Geopolitics

Introduction

Meeting the energy demands of the world continues to be a tremendous ongoing challenge. Oil and gas are located in complex geopolitical environments. Nevertheless, this energy is critical to economic development and human progress everywhere, and delivering it reliably and affordably will require a massive amount of investment over time.

The International Energy Agency estimates that the world will need to invest $16 trillion over the next three decades to maintain and expand energy supply.1 Maintaining a stable and open business environment will be a key factor in attracting the kinds of long-term investments that are necessary.

  1. World Energy Investment Outlook, International Energy Agency
    http://www.iea.org/textbase/speech/2004/haug/vancouver.pdf

Where are we now?

As globalization continues to dissolve borders, nations are becoming more and more energy interdependent. Yet the majority of current hydrocarbon resources are concentrated in just five countries.2 While this has long been the case, what is different now is that more stable sources of supply—those in the U.S., Canada and Western Europe—are for the most part mature resource basins, declining in production.3

In the news today, we hear about uncertainties around the world. Even if disruptions do not affect supply in any meaningful way over the long-term, they do create a psychological risk factor, which can lead to short-term volatility in energy markets, and a reluctance to invest in those regions.4

  1. Middle East to Dominate World Oil for Many Years, International Monetary Fund, March 2003
    http://www.imf.org/external/pubs/ft/fandd/2003/03/okog.htm
  2. Accessing the Coal Resources of the United States, US Geological Survey July 1996
    http://energy.usgs.gov/factsheets/nca/nca.html
  3. Chevron website
    http://www.chevron.com/news/speeches/2004/2004-06-24_oreilly.asp

What's the Challenge?

A stable social, political and business environment is essential for attracting long-term investments. That means a reliable legal framework that recognizes the rule of law and respects contracts—which in turn leads to predictability and security. Revenue transparency is necessary to reduce the occurrence of corruption and abuse. And the basic needs of the local people must be met to provide a reliable work force, supply chain and market for products.5

  1. The Rule of Law in Western Thought, The World Bank Group
    http://www1.worldbank.org/publicsector/legal/western.htm

What's next?

When these basic conditions are in place, investment can flow and partnerships can thrive. Private industry will be more likely to bring their resources and expertise to bear on the challenges of finding new sources of energy.6

  1. Ibid.