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This paper develops empirical models for average oil production costs that represent the structural field-level and country-level determinants most characteristic for the new era beyond easy oil. These models lend themselves as a tool for forecasting the floor of structural cost trends related to the shift into more cost intensive fields that are increasingly producing heavy and extra-heavy crudes and that are located offshore and in countries fraught with high levels of political and environmental risks. Given the extremely limited availability of reliable, non-proprietary cost data, this model deliberately relies on high level factors for which data is publicly available for hundreds of fields from all oil producing states. This model specification offers the important advantage of enabling us to lever insights gained from this study in powerful out-of-sample estimations for the dominant scenario where data is available on field characteristics but not on costs.

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Program on Energy and Sustainable Development Working Paper #72
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Christine Jojarth
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North Korea has shut down its key nuclear facilities and is discussing how to retrain workers at the Yongbyon nuclear complex, CISAC Co-Director Siegfried S. Hecker said Feb. 20 following a five-day visit to the country.

"The disablement actions at the three key nuclear facilities--that is [the] fuel fabrication plant, the reactor, and the reprocessing plant--those disablement actions are just about complete at this point," Hecker told reporters during a press conference at Stanford. "In my judgment, they are very serious actions, and they will require serious time and effort to restart those facilities."

Hecker, a research professor of management science and engineering and senior fellow at the Freeman Spogli Institute for International Studies, visited scientists at Yongbyon and government officials in Pyongyang from Feb. 12 to 16. Joel Wit, a former U.S. State Department official, and Keith Luse, a staffer for Sen. Richard Lugar, R-Indiana, accompanied him during a private visit that also involved discussions on formalizing health and educational exchanges between the two nations. "All the way around, it was a very good visit, a very professional one on the DPRK's side," Hecker said, referring to the country's acronym for the Democratic People's Republic of Korea.

According to Hecker, "significant hurdles" remain before North Korea will offer a "complete declaration," or complete list of its nuclear program, both past and present. The North Koreans told Hecker that the process has been delayed because other parties in the six-party talks, which aim to find a peaceful resolution to the country's nuclear weapons program, have been slow in delivering compensation such as heavy fuel oil. Despite this, Hecker said, cooperation between the U.S. and North Korean technical teams was excellent during the visit.  "The DPRK wants these obligations [of the other member nations] to be met quickly so they can move on to the next stage, that's the stage of dismantlement," he said, referring to agreements reached Oct. 3, 2007, during talks to achieve a nuclear weapons-free Korean peninsula.

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David G. Victor
David G. Victor
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David G. Victor: Although oil prices will eventually drop as new sources come online and biofuels and other alternatives take hold, crude price are likely to remain high and volatile for a while.
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We are pleased to bring you the third article of the academic year in our series of Shorenstein APARC Dispatches. This month's piece comes from Dr. Phillip Lipscy, FSI Center Fellow and Assistant Professor, Political Science. Lipscy joined Shorenstein APARC in fall 2007 and his research interests focus on international relations and political economy, particularly as they relate to Japan and East Asia. He has been a Shorenstein APARC affiliate since his undergraduate years, when he studied under Professor Emeritus Danial Okimoto. He attended Harvard University for his doctoral studies.

Since the end of World War II, East Asia has often been characterized as a region with weak international organizations. There has been no regional integration project comparable to the European Union (EU). Cooperation on a wide variety of issues has tended to be ad hoc rather than institutionalized. Regional organizations, such as the Association of Southeast Asian Nations (ASEAN), have generally been weak or limited in scope, with some notable exceptions such as the Asian Development Bank.

However, in recent years, there are indications that the pattern of institutionalization in Asia is shifting. Since the end of the Cold War, regional cooperative arrangements have emerged and grown. With the addition of China, Japan, and South Korea, a revitalized ASEAN+3 is becoming a locus of economic cooperation. Many observers believe the Six Party Talks could be institutionalized to manage a broader set of security issues beyond North Korea. The Chiang Mai Initiative, a multilateral currency swap arrangement, might eventually develop into a monetary fund. Bilateral trade agreements are proliferating and could ultimately produce a regional free trade zone.

Under the right circumstances, regionalism can complement the broader global order. However, to a significant extent, recent regional initiatives reflect an underlying dissatisfaction with the global institutional architecture. The Chiang Mai Initiative emerged after the Asian financial crisis, from a widespread sense that the International Monetary Fund (IMF) underrepresented Asian interests and therefore imposed overly harsh conditionality on the affected states. Paralysis at the Doha Round negotiations of the World Trade Organization (WTO) has facilitated the rapid expansion of bilateral trade initiatives. The North Korean nuclear problem is precisely the sort of collective security issue the United Nations (UN) Security Council was envisioned to deal with, but the rigidity of both Security Council membership and its decision-making procedures has rendered this impractical.

Historically, international organizations have often exhibited path dependence, or a resistance to change. For example, the permanent members of the UN Security Council still remain the victorious powers of World War II. The distribution of voting shares in the IMF and World Bank has consistently overrepresented inception members such as Canada, France, and the United Kingdom, at the expense of both the defeated powers of World War II and newly independent and developing states. The Organization for Economic Cooperation and Development (OECD) remains a predominantly European institution despite the rapid growth of Asia. Across a wide range of international organizations, Asian nationals continue to be underrepresented among employees, and in some cases leading positions are allocated to Western nationals by convention, as in the IMF and World Bank.

However, as Asia continues its rapid growth, the active involvement of Asian states in the global order will become paramount. Including India, broader East Asia encompasses more than half of the world's population. The region already accounts for about one-third of global oil consumption and CO2 emissions, and this is only likely to grow in the future. By 2020, in purchasing power parity terms, regional GDP will likely exceed that of the United States and the EU combined. Over the course of the twenty-first century, Asia's economic and geopolitical weight in the world will, in all likelihood, come to rival that of Europe in the nineteenth century. With Asia's dramatic rise, Asian problems will become increasingly indistinguishable from global problems.

Thus, a critical question in the coming decades will be whether the contemporary international organizational architecture will be able to smoothly incorporate the rising states of broader East Asia. Sweeping geopolitical shifts have often created instability in the international system -- the waning of Pax Britannica in the early twentieth century precipitated two world wars and a global depression, as the world lacked a geopolitical and economic stabilizing force in times of crisis. If universalistic institutions such as the UN, IMF, and WTO are seen as unresponsive to Asian concerns, two potentially destabilizing outcomes are likely. First, Asian regional cooperation may further intensify. For example, a full-fledged Asian Monetary Fund that acts independently of the IMF could be formed, or an Asian Free Trade Area established. Such institutions have the potential to undermine existing international organizations such as the IMF and WTO. Eventually, Asian institutions may supersede existing global institutions, but only after contestation and needless replication. A second destabilizing outcome could be that Asian states disengage from the U.S.-backed international order without developing strong regional institutions. This might create a situation akin to U.S. nonparticipation in the League of Nations in the interwar years. Without active involvement of some of the most important players, international organizations will become less effective at facilitating cooperation and resolving major disputes. International relations will become more anarchic and cooperation more ad hoc.

The rise of Asia will likely provide the first major stress test for the global organizational architecture that the United States has constructed and underpinned since the end of World War II. Of course, there are also some grounds for optimism. Among other things, China and Vietnam have joined the WTO, ongoing IMF quota revisions have produced ad hoc increases to South Korea and China, and Asian nationals increasingly play important roles in major international organizations -- e.g. UN Secretary General Ban Ki-moon and former UN High Commissioner for Refugees Sadako Ogata. It is paramount that concerns about Asian representation and interests in universalistic international organizations be addressed so that the rise of Asia contributes to -- rather than undermines -- the stability of the international order.

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Russia's Gazprom is among the largest companies in the world, and by far the world's largest producer of natural gas, with close to a 20% share. Driven by its political masters, it continues to consolidate control over Russia's vast oil and (especially) gas resources, and many Western observers are worried by its international expansion into downstream assets. In a new study of the energy giant, Nadejda Victor details the ways in which Gazprom's actions are distorted by political demands and by the inefficiency of the Russian economy, suggesting that it is headed for a production crisis if business and investment considerations don't start to take a higher priority.
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Politicians around the world are in vigorous agreement on the critical importance of "energy security." And yet useful definitions of the term are scarce, as is the recognition that "energy security" means different things to different people. Americans focus most on the risks of imported oil, Europeans on their dependence on Russian natural gas. Less commonly considered in the industrialized world is what energy security means to emerging powers like China and India, desperately poor countries in Africa and South Asia, or even major energy exporters like Russia or states in the Persian Gulf. By making explicit these many "faces" of energy security, we can begin a more useful debate on how to make the global energy economy more robust for all players. This talk will suggest some frameworks for thinking about energy security from both consumer and producer sides, and then explore specific cases in developing and transition economies -- in particular, the perspectives of China as a major importer of oil and Russia as a major exporter of natural gas.

Mark Thurber is Research Program Manager at PESD, where he oversees all aspects of the Program's research and is also directly responsible for research on low-income energy services. Before coming to PESD, Dr. Thurber worked in high-tech industry, focusing on volume manufacturing operations in Mexico, China, and Malaysia. This work included a multi-year assignment in Guadalajara developing local technological capability in precision manufacturing measurements. Dr. Thurber holds a PhD from Stanford University in Mechanical Engineering (Thermosciences) and a BSE from Princeton University in Mechanical and Aerospace Engineering with a certificate from the Woodrow Wilson School of Public and International Affairs. His academic research has included engineering studies of gas-phase laser diagnostics as well as policy analyses of technology management in the developing world and power plant emissions reductions strategies in the United States.

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Mark C. Thurber is Associate Director of the Program on Energy and Sustainable Development (PESD) at Stanford University, where he studies and teaches about energy and environmental markets and policy. Dr. Thurber has written and edited books and articles on topics including global fossil fuel markets, climate policy, integration of renewable energy into electricity markets, and provision of energy services to low-income populations.

Dr. Thurber co-edited and contributed to Oil and Governance: State-owned Enterprises and the World Energy Supply  (Cambridge University Press, 2012) and The Global Coal Market: Supplying the Major Fuel for Emerging Economies (Cambridge University Press, 2015). He is the author of Coal (Polity Press, 2019) about why coal has thus far remained the preeminent fuel for electricity generation around the world despite its negative impacts on local air quality and the global climate.

Dr. Thurber teaches a course on energy markets and policy at Stanford, in which he runs a game-based simulation of electricity, carbon, and renewable energy markets. With Dr. Frank Wolak, he also conducts game-based workshops for policymakers and regulators. These workshops explore timely policy topics including how to ensure resource adequacy in a world with very high shares of renewable energy generation.

Dr. Thurber has previous experience working in high-tech industry. From 2003-2005, he was an engineering manager at a plant in Guadalajara, México that manufactured hard disk drive heads. He holds a Ph.D. from Stanford University and a B.S.E. from Princeton University.

Associate Director for Research at PESD
Social Science Research Scholar
Mark C. Thurber Speaker
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