Topic #1 Globalisation: operators, process and territories · Globalisation: operators, process and territories Case study #1 : ... (ARAMCO), starts the oil ... (Saoudi arabia) ...

Topic #1 Globalisation: operators, process and territories

Case study #1 : Oil, a globalized product

1°) A growing demand

Part 2 : Oil, a globalized product

…and a raw material for chemistry.

Oil is both a fuel (energy)…

A F14 jet afterburning during a take off from an aircraft carrier

Since the second industrialisation, in the late XIXth century, it became a strategic raw material :

An early oilfield in Pennsylvania around 1862

1933, the first drive-in theatre in the world, has openned in Camden, NJ.

In May 1933 the California Arabian Standard Oil Company, later called the Arab American Company (ARAMCO), starts the oil exploration in Saudi Arabia, with King Abdulaziz bin Abdul Rahman Al Saud’s agreement.

Coming back from Yalta conference, pdt F. D. Roosevelt met Saudi Arabia’s king, on board of the USS Quincy. Roosevelt and Saud concluded a secret agreement in which the U.S. would provide Saudi Arabia military security in exchange for secure access to supplies of oil.

The « quincy agreement », february 14th, 1945

Before, and moreover after WW2, industrialized countries, and especially the USA, got accustomed to a cheap and abundant oil :

Industrial development and society of abundance (which implies a massive consumption of goods and services) were needing fuel.

Supermarket shelves in Portland , Or.

Aerial view of a motorways interchange in Los Angeles, Cal.

Per capita world energy consumption, calculated by dividing world energy consumption shown in Figure 1 by population estimates, based on Angus Maddison data.

http://news.mongabay.com/bioenergy/2007/10/leading-scientists-energy-crisis-poses.html

… but, let’s get back to the point : oil

The « race for mass consumption », is supplied by cheap and plentyful oil…

- This chart is about oil world production from 1900 to 2009. Statistics come from 20th century petroleum statistics, edited by BP, a british oil company

- Oil production seemed to be able to grow indefinitly.

Guess the topic of this graph What could be the feeling of developed countries about oil production ?

In the middle of the 70’s, industrialized countries became aware of their dependence on oil…

Why ?

The Banyas oil terminal in Syria after being ignited with 76 mm shells fired from Israeli Saar boats

Egyptian forces crossing the Suez Canal on October 7, 1973.

Reacting to their defeat against Israël during the Kippur war in 1973, the Arab countries controlling the OPEC raised steeply the oil price.

It caused the « oil crisis »

Crude oil barrel prices jumped to 50$, inflation corrected price (20$ before the war).

Later, the oil prices increased up to 100 $ (inflation corrected price) during the 1979 Iran islamist revolution, and the 1980 crisis of American hostages in Teheran US embassy.

On November 4, 1979 between 300 and 500 selected muslim students took over

the US embassy in Teheran. 52 Americans were held hostage for 444

days from November 4, 1979, to January 20, 1981.

During the oil crisis, developed countries have: • encouraged the development of alternative energies (gas or nuclear energy) • launched energy saving plans Due to the high prices, consumers have changed their behaviors As a result, oil consumption decreased a little. But the growth went back during the 1980’s and 1990’s. Why ?

There are two essential reasons for this continuing growth: - first, globalization means more flows, and more flows implies more transports, which need oil. 60 % of oil is used by transports !

Ras Tanura (Saoudi arabia) world largest oil harbour during the 70’s

CMA CGM Marco Polo, world largest containership in 2012 with 16000 TEU (Twenty-foot Equivalent Unit)

-then, globalization has triggered the industrialization of new countries (eg. China), whose industries need energy and raw materials, and in which a new frenzied middle class adopts western standards of consumption.

Bbl = Barrel of crude oil (=159 liters)

But what about the latest datas about the oil production ?

Production has been growing slowly since the 80’s, and is stagnating since 2005. Why ?

- extracting oil is getting more and more expensive, since oil is getting rarer and rarer. Drilling deep offshore or arctic oilfields costs a lot - producers want to spare their oil instead of selling it too cheap

Perdido offshore rig in Mexico gulf : a 2500m depth drilling site

Anyway, as a fossile fuel, oil stock will be over one day. The « Peak oil » could happen from 2015 onwards…

The peak oil is the point in time when the maximum rate of extraction of petroleum is reached, after which the rate of production is expected to enter terminal decline

What are the consequences of such a situation ?

Thus, if the production stagnates, or worse decreases, while the demand keeps growing, tenses on the resources will steer prices to a peak.

Rigs like this one near Stanley, North Dakota, are an increasingly familiar sight in some parts of the United States, where the pace of oil drilling is at a 25-year high. Photograph by Karen Bleier, AFP/Getty Images

However, predicting the exact moment of the peak oil is a bit risky…

Shale gas / oil: a bane or a boon?

Whatever you think, they are fossile energies…

2°) The global oil system

How could you describe the global oil market? • What are the main elements of

this market? • Which correspondence appears

between development and consumption?

• What are the consequences of the shift between consumption and production areas?

Source: BP Statistical Review of World Energy.

Source: BP Statistical Review of World Energy.

Mapping the global oil market shows that there are - production areas - and consumption areas. … and they’re not exactly at the same place !

Logically, consumption areas are mainly industrialized or emerging countries. (G8>50%)

This situation is not about to change since the expected reserves are still concentrated in the middle east (>60%)

Among the production areas, we can focus on : - the importance of the Middle East, (which should continue, with 61 % of proven oil reserves)

Which additional information this map gives?

We can see huge oil flows between production and consumption areas. Oil remains the world most transported product (considering weight). It is a stake for an importer to secure its supplies, and a temptation for a supplier to use oil as a weapon: geopolitical issues overhang the oil market (see part 3)

2/3 of the oil is shipped by supertankers (here in Ras Tanura, Saudi Arabia). Pipelines are important too, both for oil and gas.

•Oil prices depend on demand and supply, and are mainly set in two places :

•-NYMEX : NY Mercantile Exchange, which is a stock market (photo)

•-ICE (Intercontinental Exchange, which is a forward market based in London)

•3°) Geopolitical and geoeconomic issues

•a) Oil and money : financial issues

•For producing countries, oil is a huge (if not only) source of income.

Their wealth highly depends on the prices’ fluctuations.

Oil producers invest through sovereign wealth funds.

“The QIA was founded by the State of Qatar in 2005 to strengthen the country's economy by diversifying into new asset classes.”

“its growing portfolio of long-term strategic investments help complement the state's huge wealth in natural resources.”

Biggest sovereign wealth funds

These funds invest most of their assets…. in developed countries. e.g. Qatar investments worldwide… and not only PSG soccer team.

•This money can be very helpful for the domestic economy: for example, Norway uses this money to pay pensions to retired workers. But many countries are not able to use this money efficiently, which is wasted without any profit for the population, as in Russia.

• Producing countries (mostly from the South) share the oil wealth with oil companies (mostly from the North)

Nota Bene: Upstream prices can fluctuate from 4 up to 40$ / barrel, depending on the difficulties to extract crude oil

In fact, 7 of the 10 biggest TNCs are oil companies !

• Producing countries (mostly from the South) share the oil wealth with oil companies (mostly from the North)

b) Oil and foreign policy : geopolitical issues

Many political events, and even wars, are linked to oil interests:

1st example:

- The Nigerian civil war (also known as the Biafran war), between 1967 and 1970 : the Ibos wanted to be independent, but as their territory was plenty of oil, Nigeria refused.

The Ibos were supported by France and Israel, while Nigeria was supported by the USSR… a classic conflict in the so called “cold war” that caused at least 1 million casualties!.

More surprisingly, the UK supported the Soviet point of view during the Biafran war: this is because the Ibos’ independency would have harmed British Petroleum’s interest

Meanwhile South Sudan welcomes oil deposits, Sudan gets the infrastructures to export it.

2nd example: - The Sudanese civil war, which has become since the country’s partition in 2011, the war between Sudan and South Sudan.

3rd example

The Gulf Wars (2nd & 3rd )

MDCs act in order to secure their oil supply

• the USA considered Saddam Hussein a threat for Kuwait and Saudi Arabia (1990),

• and finally as someone not enough reliable (2003)…

Cartoon published in Time magazine, 2003 WW2 Iwo Jima memorial in Washington

The Persian Gulf still is 24/365 under the supervision of the US 5th fleet: The strait of Hormuz is one of the world’s hottest choke point.

4th exemple US domestic shale gas production has dramatically increased since 2005/2007 , in the aftermath of 9/11: It is a way to reduce the country’s dependance toward the Middle East (especially Saudi Arabia, from whom came half of the terrorists). US imports from Saudi Arabia has been cut off of a third in a decade.

5th example

Pipe lines routes

Although there were some already existing Russian and Iranian pipelines, Western TNCs have invested a lot of money to support a Turkish project designed to export the Caspian oil … Turkey is percieved as being more reliable.

Since the beginning of the 21th century, a new balance of power

The oil needs of emerging countries, like China & India, is the major cause of the sudden rise of oil prices since 2004 (X4)

http://www.growthstockwire.com/2561/the-great-chindia-oil-grab

C) Oil and environmental issues : a global threat ?

What are the messages of those two cartoons ?

Globalization is the process of international integration arising from the interchange of world views, products, ideas, and other aspects of culture. Thanks to an array of new or improved communication technologies, people & various organizations try to make the most of the differences existing throughout the world.

Conclusion :

• Compare the definition with the case study:

•Conclusion :

Oil is a good example of a globalised product. Its globalized market enlights:

- World wide operators (from the ship-owners to the states, including TNCs, commodities financial markets…)

- Strategic places (straits, stock exchanges, head offices, deposits, harbours…)

- Communication and transportation improvements (super tankers, <1€ for 1 t of crude oil shipped from the Middle East to Europe )

The oil global system shows quite well that globalisation includes both economical and political issues.

It reveals a complex hierarchy (who is in command: the suppliers or the customers?) and some deep moves in the world’s economy.

Moreover as a fossil and a carbon fuel, it is a symbol of a global environmental threat, which cross boundaries and calls for an international response.

KOF Index: Ranking of the most global countries based on three dimensions of globalization: economic globalization, social globalization and political globalization.

A world map colored to show the level of Internet penetration (number of Internet users as a percentage of a country's population).