The Washington Post recently reported on Oman's turn to enhanced recovery techniques to get at its remaining oil. Without enhanced recovery, experts say only ten more years of oil are available in Oman. With it, perhaps forty years' worth. In any case, the techniques are quite costly, which is fine with the current, high price of oil. Yet, as the article says, diversification is ever-more important.
Oman's oil production peaked at 840,000 barrels per day in 2000 and has fallen to a low of 561,000 bpd in 2007.
Showing posts with label oil. Show all posts
Showing posts with label oil. Show all posts
Sunday, August 24, 2008
Thursday, July 17, 2008
Economics, Capitalism, and Political Development
For those who are interested, one of the Economist's blogs is having a "summer book club" discussion of Milton Friedman's Capitalism and Freedom.
As reported by the Gulf News and linked by Emirates Economist, Abu Dhabi, of all places, is having serious fuel shortages these days.
Washington Post reports on Saudi Arabia's plan for a post-oil economy. Major problems are that education is still poor and Saudi manufactures are extremely few.
These are all related. How? I don't really have the time to go into great detail, but the bottom line is that Gulf states have massive economic resources in their hands due to the riches beneath their soils. These states have been able to extract these resources with relatively little effort and development. The knowledge and expertise for this industry was rented, leased, bought, contracted, however you want to look at it, from developed economies. The technical know-how, the instruments, and the educated citizens were bought, brought to Arabia, and turned to at extracting oil. This came at quite a profit to the oil companies and their employees, but also to the state governments themselves. But, critically, in this jump to prosperity, the ruling elites were never forced to build a state: educated citizenry, capable institutions, far-reaching infrastructure, heavy industrial base, and the rule of law and sense of national identity that binds all of these things together.
Like the communist economic system, this state-centric economic system is showing signs of wear and tear as the Abu Dhabi story points out. An oil rich Emirate cannot supply its own citizens with gas because there is no incentive for companies to do so at unfavorable terms. Gulf states are realizing this, and are moving toward greater degrees of privatization, are attempting to improve infrastructure, and are revamping educational curricula. Yet, some of the most important aspects of state-building, the involvement and investment of the citizens, unified under a national identity and respect for the rule of law as enforced by the government, is lacking. This will be a major challenge in the coming years. How do Gulf rulers change their societies to create post-oil economies that employ citizens in a meaningful way and provide them and their government with a powerful income source without giving up the social provisions, price supports, and other handouts upon which they have based their legitimacy? And once citizens are more educated and involved, can the ruling elites keep the tight grip on the press and other levers of power that they now have?
The Gulf over the coming years will be a real-time laboratory in state-building as they attempt to jump to economic prominence that it took other countries centuries to create. While this project is starting with the economy, there is likely to be a great deal of spill-over into the political realm, which is a main topic of Friedman's book. If the Gulf is successful in creating a post-oil economy capable of maintaining some degree of the income it enjoyed from oil, the political sphere is likely to look quite different than it does today.
As reported by the Gulf News and linked by Emirates Economist, Abu Dhabi, of all places, is having serious fuel shortages these days.
Washington Post reports on Saudi Arabia's plan for a post-oil economy. Major problems are that education is still poor and Saudi manufactures are extremely few.
These are all related. How? I don't really have the time to go into great detail, but the bottom line is that Gulf states have massive economic resources in their hands due to the riches beneath their soils. These states have been able to extract these resources with relatively little effort and development. The knowledge and expertise for this industry was rented, leased, bought, contracted, however you want to look at it, from developed economies. The technical know-how, the instruments, and the educated citizens were bought, brought to Arabia, and turned to at extracting oil. This came at quite a profit to the oil companies and their employees, but also to the state governments themselves. But, critically, in this jump to prosperity, the ruling elites were never forced to build a state: educated citizenry, capable institutions, far-reaching infrastructure, heavy industrial base, and the rule of law and sense of national identity that binds all of these things together.
Like the communist economic system, this state-centric economic system is showing signs of wear and tear as the Abu Dhabi story points out. An oil rich Emirate cannot supply its own citizens with gas because there is no incentive for companies to do so at unfavorable terms. Gulf states are realizing this, and are moving toward greater degrees of privatization, are attempting to improve infrastructure, and are revamping educational curricula. Yet, some of the most important aspects of state-building, the involvement and investment of the citizens, unified under a national identity and respect for the rule of law as enforced by the government, is lacking. This will be a major challenge in the coming years. How do Gulf rulers change their societies to create post-oil economies that employ citizens in a meaningful way and provide them and their government with a powerful income source without giving up the social provisions, price supports, and other handouts upon which they have based their legitimacy? And once citizens are more educated and involved, can the ruling elites keep the tight grip on the press and other levers of power that they now have?
The Gulf over the coming years will be a real-time laboratory in state-building as they attempt to jump to economic prominence that it took other countries centuries to create. While this project is starting with the economy, there is likely to be a great deal of spill-over into the political realm, which is a main topic of Friedman's book. If the Gulf is successful in creating a post-oil economy capable of maintaining some degree of the income it enjoyed from oil, the political sphere is likely to look quite different than it does today.
Friday, May 30, 2008
Oil, Oil Everywhere
WSJ reports that despite rising oil prices (57% last year), top oil exporters' shipments dropped by 2.5% last year and are expected to trend similarly this year. This is a major aspect behind the continued high oil prices.
There are several phenomena behind this drop in exports. First, is the declining outputs from aging fields in some countries. As oil fields age, it takes more effort and energy to extract it, slowing exports down. Second, investment in new fields and technology is slowing in some areas due to economic troubles and rising taxation on new developments. Third, increasing internal demand for oil in producing countries is eating into their exports.
In places like Saudi, UAE, and I'd imagine Oman, too, rising development and lower-than-expected natural gas supplies is making states eat into their oil exports in order to fuel their own needs. It probably doesn't help that, in many places, developments are audacious in their energy consumption and that energy subsidies encourage profligacy.
Add to this the commonly discussed rising demand from China and India, and its no wonder that oil prices are so high. While some commentators in other venues are saying that oil can't stay this high over the medium-term, an analyst quoted in the article stated, "The sense in the market is that peak oil is here and that things will only get worse, but the verdict is still out on that."
Peak oil is the not-so-magical point at which oil production begins to decline permanently as we head toward depletion of the resource. When this happens, there will have to be some major adjustments to nearly every aspect of economic and industrial life in the world.
I read Karl Polyani's The Great Transformation a while ago. It is a cheery little book. In it, Polyani argues that nineteenth-century civilization and the Hundred Years' Peace rested on the balance of power system, the international gold standard, the self-regulating market, and the liberal state. When the economic foundations of this system came crashing down, the political system that had been built to perpetuate them was thrown into upheaval in the form of the most destructive war the world had ever seen (World War II).
I haven't thought long and hard enough about this, but it seems to me that a lot of the same conditions are present today. Oil is not equivalent to the gold standard, but going off oil will be somewhat similar economically and will probably throw the global economic system into turmoil. Furthermore, while many of the developed states have created sustainable social protections against the self-regulating market in the wake of WWII, many developing nations face the same struggles as to whether labor is to be treated as a freely-traded commodity or not. Polyani argues that the differing types of social protections created by states in the beginning of the twentieth century was behind the World War. This argument is furthered by a huge book called The Shield of Achilles by Philip Bobbitt. I think that these phenomenon may come to a head as oil starts to run out. Could there be another great transformation ahead?
There are several phenomena behind this drop in exports. First, is the declining outputs from aging fields in some countries. As oil fields age, it takes more effort and energy to extract it, slowing exports down. Second, investment in new fields and technology is slowing in some areas due to economic troubles and rising taxation on new developments. Third, increasing internal demand for oil in producing countries is eating into their exports.
In places like Saudi, UAE, and I'd imagine Oman, too, rising development and lower-than-expected natural gas supplies is making states eat into their oil exports in order to fuel their own needs. It probably doesn't help that, in many places, developments are audacious in their energy consumption and that energy subsidies encourage profligacy.
Add to this the commonly discussed rising demand from China and India, and its no wonder that oil prices are so high. While some commentators in other venues are saying that oil can't stay this high over the medium-term, an analyst quoted in the article stated, "The sense in the market is that peak oil is here and that things will only get worse, but the verdict is still out on that."
Peak oil is the not-so-magical point at which oil production begins to decline permanently as we head toward depletion of the resource. When this happens, there will have to be some major adjustments to nearly every aspect of economic and industrial life in the world.
I read Karl Polyani's The Great Transformation a while ago. It is a cheery little book. In it, Polyani argues that nineteenth-century civilization and the Hundred Years' Peace rested on the balance of power system, the international gold standard, the self-regulating market, and the liberal state. When the economic foundations of this system came crashing down, the political system that had been built to perpetuate them was thrown into upheaval in the form of the most destructive war the world had ever seen (World War II).
I haven't thought long and hard enough about this, but it seems to me that a lot of the same conditions are present today. Oil is not equivalent to the gold standard, but going off oil will be somewhat similar economically and will probably throw the global economic system into turmoil. Furthermore, while many of the developed states have created sustainable social protections against the self-regulating market in the wake of WWII, many developing nations face the same struggles as to whether labor is to be treated as a freely-traded commodity or not. Polyani argues that the differing types of social protections created by states in the beginning of the twentieth century was behind the World War. This argument is furthered by a huge book called The Shield of Achilles by Philip Bobbitt. I think that these phenomenon may come to a head as oil starts to run out. Could there be another great transformation ahead?
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