Oil
Authors
Scott Rozelle
Scott Rozelle
News Type
News
Date
Paragraphs

OMAHA (DTN) -- China is the world's No. 1 producer and consumer of pork and poultry, producing more than five times the pork raised in the U.S. and 80 percent as much poultry. With its economic growth and increasing middle class, it is inevitable that meat consumption will rise.

The question is: Will China be able to continue to boost production sufficiently to meet that demand? The answer has implications for U.S. grain and meat producers.

"Rapidly rising incomes will have wrenching effects on the demand for food," said Scott Rozelle, agricultural economist at Stanford University. "As increasingly well-off consumers get fewer of their calories from rice and wheat, they will demand more from high-value products such as meat, fish, dairy and fruit. Urbanization has similar impacts, dampening the demand for rice and wheat and raising the demand for meat, fish, dairy and fruit. Trying to meet these rising -- and shifting -- demands will pose a large challenge."

Most importantly, given the great constraints China faces in arable land and water, the government has chosen to focus its agriculture in two ways: staple food crops such as rice and oilseeds and value-added products, said Francis Tuan, with USDA's Foreign Agriculture Service. It is aiming for a high percentage of self-sufficiency in staples to ensure its population doesn't go hungry. On the other hand, it wants to garner as much economic growth from agricultural production as possible.

"China is exporting more labor-intensive fruits and vegetables and higher-value commodities, while it is importing more land-intensive agricultural commodities, such as soybeans, cotton, sugar and dairy," Rozelle added. "These shifts are obviously more in line with China's comparative advantage."

One example of that trend is China's purchases of raw soybeans to be crushed in China for oil. Another is some farmers leaving crop production to focus on livestock.

All News button
1
-

About the speaker:

Dr. Franz Cede is a retired Austrian diplomat who served as the Austrian Ambassador to Russia (1999-2003) and to NATO (2003-2007). He also was the Legal Advisor to the Austrian Foreign Ministry. He has a strong California connection dating back to the time when he was the Austrian Consul General in Los Angeles 20 years ago. Dr Cede holds the degree "Doctor of Law" from Innsbruck University. He received an M.A. in international affairs from the School of Advanced International Studies (SAIS) in Washington, D.C., and is currently an associate professor at the Andrassy University in Budapest, Hungary. Dr. Cede has published several books and articles in the field of international relations, international law and diplomacy.

Jointly sponsored by The Europe Center at the Freeman Spogli Institute for International Studies, and the Center for Russian, East European and Eurasian Studies.

 

Audio Synopsis:

In this talk, Dr. Cede details his views on Russia's evolving relationships with the EU, NATO, and the US, drawing on his experiences as Austrian ambassador to the Soviet Union from1999 to 2003. Cede first outlines his perceptions of present-day Russia-US and Russia-NATO relations. Russia, he explains, still thinks in Cold War terms of bilateral relations and considers the United States to be its primary strategic partner on global security issues, especially in light of the Obama administration's recent "reset" of relations and ratification of the new START treaty. In contrast, Russia views NATO as outdated and yet still a threat. Its expansion to the East is viewed with suspicion by Putin's administration, which considers these developments to be distinctly anti-Russian. Russia engages with NATO only to the extent that it believes it can influence the organization's behavior and policies toward Moscow.  Still, in Cede's experience, the NATO-US-Russia triangle continues to be at the forefront of Russian policymakers' dialogue. Russian leaders prefer to avoid dealing with the EU because it lacks a coherent foreign policy, and also because Russia prefers bilateral relations with countries that offer a strategic benefit. Dr. Cede quotes Timothy Garton Ash, who wrote in a recent op-ed that "much of the Russian foreign policy elite treats the European Union as a kind of transient, post-modern late 20th century anachronism: flawed in principle, and feeble in practice. What matters in the 21st century, as much as it did in the 19th century, is the...determination of great powers." Dr. Cede cites the Georgian military intervention and recent Ukrainian gas crisis as examples of Russia's renewed attempts to reestablish dominance in its neighborhood.  

In the second portion of his talk Dr. Cede traces the evolution of Russian views of the EU and NATO.  Ten years ago, the EU-Russia relationship was largely ignored in the Russian media. When Cede asked Russian citizens for their views on the EU, they "either didn't know or didn't care." As Ambassador, Dr. Cede found Russian officials better informed, but  disdainful of being given orders by EU donors and "treated like a developing country." Cede illustrates this dynamic by recounting the 2004 incident in which the EU forced the residents of Russia's Kaliningrad Oblast region to apply for EU Shengen visas, which then required special permits to travel throughout Russia.  Western assurances that EU expansion to the east was not an attack on Russia but rather an attempt to extend stability to the Eastern bloc fell on deaf ears. Cede believes that notwithstanding Russia's attitude, the country is too big to ever join the EU, or to be influenced by Europe in its policy decisions. Because Russia still views itself as "one of the poles in a multipolar world," Dr. Cede insists that any change must come from within the country. However, Cede views Russia's candidacy to the WTO, which would require a clearer commitment to democracy and open economic policies, as a glimmer of hope.

Finally, Dr. Cede outlines several "permanent" features of Russia's relationship with the world, including economic interdependence, lack of cooperation on security policy, and weak relations with stateless organizations like the EU and NATO. He lays out several recommendations, which are elaborated on during the Q&A session:

  1. EU policymakers and other Western powers (notably the US) should strengthen their common Russia policy. Given the EU's dependence on Russia for oil and gas, it should also diversify its own energy sources to strengthen its bargaining position.
  2. The EU should consider membership for "bridge countries" such as Ukraine, Moldova, and Belarus.
  3. Personal diplomacy between universities, civil society, and citizens is important.  This includes reevaluation of visa policy. Cede hopes that the advent of the internet will also help improve attitudes between Russia and the rest of the world.

Reuben W. Hills Conference Room

Franz Cede Former Austrian Ambassador to Russia Speaker
Seminars
News Type
News
Date
Paragraphs

Speaking to key decision makers from the Department of Energy and the Department of State, Morse analyzed how to address the fact that coal is now both the leading fuel of choice in the developing world (passing oil in 2006) and the leading cause of climate change. 

Morse offered two strategic frameworks for US policy to reduce emissions from coal-fired power: substitution and decoupling. 

Under the substitution strategy, Morse compared the relative costs and carbon mitigation potential of a portfolio of alternative baseload power generation technologies that could be deployed in the developing world, taking into account political and resource constraints in key countries such as China and India. 

Under the decoupling strategy, Morse analyzed the options for carbon capture and storage compared to the mitigation potential of increasing the combustion efficiency of the existing coal fleet.  Drawing on PESD analysis of coal, power, and gas markets in the developing world, PESD put forward pragmatic strategies to US Government officials that could reduce carbon emissions at scale, without waiting on the emergence of a global carbon market.

All News button
1
Authors
Frank Wolak
Frank Wolak
News Type
Commentary
Date
Paragraphs

Any mention of climate policy was noticeably missing from President Obama's recent state of the union address. This is unfortunate because every day of inaction on climate policy by the United States government is another day that American consumers must pay substantially higher prices for products derived from crude oil, such as gasoline and diesel fuel. Moreover, a substantial fraction of the revenues from these higher prices goes to governments of countries that the US would prefer not to support.

So, what is the cost of a single day of delay? US crude oil consumption is approximately 20m barrels per day and roughly 12m barrels per day are imported. An oil price that, because of climate policy uncertainty, is $20 a barrel higher than it would otherwise have been implies that US consumers pay $400m per day more, of which $240m per day is paid to foreign oil producers. Dividing these figures by the United States population implies that every US citizen is paying about $1 per day more for oil - and more than half of that may be going to an unfriendly foreign government.

Why does this climate policy price premium exist? It is not due to a dearth of readily available technologies for producing substitutes for conventional oil. A number currently exist that are economic at oil prices significantly below current world prices of $80-90 per barrel. Several even have the potential to scale up to replace a large fraction of US oil consumption.

Tar sands and heavy oils, gas-to-liquids and coal-to-liquids are all available to produce substantial amounts of conventional oil substitutes at average costs at or below $60 per barrel. If these technologies were currently in place throughout the US, the world price of oil would not exceed that price, because any attempt by conventional oil suppliers to raise prices beyond that level would immediately be met by additional supply from producers of oil substitutes.

But if these technologies are financially viable at current world oil prices, then why don't they exist in the US? That's because they require massive up-front expenditures to construct the necessary production facilities. These fixed costs, plus the variable costs of production, must be recovered from sales over the lifetime of the project - and future climate policy can substantially increase the variable costs of these technologies.

Climate policy uncertainty impacts of the economic viability of these technologies because of the increased carbon intensity of the gasoline and diesel fuel substitutes they produce. Almost double the greenhouse gas emissions result per unit of useful energy produced and consumed relative to conventional oil. Therefore, if the US decided to set a significant price for carbon dioxide (CO2) emissions at some future date, either through a cap-and-trade mechanism or carbon fee, investors in these technologies would immediately realise a massive loss - because they would have to pay the price fixed for all of the CO2 emissions that result from producing and consuming these oil substitutes.

To understand this point, suppose that a technology exists to convert coal to an oil substitute that is financially viable at an oil price of $60 per barrel and that this technology produces double the CO2 per unit of useful energy relative to oil. At a $90 per barrel oil price, this technology could be unprofitable for a modest price of carbon dioxide (CO2) emissions because of its substantially higher carbon intensity. For instance, at a $100 per ton price of CO2 emissions - which is roughly twice the highest price observed in the European Union's emissions permit trading scheme - the total cost per barrel of oil equivalent, including the cost of the additional emissions, could easily exceed $90 per barrel.

A solution to this investment impasse is a stable, predictable price of carbon into the distant future. Although there is currently a regional cap and trade mechanism for CO2 emissions in the Northeast US, permit prices in the Regional Greenhouse Gas Initiative (RGGI) have been extremely modest - less than $5 per ton of CO2. California also plans to implement a cap-and-trade mechanism in 2012. No significant coal-mining activity takes place in the participating RGGI states or in California. But such regional cap-and-trade programmes are unlikely to set prices for CO2 emissions for a long enough time and with sufficient certainty to encourage investment in facilities to produce conventional oil substitutes. In other words, despite regional experiments with cap-and-trade, it is the national climate policy uncertainty that remains the major factor in preventing these investments.

If prospective investors in the major fossil fuel-producing regions of the US knew the cost of the CO2 emissions associated with these alternative technologies over the lifetime of each alternative fuel project, they would be able to decide which projects are likely to be financially viable at that carbon price. Particularly for coal-to-liquids, much of this investment would take place in the US because of the massive amount of available domestic coal reserves. This investment would also provide much-needed new domestic high-wage jobs.

New sources of supply of conventional oil substitutes would reduce oil prices, create new jobs in the United States and reduce the amount of money sent to governments, whose interests are counter to the US. Finally, this price of carbon would raise much-needed revenues for the US government and stimulate investment in lower carbon energy sources, such as wind, solar and biofuels. A modest, yet stable long-term price of carbon might even stimulate so much investment in conventional oil substitutes and low-carbon energy sources that the long-term net effect of this carbon price could be lower average energy prices across all sources.

The investments in these technologies need not result in higher aggregate CO2 emissions. For example, coal-to-liquids produces a concentrated CO2 emissions stream that is ideally suited to the deployment of carbon capture and sequestration (CCS) technology. Consequently, a carbon price high enough to make CCS financially viable, yet reasonable enough to make this technology competitive with conventional oil, would address both concerns.

If there are concerns that committing to a modest carbon price may be insufficient to address climate concerns, this commitment could be stipulated only for investment projects initiated within a certain time window. The US government could reserve the right to increase this CO2 emissions price for projects initiated after that period. This logic has not escaped the Chinese government, where General Electric and Shenhua, a major Chinese coal producer, recently announced a joint coal gasification project, which is financially viable because the Chinese government can provide the necessary climate policy certainty.

The choice is stark: either we can continue to wait to implement the perfect climate policy, and in the meantime pay higher prices for oil, and watch countries like China that are able to provide climate policy certainty to investors move forward with this new industrial development; or we could commit to a modest climate policy and so unleash the new technologies and new jobs made possible by this more favourable investment environment.

All News button
1
-

Antonio Purón was a senior partner of McKinsey & Company in the Mexico Office until January 2008.  His 27 year practice concentrated on serving clients in the energy, chemicals and petrochemicals sectors in Mexico, the United States, Argentina, Brazil, Chile and Venezuela.  In addition, he led work for clients in the financial institutions, consumer goods, retail, water, construction, transportation, manufacturing and telecommunications industries. 

In Mexico he served government and contributed to the modernization and deregulation of the national electric system and the E & P division of the national oil company, and has collaborated in the evolution of the country's basic infrastructure, such as gas distribution, municipal water utilities, ports, toll roads, and solid waste disposal.  His practice comprises both working for authorities and state-owned companies as well as with private investors interested in participating in sectors recently deregulated.

In the industrial and financial sectors he led projects for major national groups and global corporations, focused on strategic planning and growth, operations improvement, organization and process redesign, optimization and diversification of their product and market portfolios in light of the new competitive environment.  In the consumer goods industry he served the leading national companies and global corporations in projects aimed at designing their growth strategy through mergers and acquisitions, partnerships, entry to new markets as well as into other businesses and categories, and e-commerce, valuation of companies, and organizational restructuring.  In retail he collaborated with the major building materials and supermarket chains in Mexico helping to design their growth strategy, improve the performance of their process management, direct sales force management and develop and implement marketing and pricing strategies.

He has authored contributions on productivity and International competitiveness, and collaborated with several higher-education, cultural, arts, non-for-profit and social service institutions.  He is a founding member of Metropoli 2025 and of the board of Universidad Iberoamericana, Promujer, the National Arts Museum and of Instituto de Fomento e Investigación Educativa. He has authored several articles on urban productivity.

Prior to joining McKinsey, Mr. Purón worked at the Department of Special Studies of Ingeniería Panamericana, at the Instituto Mexicano del Petróleo, and at Polioles, S. A., where he had experience in planning, technological evaluation, systems development and project control.

He holds a B.S. in Chemical Engineering (Summa Cum Laude) from the Universidad Iberoamericana, and was a candidate for the master's degree in Chemistry.  He also earned an M.B.A. from Stanford University.

Since retirement Antonio is devoting the bulk of his time to three projects he is passionate about:  1) Giving a high-quality alternative to children currently dependent an poor-quality public basic education so that they can become competitive in a global society, 2) Influencing public policy to revert the current vicious circle of agricultural policies-extreme poverty-migration and 3) Changing the monopolistic control that political parties' leaderships exert on the political process in Mexico.

He is currently an associate fellow of CIDAC (independent think-tank) and participates in the boards of Banco Santander, Nadro, S.A. (JV of McKesson in Mexico), Munal (National Arts Museum), Progresemos (agricultural microfinance) and Centro de Colaboración Cívica (chapter of Partners for Democratic Change).

 

CO-SPONSORED BY COMPARATIVE POLITICS

CISAC Conference Room

Antonio Puron Associate Fellow CIDAC Mexico & Director Emeritus, McKinsey & Company Speaker
Seminars
Paragraphs

Executive Summary

Natural gas can offer substantial environmental, energy security, and convenience advantages over competing fuels such as coal and oil.   Gas is relatively abundant in the world, but the adoption and use of gas are hindered by its requirement for costly transport infrastructure. Because the pipelines or liquefied natural gas (LNG) facilities for moving gas are expensive to construct, investors depend on many years of reliable operation to recover their upfront capital outlays. Moreover, as gas cannot be stored as easily or cheaply as oil, governments must ensure that these expensive pipelines and LNG facilities will find consumers who are willing to pay prices for gas sufficient to enable long-term cost recovery. Bringing new gas to market thus means solving a high-stakes coordination problem that spans the upstream (development of the gas field itself), midstream (construction of transport infrastructure), and downstream (provision of gas to end use customers and ensuring consumer demand) parts of the gas value chain.

In their use of price subsidies to stimulate domestic gas demand, governments have in a number of cases deterred the development of gas supply and created shortages. At the same time, full price liberalization tends to face political resistance from domestic consumers of gas. Some governments have finessed this issue by creating markets with both planned and liberalized components.   Another challenge faced by gas-rich governments is how to mitigate risks faced by both prospective gas suppliers and prospective gas consumers in a nascent market, especially given the need to build and pay for costly gas transport infrastructure. In this paper, we discuss ways that governments can manage a delicate balancing act on gas, providing a predictable investment climate and regulatory framework to foreign investors while at the same time developing and serving a robust domestic market for gas. 

All Publications button
1
Publication Type
Journal Articles
Publication Date
Journal Publisher
Program on Energy and Sustainable Development
Authors
Mark C. Thurber
Mark Thurber
Joe Chang
Paragraphs

Introduction

This essay examines the two biggest environmental polluters, the oil and coal industries, and the possibilities of renewable energy that could replace them. I see the masters of these organisations, CEOs and top officials in the case of corporations, and state leaders in the case of command economies such as China or Saudi Arabia, as responding to nearterm demands and interests at the expense of long-term ones, thus endangering the planet. In the case of democratic nations, the firms seek to manipulate public opinion to ignore warnings about their emissions, and government representatives and officials to forestall changes that would threaten their interests. Meanwhile, because of their success in the areas of public opinion and legislation, there is insufficient funding for promising energy alternatives that are carbon-free.

All Publications button
1
Publication Type
Books
Publication Date
Journal Publisher
Routledge in "Handbook of Society for Climate Change"
Authors
Charles Perrow
News Type
News
Date
Paragraphs
In a new working paper, PESD affiliate Peter Nolan and associate director Mark Thurber find that considerations of risk help explain why oil-rich states may choose international oil companies rather than state-controlled enterprises to find and extract oil in "frontier" territories.

Abstract

Conventional wisdom holds that oil sector nationalizations are rooted in political motives of the petroleum states, which perceive value in the direct control of resource development though a state enterprise.  State motives are inarguably important.  At the same time, we argue in this paper that constraints of risk significantly affect a state's choice of which agent to employ to extract its hydrocarbons.  Implicit in much current debate is the idea that private, international oil companies (IOCs) and the state-controlled, national oil companies (NOCs) are direct competitors, and that the former may face threats to their very existence in an era of increased state control. 

In fact, IOCs and NOCs characteristically supply very different functions to governments when it comes to managing risk.  For reasons we discuss, IOCs excel at managing risk while NOCs typically do not.  IOCs, NOCs, and a third type of player, the oil service company, will all continue to exist because their distinct talents are needed by states seeking to realize the value of their petroleum resources.  However, the relative positions of these different players have changed substantially over time, and will continue to do so, in response to the shifting needs of oil-rich states.

In the first part of this paper, we explore the nature and sources of risk in the petroleum industry, how these risks change over time, the task of managing petroleum risks, and the variable capacity of state and private companies to manage them.  In the second part, we apply qualitative and quantitative approaches to test the idea that risk significantly affects the state's choice of which agent to use for petroleum extraction.  First, we review the events leading to the cluster of nationalizations that occurred in the early 1970s and assess whether they were significantly affected by considerations of risk.  Second, we explore how well variation in risk and state capacity for risk can explain changing ownership over time within a particular oil province - the UK and Norwegian zones of the North Sea.  Third, we use data from energy research and consulting firm Wood Mackenzie to quantitatively test our hypothesis about the key role of risk, looking in particular at the case of oil and gas company exploration behavior. 

In all three cases, our observations are broadly consistent with the hypothesis that risk significantly affects the state's choice of hydrocarbon agent, although, as expected, other factors emerge as important drivers of outcomes as well.

All News button
1
-

Liz Carlson is a 2010-2011 pre-doctoral fellow at CDDRL and a PhD candidate in the department of Political Science at UCLA (to be completed in 2011). While at CDDRL, she will work on her dissertation which uses experimental and survey methods to investigate whether ethnic voting in Uganda is fundamentally expressive or has its roots in the experience or expectation of ethnic patronage. She will also work on projects on the distribution of electrification in Kenya and a panel study on the impact of new oil on democratic consolidation in Ghana and Uganda. Her research has been funded by the National Science Foundation, among other sources.

Encina Ground Floor Conference Room

CURRENT INSTITUTION:
Program on Democracy, Yale MacMillan Center for International and Area Studies

0
CDDRL Fellow 2010-2011
Carlson.jpg
PhD

Liz Carlson is a 2010-2011 pre-doctoral fellow at CDDRL and a PhD candidate in the department of Political Science at UCLA (to be completed in 2011). While at CDDRL, she will work on her dissertation which uses experimental and survey methods to investigate whether ethnic voting in Uganda is fundamentally expressive or has its roots in the experience or expectation of ethnic patronage. She will also work on projects on the distribution of electrification in Kenya and a panel study on the impact of new oil on democratic consolidation in Ghana and Uganda. Her research has been funded by the National Science Foundation, among other sources.

Elizabeth Carlson CDDRL Fellow 2010-2011 Speaker
Seminars
Paragraphs

Conventional wisdom holds that oil sector nationalizations are rooted in political motives of the petroleum states, which perceive value in the direct control of resource development though a state enterprise.  State motives are inarguably important.  At the same time, we argue in this paper that constraints of risk significantly affect a state's choice of which agent to employ to extract its hydrocarbons.  Implicit in much current debate is the idea that private, international oil companies (IOCs) and the state-controlled, national oil companies (NOCs) are direct competitors, and that the former may face threats to their very existence in an era of increased state control. 

In fact, IOCs and NOCs characteristically supply very different functions to governments when it comes to managing risk.  For reasons we discuss, IOCs excel at managing risk while NOCs typically do not.  IOCs, NOCs, and a third type of player, the oil service company, will all continue to exist because their distinct talents are needed by states seeking to realize the value of their petroleum resources.  However, the relative positions of these different players have changed substantially over time, and will continue to do so, in response to the shifting needs of oil-rich states.

In the first part of this paper, we explore the nature and sources of risk in the petroleum industry, how these risks change over time, the task of managing petroleum risks, and the variable capacity of state and private companies to manage them.  In the second part, we apply qualitative and quantitative approaches to test the idea that risk significantly affects the state's choice of which agent to use for petroleum extraction.  First, we review the events leading to the cluster of nationalizations that occurred in the early 1970s and assess whether they were significantly affected by considerations of risk.  Second, we explore how well variation in risk and state capacity for risk can explain changing ownership over time within a particular oil province - the UK and Norwegian zones of the North Sea.  Third, we use data from energy research and consulting firm Wood Mackenzie to quantitatively test our hypothesis about the key role of risk, looking in particular at the case of oil and gas company exploration behavior.  

In all three cases, our observations are broadly consistent with the hypothesis that risk significantly affects the state's choice of hydrocarbon agent, although, as expected, other factors emerge as important drivers of outcomes as well.

All Publications button
1
Publication Type
Working Papers
Publication Date
Journal Publisher
Program on Energy and Sustainable Development
Authors
Peter A. Nolan
Mark C. Thurber
Mark C. Thurber
Subscribe to Oil