and oil price spikes, and their effects on the economies of the region, have historically been of significant concern. Each of these three nations, as well as other nations in East Asia, has developed or is developing their own strategic oil stockpiles, but regional coordination in stockpiling arrangements and sharing of oil stocks in an emergency could provide significant benefits. This article describes the overall oil supply security situation in East Asia, reviews the attributes of different stockpiling arrangements to address energy supply security concerns, summarizes ongoing national approaches to stockpiling in East Asia, describes the development of joint oil stockpile initiatives in the region, and suggests the most attractive options for regional cooperation on oil stockpiling issues.     

Institutions and the supply of oil: A case study of Russia

In new institutional economics, the variance in institutions explains differences in cross-country output per capita. Institutions may also explain how the supply of oil is affected within oil-producing countries. For example in the early 1970s, as nominal oil prices increased from $3 per barrel to $11 per barrel, a number of OPEC oil producers changed the institutional environment by nationalizing their oil production and putting under government control all petroleum-related capital and infrastructure. This affected oil supplies. Similar institutional changes may be happening again now that oil prices are rising. In particular, the newly democratic Russia may be following the same path. The Russian government has already effectively taken over control of much of the oil production capacity in the country and is still heavily involved in natural gas production. In this paper, we will look at the Russian upstream oil industry as it changed from central planning to a market-oriented sector and is now swaying toward re-nationalization. Some of the laws and institutional transitions will be detailed in order to elucidate what has taken place.     

Geopolitics of European natural gas demand: Supplies from Russia, Caspian and the Middle East

This paper addresses issues of natural gas which raise questions about European energy security. It first focuses on the rising gas demand of the EU27 and elaborates alleged risks of dependence on Russia such as Gazprom's disagreement with Ukraine, which became an international gas crisis in January 2006 and also more recently in January 2009. Incentives and barriers of Europe's further cooperation with selected Caspian (Azerbaijan, Kazakhstan and Turkmenistan) and Middle Eastern (Iran, Iraq and Egypt) countries are discussed. Supplies from Caspian are analyzed with a particular focus on Russia's role and the vested interests in the region. Supplies from the Middle East are elaborated with regard to Iran's huge and Iraq's emerging potentials in terms of natural gas reserves and foreign direct investments in the energy sector. The geopolitical analysis leads to a conclusion that the best strategy, and what seems more likely, for the EU is to include at least two countries from Azerbaijan, Turkmenistan, Iran and Iraq within its natural gas supply system.     

Trends of energy demand in the Middle East: A sectoral level analysis

The Middle East region is a key player in the world energy market today. It holds approximately over 50% of the world's proven fossil fuel reserves. Yet, the region is significantly challenged by the large dependence on finite fossil fuel resources in its primary energy supply. The intricate relationship between climate change mitigation and the development of energy systems underlines great uncertainty over the future of energy development in the Middle East. Such uncertainty is greatly linked to growing energy demands and the region's capacity to transition to low‐carbon energy systems. Over the past 20 years, the total primary energy demand in the Middle has almost tripled due to rapid population growth and economic development. Notably, most of the growing energy demand was concentrated in 5 countries, Iran, Saudi Arabia, Iraq, Kuwait, and the UAE. These 5 countries represented around 82% of the total primary energy demand in 2015, with Saudi Arabia and Iran alone accounted for 60%. The core question of this paper is what are the possible implications of growing energy demands in these countries and which sectors will entail significant increases in the projected energy requirements? The significance of the work presented here stems from analyzing 4 major countries that constitute the largest share in Middle East's total energy consumption and associated emissions. Examining these 4 countries together is important to highlight how future increase in these countries could largely affect the overall energy demand from the Middle East region in the next 20 years. Thus, the scope of the paper is looking at energy demand implications in 4 countries, Iran, Saudi Arabia, Kuwait, and the United Arab Emirates (UAE). Iraq is excluded from the analysis due to the large political uncertainty associated with Iraq's energy development. Here, a regression model is used to forecast energy demand from 5 economic sectors across the 4 countries using projected increase in population and gross domestic product (GDP) by 2030. Results indicate that most of the projected energy demand will be from Iran and Saudi Arabia. In addition, industry and transportation sectors will witness the largest increase among the 5 sectors examined in the paper. For instance, industry and transportation sector will collectively account for 52% and 67% of the projected energy demand in Iran and Saudi Arabia, respectively. Such results are important to highlight when ascertaining sectoral level implications of future energy demands and to determine potential areas where energy savings can be made.     

A supply model for crude oil and natural gas in the Middle East

Crude oil (CO) and natural gas (NG) play an important role in the world economy. The Arab countries (ACs) share 64% of the total oil reserves and 40% of the NG reserves [OPEC, 2003. The Annual Statistical Bulletin]. On the production side, ACs contribute to 30% and 9% of the world production of CO and NG, respectively. Accurate forecast models are needed to do better planning and create less risky business environment. In this paper, an econometric model is built to capture the behavior of CO and NG production in the ESCWA¹ countries. The model is used to forecast future production trends of CO and NG, and thus provide a powerful tool for researchers, planners and investors working in the energy field.     

Risk and resilience in the Nigerian oil sector: The economic effects of pipeline sabotage and theft

Political unrest in the Niger Delta has long been viewed as a hurdle for extracting maximum value from Nigeria's oil resources. Recently, investors and policymakers have laid blame for sector under-performance on pipeline sabotage and theft, and sounded the alarm for an impending ‘oil crisis’. However, our understanding of the economic effects of social action against oil companies is incomplete. Rigorous analysis has not heretofore been offered as evidence for such dire futures. Despite the obvious risk of pipeline interdiction, price dynamics and aggregate production respond minimally to pipeline interdiction. Based on quantitative analysis of the relationship among price, production and pipeline interdiction from multiple data sources covering different time intervals (monthly data from 2005 to 2014 and annual data from 1999 to 2013), we find no evidence of significant effects of pipeline interdiction on production and a weak relationship between pipeline interdiction and Bonny light crude prices. Reported losses in product are substantial, but there is no evidence of statistically significant impacts on price or production in the aggregate. Explanations for this counterintuitive result are cast in terms of sector resilience. The implications of this finding for producer risk and the likelihood of an impending ‘oil crisis’ are discussed.     

Future oil supply: The changing stance of the International Energy Agency

The IEA was established in 1974 with a mandate to promote energy security amongst its members, namely the states of the OECD, and to advise those members on sound energy policy. Its recent forecasts of the medium and long term prospects for oil supply, however, have wavered, alternating from optimistic to pessimistic and back again. For policy-makers, such inconsistency is difficult to deal with. Firstly we examine whether the changing outlooks seen in IEA forecasts made between 2007 and 2010 truly reflect a demonstrable, underlying change in the known facts, and we can find no such factual changes reported by the IEA. Secondly we examine whether the serious criticisms of the IEA's (2008) forecast made by other analysts have yet been addressed, and we conclude that they have not. Thirdly we consider the possible effects of the current economic downturn upon the IEA's assumptions and upon future oil supply. We conclude that all the forecasts made by the IEA appear to be too optimistic throughout this period.     

Energy sector of the Russian Far East: Current status and scenarios for the future

This article describes the Russian Far East's energy sector, stressing its limited energy exports, and use of separate electricity and heating grids to geographically dispersed population centers with various supply patterns distributed across a vast territory. One key strategic trend has been to strengthen the potential of the region as an energy supplier for the countries of Northeast Asia. This underlies the framework used to develop three energy scenarios of the Russian Far East's energy future through 2030: Reference, National Alternative and Regional Alternative. While the Regional Alternative case has much greater total costs for implementation, yields almost the same amount of emissions as the BAU case, and requires greater governmental efforts to bring it to reality, it looks preferable for the RFE as a whole because it has a well-balanced primary energy consumption mix, lower energy and ecology/GDP indices, and a lower fraction of energy imports; offers greater diversity of energy supply; and provides better local energy service. The authors would like to thank Boris Saneev, Alexander Sokolov, Alexander Izhbuldin from the Institute of Energy Systems, Irkutsk; Julia Savelieva from Far Eastern Coal Research; and Alla Filatova from Far Eastern Power Engineering Institute for providing technical information, and expertise.     

Evaluation of renewable energies production potential in the Middle East: confronting the world’s energy crisis

Oil and fossil fuels, the main source of energy in the Middle East have obviously the most destructive effects on the environment and public health. The developed countries of the Middle East are faced with the crisis and energy security. This paper is about evaluating the energy demand /consumption in the Middle East. First, the position of energy consumption in the world and the Middle East is discussed. Next, the evaluation of the current potential of clean energy production from renewable energies is explained. Finally, according to related maps, charts and information presented for the condition of renewable energy which has been approved by the countries of the Middle East, the greatest places in some countries of this region are introduced and discussed.     

Evaluating energy security in the Asia pacific: Towards a more comprehensive approach

The energy security conundrum – how to equitably provide available, affordable, reliable, efficient, and environmentally benign energy services – is a technology and policy challenge, perhaps unlike any other. The recent article on an energy security in the Asia Pacific by Vlado Vivoda is an excellent starting point for how to best capture the unique energy security challenges facing the region. This article builds on Vivoda’s work, but also points out some shortcomings with his analysis.     

Energy security policies in EU-25—The expected cost of oil supply disruptions

A framework for analyzing the impact on the expected cost of oil disruption by energy policies in EU-25 is developed. The framework takes into account how energy policies affect the oil market, the expected oil price increase, and the disruption costs. OPEC's strategic behavior is modelled as a dominant firm, and the model includes price interdependence between different energy commodities to better estimate the cost of an oil disruption. It is found that substituting pellets for oil in households and using imported sugar cane ethanol are cost-efficient policies if greenhouse gas benefits are included. Domestically produced wheat ethanol is not found to be cost-efficient even if both the expected cost of oil disruption and greenhouse gas benefits are included, the same also holds for hybrid vehicles. The gross expected economic gain of the policies is found to be between 9 and 22 €/bbl oil replaced.     

The Position of Oil in the Middle East: Potential Trends,Future Perspectives,Market and Trade

Currently oil is the fastest growing primary energy source in the world. The Middle East has over half of the world's proven oil reserves and remains the center of gravity in the global oil market. The Middle East represents 65% of world oil reserves. Saudi Arabia is by far the region's largest producer and exporter accounting for approximately 42% of production from the Middle East followed by Iran 19%, UAE 11%, Iraq 6%, Kuwait 11%, Qatar 4%, Oman 5%, and Syria 2% in year 2003. Currently, 60% of exports from the Middle East are destined for Asian markets. The Middle East region supplied about 29% of the 3.4 billion barrels of crude oil that the United States imported in 2001.     

Horizontal and vertical transmissions in the US oil supply chain

Oil prices, inventory levels, and utilization rates are influenced by changes that are transmitted horizontally and/or vertically through the energy supply chain. We define horizontal transmissions as changes that are generated by linkages among fuels at a similar stage of processing while vertical transmissions are changes that are generated by upstream/downstream linkages in the oil supply chain. Here, we investigate vertical and horizontal transmissions by estimating vector error correction models (VECMs) that represent relationships among the price of crude oil, US refinery utilization rates, US stocks of crude oil, US stocks of motor gasoline, the US price of motor gasoline, and the US price of a substitute fuel, natural gas. Causal relationships estimated from both weekly and quarterly observations indicate that the price of crude oil is an important gateway for disturbances to the oil supply chain. Impulse response functions indicate that disturbances to crude oil prices ripple down the oil supply chain and affect inventory behaviors, refinery utilization rates, and the price of motor gasoline, and are transmitted laterally to the natural gas market.