The Changing Geopolitics of Energy Part II

CSIS Center for Strategic and International Studies 18 K Street N.W. Washington, DC 26 (22) 775-327 The Changing Geopolitics of Energy Part II Global Oil and Gas Production and Reserves Anthony H. Cordesman With the Assistance of Sarin Hacatoryan Strategic Energy Initiative Center for Strategic and International Studies August 11, 1998

The Changing Geopolitics of Energy II 8/12/98 Page 2 Table of Contents IMPACT OF OIL AND GAS ON PRESENT AND FUTURE GLOBAL ENERGY DEMAND... 4 KEY OIL ISSUES... 5 Estimated Growth of Oil and Gas Use: 197-22... 6 Growing World and US Dependence on Imported Oil: 199-22... 7 In the Past, the West Has Driven the Rise in Demand for Oil with Little Impact from Developing Asia: World Oil Consumption: 196-1996... 8 Asia, However, has Become a Major Oil Consumer:... 9 Asian Oil Consumption: 196-1996... 9 Asia Will Drive Most of the Future Increase in Demand for Oil: Total World Oil Consumption by Region: 199-22...1 Comparative Growth in Demand for Oil by Region: 199-22...11 Middle Eastern Trade with Asia Must Change Fundamentally and Recycling Petro-Yen Will Not Be Easy...12 KEY GAS ISSUES...13 North America, the FSU, and Western Europe Will Stay the Largest Consumers, but Asia Will Drive Most of the Increase in Gas Demand...14 Comparative Growth in Demand for Gas by Region: 199-22...15 Asia Will Make Major Increases in its Gas Imports:...16 Asian Gas Consumption: 199-22...16 GEOPOLITICAL IMPACT OF OIL AND GAS RESERVES...17 OIL RESERVES AND GEOPOLITICS...18 Shifts in the Regional Balance of Oil Reserves...19 The Middle East and the Gulf Dominate Future Oil Supply: World Oil Reserves by Region as a Percent of World Total...2 OPEC versus Non-OPEC Production, Reserves and Refining Capacity...21 OPEC Status by Country...22 The Middle East and the Gulf Dominate Future Oil Supply: World Oil Reserves by Region in Billions of Barrels...23 Comparative World Oil Reserves by Region...24 Reserves By Region & Major Producer Country...25 Reserve to Production Ratios By Region & Major Producer...26 The Life of Oil Reserves is an Issue for Everyone...27 Oil Reserves Are Technology as Well as Price Dependent: US Reserves in the Lower 48 as a Test Case...28 GAS RESERVES AND GEOPOLITICS...29 Shifts in the Regional Balance of Gas Reserves...3 The Middle East and the Gulf Dominate Future Gas Supply: World Oil Reserves by Region as a Percent of World Total...31 The FSU and the Middle East Dominate Future Gas Supply: World Oil Reserves by Region in Trillions of Cubic Meters...32 World Gas Reserves by Key Nation...33 World Gas Reserve to Production Ratios by Key Nation...34 Gas Reserves Are Also Technology as Well as Price Dependent: US Reserves in the Lower 48 as a Test Case...35 UNCERTAINTIES AFFECTING KEY SUPPLIERS AND EXPORTERS...36 KEY AREAS OF UNCERTAINTY IN GLOBAL SUPPLY...37 World s Growing Dependence on the Gulf and Middle East: Projected Total Global Oil EXPORTS by Source in 1995 and 22...38 World s Growing Dependence on the Gulf and Middle East:...39 Projected Total Global Oil IMPORTS by Source in 1995 and 22...39 Rising Asian Demand is Met by Rising Middle Eastern Production: Net Balance of Regional Imports and Exports: 1995-215...4

The Changing Geopolitics of Energy II 8/12/98 Page 3 Large Amounts of Oil Production and Exports Are at Risk...41 in Key Exporting Countries: 1995-215...41 Cumulative Risk: Estimated Total Demand for Exports from Countries with Sensitive or High Risk Oil Production Capacity Affects 5% of World Supply...42 The FSU, Saudi Arabia, and Iraq are the Three Most Critical Future Exporters...43 Today s Rogues Had Damn Well Better Be Tomorrow s Suppliers: 1995-22...44 Pattern of Oil Exports Could Sharply if the FSU Does Not Meet Estimated Production Levels and China Cannot Exploit New Fields: Prices Rises Likely...45 Domestic energy Demand Can Radically Change the Energy Available For Export: Middle Eastern Domestic Energy Demand As a Test Case...46 IEA/OECD Estimate of Middle Eastern Domestic Energy Demand...47 Downstream Operations Can Also Have Major Geopolitical Impacts: Gulf Cooperation Council vs. World Petrochemical Design Capacities: 1993...48

The Changing Geopolitics of Energy II 8/12/98 Page 4 Impact of Oil and Gas on Present and Future Global Energy Demand

The Changing Geopolitics of Energy II 8/12/98 Page 5 Key Oil Issues Oil and gas energy use rises by 75% in BTUs between 1997 and 22. Industrialized world and US become steadily more dependent on imports, with economic growth and Enhanced Oil Recovery (EOR) acting as the major uncertainty. Demand from the industrialized world, however, no longer dominates growth. Asian demand has leapt since early 196s. Asia will become the dominant consuming region by 21. Asia s Imports will increase accordingly. China is actively competing in the Great Game for Central Asia oil and has outbid US firms in some areas. The Middle East and the Gulf are projected to dominate increases in oil supply. The growing domestic demand for oil in other developing regions will become a major factor and with steadily limit the export capabilities of the Middle East, Africa, and FSU. Pipeline, port, and tanker geopolitics will change fundamentally during 1998-22. Iran, Iraq, Libya, and Russia represent high risk oil suppliers with major potential geopolitical impacts.

The Changing Geopolitics of Energy II 8/12/98 Page 6 Estimated Growth of Oil and Gas Use: 197-22 (Quadrillion BTU) 25 2 15 1 Oil 5 Natural Gas 197 199 1995 1996 2 25 21 215 22 Oil Natural Gas 197 199 1995 1996 2 25 21 215 22 Natural Gas 36.1 72 78.1 82.2 94.8 113.8 133.3 152.5 174.2 Oil 97.8 134.9 142.5 145.7 157.8 176.3 195.5 215.3 237.3 Source: Adapted by Anthony H. Cordesman from EIA, Internet, July 4, 1996, and International Energy Outlook, 1998, DOE/EIA-484(97), p. 8 and 135.

The Changing Geopolitics of Energy II 8/12/98 Page 7 Growing World and US Dependence on Imported Oil: 199-22 (Average Daily Domestic Production vs. Demand in Millions of Barrels Per Day) 6 5 4 3 2 Industrialized World Dema 1 Industrialized World Production US Total Demand 199 1996 2 25 21 215 22 US Domestic Production 199 1996 2 25 21 215 US Domestic Production 9.7 9.4 9.1 9 8.9 8.7 US Total Demand 17 18.3 19.6 21.3 22.7 23.7 Industrialized World Production 2.1 23 24.7 25.4 24.8 23.7 Industrialized World Demand 39.5 43.4 45.6 48.4 51.1 53.3 Source: DOE/EIA, International Energy Outlook, 1998, p. 136 and 175.

The Changing Geopolitics of Energy II 8/12/98 Page 8 In the Past, the West Has Driven the Rise in Demand for Oil with Little Impact from Developing Asia: World Oil Consumption: 196-1996 (in Millions of Barrels Per Day (MMBD) 8 7 6 5 4 3 2 1 World OECD US Japan China India South Korea Source: Adapted by Anthony H. Cordesman from EIA Annual Energy Review, 1998, http://www. eia.doe.gov/bookshelf.html

The Changing Geopolitics of Energy II 8/12/98 Page 9 Asia, However, has Become a Major Oil Consumer: Asian Oil Consumption: 196-1996 (in Millions of Barrels Per Day (MMBD) 14 12 India 1 South Korea 8 6 Japan 4 2 China Source: Adapted by Anthony H. Cordesman from EIA Annual Energy Review, 1998, http://www.eia.doe.gov/bookshelf.html.

The Changing Geopolitics of Energy II 8/12/98 Page 1 Asia Will Drive Most of the Future Increase in Demand for Oil: Total World Oil Consumption by Region: 199-22 (Millions of Barrels per Day) 14 12 1 FSU/E. Europe 8 6 Asia Latin America Africa Middle East 4 Western Europe 2 North America 199 1995 1996 2 25 21 215 22 FSU/E. Europe 1 5.9 5.7 5.9 6.7 7.8 9 1.1 Asia 13.8 18.3 19 21 24.8 28.5 33 38.4 Latin America 3.4 3.9 4 5.2 6.2 7.3 8.5 9.8 Africa 2.1 2.3 2.4 3.1 3.7 4.1 4.6 5.1 Middle East 3.4 4.1 4.2 4.4 5 5.6 6.3 7.1 Western Europe 12.9 14.1 14.3 14.3 14.6 14.9 15.2 15.4 North America 2.4 21.3 22 23.7 25.6 27.6 29 3.1 Source: Adapted by Anthony H. Cordesman from DOE/EIA, International Energy Outlook, 1996, Washington, DOE, EIA-484(96), May, 1996, p. 92, and International Energy Outlook, 1998, April, 1998, DOE/EIA-484(97), Reference Case, p. 136.

The Changing Geopolitics of Energy II 8/12/98 Page 11 Comparative Growth in Demand for Oil by Region: 199-22 (Millions of Barrels per Day) 4 35 3 25 2 15 1 5 North America Asia Western Europe FSU/E. Europe Latin America Africa 199 1995 1996 2 25 21 215 22 Middle East 199 1995 1996 2 25 21 215 22 Middle East 3.4 4.1 4.2 4.4 5 5.6 6.3 7.1 Africa 2.1 2.3 2.4 3.1 3.7 4.1 4.6 5.1 Latin America 3.4 3.9 4 5.2 6.2 7.3 8.5 9.8 FSU/E. Europe 1 5.9 5.7 5.9 6.7 7.8 9 1.1 Western Europe 12.9 14.1 14.3 14.3 14.6 14.9 15.2 15.4 Asia 13.8 18.3 19 21 24.8 28.5 33 38.4 North America 2.4 21.3 22 23.7 25.6 27.6 29 3.1 Source: Adapted by Anthony H. Cordesman from DOE/EIA, International Energy Outlook, 1996, Washington, DOE, EIA-484(96), May, 1996, p. 92, and International Energy Outlook, 1998, April, 1998, DOE/EIA-484(97), Reference Case, p. 136.

The Changing Geopolitics of Energy II 8/12/98 Page 12 Middle Eastern Trade with Asia Must Change Fundamentally and Recycling Petro-Yen Will Not Be Easy (Trade Patterns in 1996 in $US Current Millions) 5 48.3 4 I m por t s Ex po r t s T ot a l Bal a nc e 36.2 3 2.7 2 15 12.1 1 5.7 2.9 2.4 1.4 1.5 1.8.6.1 J apan S out h Kor ea I ndones i a M al ay s i a 1.2-1 -9.3-2 -24.1-3 Note: Arabia and the Gulf includes Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, Saudi Arabia, UAE, and Yemen. Eastern Mediterreanean includes Egypt, Israel, Jordan and Syria. North Africa includes Algeria, Morocco, Libya, Tunisia, and Sudan. All Arab includes previous countries less Iran and Israel. Middle East and North Africa includes all countries listed above. Source: Adapted by Anthony H. Cordesman from EIU, Internet data base, December 16, 1997.

The Changing Geopolitics of Energy II 8/12/98 Page 13 Key Gas Issues Massive uncertainties exist regarding the size of reserves and major changes could occur in current estimates by 22. Iran is a key uncertainty. Changes in gas liquids technology could change the definition of economic reserves, the value of gas, and the entire market for gas. Pipeline geopolitics are even more important for gas than for oil. North America, Europe, and FSU will dominate gas use, but Asian demand will rise sharply. The growth of gas use in the Pacific Rim states will be particularly high. Tanker traffic will increase because of both oil and gas demand. Russia may create pipelines to service China, Korea, and Japan - - altering current estimates of dependence on oil.

The Changing Geopolitics of Energy II 8/12/98 Page 14 North America, the FSU, and Western Europe Will Stay the Largest Consumers, but Asia Will Drive Most of the Increase in Gas Demand (Total World Gas Consumption by Region: 199-215, Trillion Cubic Feet, EIA Reference Case) 45 4 35 3 25 2 15 1 5 North America FSU/E. Europe Western Europe Developing Asia Latin America Middle East Industrial Asia 199 1995 1996 2 25 21 215 22 Africa 199 1995 1996 2 25 21 215 22 Africa 1.4 1.7 1.8 1.7 1.9 2.4 2.9 3.4 Industrial Asia 2.6 3.1 3.3 3.3 3.7 4.1 4.3 4.6 Middle East 3.6 4.7 5.2 5.4 6 6.8 7.8 8.9 Latin America 2 2.6 2.9 3.1 5 7.2 9.8 13 Developing Asia 3 4.7 5.3 9.5 14.1 18.5 22.6 27.7 Western Europe 1.3 12.7 14.1 16.2 19.9 23.5 27.7 32.1 FSU/E. Europe 28.1 23.4 23.7 26.8 31 35.2 38.7 42.7 North America 22 25.4 26 28.5 31.5 34.4 36.9 39.4 Source: Adapted by Anthony H. Cordesman from DOE/EIA, International Energy Outlook, 1996, Washington, DOE, EIA-484(96), May, 1996, p. 92, and International Energy Outlook, 1998, April, 1998, DOE/EIA-484(97), Reference Case, p. 137.

The Changing Geopolitics of Energy II 8/12/98 Page 15 Comparative Growth in Demand for Gas by Region: 199-22 (Millions of Barrels per Day) 45 4 35 3 25 2 15 1 5 FSU/E. Europe North America Western Europe Developing Asia Latin America Middle East Industrial Asia 199 1995 1996 2 25 21 215 22 Africa 199 1995 1996 2 25 21 215 22 Africa 1.4 1.6 1.8 1.7 1.9 2.4 2.9 3.4 Industrial Asia 2.6 3.1 3.3 3.3 3.7 4.1 4.3 4.6 Middle East 3.6 4.7 5.2 5.4 6 6.8 7.8 8.9 Latin America 3.9 5 5.6 5.8 8.8 12.4 16.6 21.8 Developing Asia 3 4.7 5.3 9.5 14.1 18.5 22.6 27.7 Western Europe 1.3 12.7 14.1 16.2 19.9 23.5 27.7 32.1 North America 22 25.4 14.1 16.2 19.9 23.5 27.7 32.1 FSU/E. Europe 28.1 23.4 23.7 26.8 31 35.2 38.7 42.7 Source: Adapted by Anthony H. Cordesman from DOE/EIA, International Energy Outlook, 1996, Washington, DOE, EIA-484(96), May, 1996, p. 92, and International Energy Outlook, 1997, April, 1997, DOE/EIA-484(97), Reference Case, p. 119.

The Changing Geopolitics of Energy II 8/12/98 Page 16 Asia Will Make Major Increases in its Gas Imports: Asian Gas Consumption: 199-22 (Trillion Cubic Feet of Consumption, EIA Reference Case) 35 3 25 China 2 India 15 Japan 1 Pacific Rim 5 Australasia 199 1995 1996 2 25 21 215 22 China.5.6.7 1.4 2.4 3 3.3 3.7 India.4.6.7 1.5 2.3 3.3 4.5 5.9 Japan 1.9 2.2 2.4 2.2 2.5 2.8 2.9 3.2 Pacific Rim 2.1 3.5 4 6.7 9.4 12.1 14.8 18.1 Australasia.8.9.9 1.1 1.2 1.3 1.3 1.4 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, p. 137.

The Changing Geopolitics of Energy II 8/12/98 Page 17 Geopolitical Impact of Oil and Gas Reserves

The Changing Geopolitics of Energy II 8/12/98 Page 18 Oil Reserves and Geopolitics Enhanced Oil Recovery (EOR) is steadily change reserve estimates and help the US and Northern Europe maintain reserve ratios for much longer than previously expected. Asia is oil poor in reserves, and reserves are depleting faster than new discoveries. China is having little success in finding new reserves. Offshore oil reserves in South China Sea may be myth. India has virtually no oil. Enhanced oil recovery (EOR) unlikely to provide much help. Russia s ability to exploit its reserves is economically and technically uncertain. Siberia is a particular problem. Gulf has about two-thirds of world s known oil reserves. Algeria and Libya have major reserves, and Egypt, Syria, and Tunisia have some oil. North African reserves exceed reserves of all Sub-Saharan states: Angola, Nigeria, etc. Far Eastern reserves are comparatively low, with little potential for major new discoveries. Other regions have a faster growth of domestic consumption as a ratio of reserves. Gulf and Middle Eastern oil reserves are just as important even if ultimate oil reserves are considered. New reserves in other regions tend to be offset by depletion of existing reserves.

The Changing Geopolitics of Energy II 8/12/98 Page 19 Shifts in the Regional Balance of Oil Reserves (Billions of Barrels) 7 6 1 9 7 7 5 1 9 8 7 1 9 9 6 1 9 9 8 4 3 2 1 Nor t h A m er i ca S & C A m er i ca Eur ope FSU M i ddl e East A f r i ca A si a/ Pac 1977 56.9 26.4 3.3 75 365.8 59.2 39.7 1987 93 65.7 24.2 69 564.7 55.3 37.8 1996 85.9 79.1 2.5 65.5 676.3 67.5 42.4 1998 76.6 86.2 2.2 65.4 676.9 7 42.3 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 4.

The Changing Geopolitics of Energy II 8/12/98 Page 2 The Middle East and the Gulf Dominate Future Oil Supply: World Oil Reserves by Region as a Percent of World Total (Based on Oil and Gas Journal Forecast for and a World Total of 1,37.6 billion barrels) Other Middle East 1% N. Africa 4% S. Africa 3% Asia/Pacific 4% North America 7% S&C America 8% Europe 2% Gulf 65% FSU 6% Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 4.

The Changing Geopolitics of Energy II 8/12/98 Page 21 OPEC versus Non-OPEC Production, Reserves and Refining Capacity 1% 9% 244.2 8% 7% 44.2 6% 5% 7.4 Non-OPEC 4% 797.1 OPEC 3% 2% 29.9 1% 8 % Oil Production in MMBD Reserves in Billions of Barrels Refining Capacity in MMBD Source: DOE/EIA, Non-OPEC Fact Sheet, 3/98.

The Changing Geopolitics of Energy II 8/12/98 Page 22 OPEC Status by Country (Thousands of Barrels Per Day Country 1997 Quota 1998 Quota 1998 Cutbacks* Crude Oil Production 1997 3/98 Algeria 75 99 5, 847 86 Indonesia 1,3 1,456 7, 1,366 1,34 Iran 3,65 3,942 14, 3,629 3,6 Iraq 1,2 1,314 1,182 1,82 Kuwait 2, 2,19 125, 2,38 2,21 Libya 1,39 1,522 8, 1,446 1,45 Nigeria 1,865 2,42 125, 2,217 2,27 Qatar 378 414 3, 614 7 Saudi Arabia 8, 8,761 525, 8,562 8,46 UAE 2,161 2,366 125, 2,236 2,4 Venezuela 2,359 2,583 325, 3,275 3,37 TOTAL OPEC 25,33 27,5-27,457 28,48 Mexico - - 2, - - Norway - - 1, - - Oman - - 3, - - Yemen - - 2, - - TOTAL - - 1,945, - - * Combined from the March 22, 1998, March 3 OPEC, and June 4 Amsterdam agreements. Source: Adapted by Anthony H. Cordesman from DOE/EIA OPEC Fact Sheet, June, 1998, and Oil Production Agreements of 1998, June 5, 1998.

The Changing Geopolitics of Energy II 8/12/98 Page 23 The Middle East and the Gulf Dominate Future Oil Supply: World Oil Reserves by Region in Billions of Barrels (Based on Oil and Gas Journal Forecast for and a World Total of 1,37.6 billion barrels) Nor t h A m er i ca 76.6 S& C A m er i ca 86.2 Eur ope 2.2 FSU 65.4 Gul f 67.2 Ot her M i ddl e East 6.7 Nor t h A f r i ca 42.8 Subsahar an A f r i ca 27.2 A si a/ Paci f i c 42.3 1 2 3 4 5 6 7 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 4.

The Changing Geopolitics of Energy II 8/12/98 Page 24 Comparative World Oil Reserves by Region (Billions of Barrels) 1 9 8 7 6 5 4 3 2 1 Gulf Eurasia OECD Other OPEC Other Ultimate Resources - High Estimate Ultimate Resources - Low Estimate Identified Reserves Gulf Eurasia OECD Other OPEC Other Identified Reserves 583 163.7 156.4 123.4 76.7 Ultimate Resources - Low 834.2 383.5 45.2 25.4 175.7 Estimate Ultimate Resources - High Estimate 992 636.6 65.7 317.1 255.6 Source: Adapted by Anthony H. Cordesman from DOE/EIA, International Energy Outlook, 1997, April, 1997, DOE/EIA-484(97), Reference Case, p. 35.

The Changing Geopolitics of Energy II 8/12/98 Page 25 Reserves By Region & Major Producer Country (Billions of Barrels in 1997) Nor t h A m er i ca US 29.8 76.6 Canada 6.8 M ex i co 4 S & C A m er i ca Venez uel a 76.6 71.7 Eur ope Nor w ay UK 5 2.2 1.4 FSU A zer bai j an Russi a Kaz ak hst an 7 8 48.6 65.4 M i ddl e East Ir an 93 676.9 Ir aq Kuw ai t 96.5 112.5 Saudi 261.5 UA E 97.8 A f r i ca A l ger i a Li by a Ni ger i a 9.2 29.5 16.8 7 A si a/ Pac Chi na Indi a Indonesi a 42.3 24 4.3 5 1 2 3 4 5 6 7 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 4.

The Changing Geopolitics of Energy II 8/12/98 Page 26 Reserve to Production Ratios By Region & Major Producer (Reserves/Production Ratios in 1997) Nor t h A m er i ca 16 US 1 M ex i co 33.6 S & C A m er i ca 37.3 Venez uel a 59.5 Eur ope 8.2 FSU Russi a 21.7 24.7 Kaz ak hst an 42.5 M i ddl e East 87.7 Ir an 69 Ir aq Kuw ai t 1 1 Saudi 79.5 UA E 1 A f r i ca 25 A l ger i a 18.8 Li by a 55.6 Ni ger i a 2.2 A si a/ Pac 15.6 Chi na 2.5 Indonesi a 9 2 4 6 8 1 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 4.

The Changing Geopolitics of Energy II 8/12/98 Page 27 The Life of Oil Reserves is an Issue for Everyone (Years of Proven Reserves at Average Rate of Production in 1996) 1 9 8 7 6 5 4 3 2 1 Canada Nor w ay Indonesi a Om an A l ger i a Uni t ed St at es Ni ger i a Chi na A ngol a Russi a Kazak hst an M ex i co UA E Kuw ai t Ir aq A z er bai j an Saudi A r abi a Ir an Li by a Note: Iran and Saudi Arabia probably have major additional reserves. Countries shown as 1 years have substantially larger reserve life, but it is impossible to determine how much. Source: British Petroleum and the Economist, August 2, 1997, p. 8.

The Changing Geopolitics of Energy II 8/12/98 Page 28 Oil Reserves Are Technology as Well as Price Dependent: US Reserves in the Lower 48 as a Test Case (in Billions of Barrels) 14 Unproved Proved 12 1 8 92 12 6 4 2 26 26 199 Technology 22 Technology Source: Adapted by Anthony H. Cordesman from EIA, Annual Energy Outlook, 1998, p. 59.

The Changing Geopolitics of Energy II 8/12/98 Page 29 Gas Reserves and Geopolitics The Middle East plays a critical role in Gas Reserves, but the FSU has the largest reserves. North American and Asian gas reserves are much higher as a ratio of current demand, but fall far short of FSU and Gulf. Asia must become a major net gas importer from the Gulf, although the FSU will be a critical supplier. North African reserves again exceed Sub-Saharan reserves, but North African gas reserves are not high relative to world reserves or future demand. The FSU and Iran present a cumulative massive analytic problem because: Data on oil reserves of Caspian states, Central Asia, and Iran are very uncertain. Little meaningful data exist on the gas reserves of Russia, Caspian states, Central Asia, and Iran. The economic value of given types of gas reserves is much more uncertain than for oil. The geopolitics of gas reserve are currently transportation limited! New gas liquids technologies might change this. Gas may substitute for oil in many exporting countries, increasing their oil export potential.

The Changing Geopolitics of Energy II 8/12/98 Page 3 Shifts in the Regional Balance of Gas Reserves (Trillions of Cubic Meters) 6 5 1 9 7 7 1 9 8 7 4 1 9 9 6 1 9 9 8 3 2 1 Nor t h A m er i ca S & C A m er i ca Eur ope FSU M i ddl e East A f r i ca A si a/ Pac 1977 8.44 2.22 4.21 26.5 2.36 5.88 4.19 1987 1.23 4.25 7.1 41.6 3.7 7.4 7.23 1996 8.53 5.9 5.42 57.28 45.79 9.3 9.11 1998 8.36 6.29 6.29 56.71 48.88 9.87 9.8 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 2.

The Changing Geopolitics of Energy II 8/12/98 Page 31 The Middle East and the Gulf Dominate Future Gas Supply: World Oil Reserves by Region as a Percent of World Total (Based on Oil and Gas Journal Forecast for a World Total of 144.76 Trillion Cubic Meters) Africa 7% Asia/Pacific 6% Middle East 34% North America 6% South and Central Amer 4% Europe 4% FSU 39% Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 2.

The Changing Geopolitics of Energy II 8/12/98 Page 32 The FSU and the Middle East Dominate Future Gas Supply: World Oil Reserves by Region in Trillions of Cubic Meters Nor t h A m er i ca 8.36 S& C A m er i ca 6.29 Eur ope 5.57 FSU 56.71 M i ddi l e East 48.88 A f r i ca 9.87 A si a/ Paci f i c 9.8 1 2 3 4 5 6 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 2.

The Changing Geopolitics of Energy II 8/12/98 Page 33 World Gas Reserves by Key Nation (Trillions of Cubic Feet in Reserves) Indi a A z er bai j an Uk r ai ne Chi na Li by a Nor w ay Kuw ai t Net her l ands M ex i co Kaz akhst an Canada Uz bek i st an Indonesi a M al ay si a Ir aq Ni ger i a A l ger i a Venezuel a US Saudi UA E Qat ar 17.4 3 39.6 41 46.3 52.3 52.9 61.3 63.9 65 65 66.2 72.3 79.8 19.8 114.9 13.6 143.1 166.5 19.5 24.9 3 Ir an 81 Russi a 1,7 2 4 6 8 1, 1, 2 1, 4 1, 6 1, 8 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 2..

The Changing Geopolitics of Energy II 8/12/98 Page 34 World Gas Reserve to Production Ratios by Key Nation (Nations with At Least 1 Trillion Cubic Feet in Reserves) Ni ger i a 1 Ir aq 1 A l ger i a 54.8 Venez uel a 1 US 8.8 Saudi 1 UA E 1 Qat ar 1 Ir an 1 Russi a 85.9 2 4 6 8 1 Source: Oil and Gas Journal, and BP Statistical Review of World Energy, 1998, p. 2..

The Changing Geopolitics of Energy II 8/12/98 Page 35 Gas Reserves Are Also Technology as Well as Price Dependent: US Reserves in the Lower 48 as a Test Case (in Trillions of Cubic Feet) 16 14 Unproved Proved 12 1 8 1186 6 87 4 2 169 169 199 Technology 22 Technology Source: Adapted by Anthony H. Cordesman from EIA, Annual Energy Outlook, 1998, p. 59.

The Changing Geopolitics of Energy II 8/12/98 Page 36 Uncertainties Affecting Key Suppliers and Exporters

The Changing Geopolitics of Energy II 8/12/98 Page 37 Key Areas of Uncertainty in Global Supply Global and regional economic growth and energy demand. Russian stability and ability to produce. Chinese ability to find new oil and gas reserves and sustain production. Search for alternative sources of energy. Algerian stability. Sanctions Affecting Iran, Iraq, and Libya. Creation of new energy transportation infrastructure: Pipelines, ports, tankers, etc. The impact of domestic energy demand on export capacity, particularly in the Middle East. Possible impact on China on US coal exports.

The Changing Geopolitics of Energy II 8/12/98 Page 38 World s Growing Dependence on the Gulf and Middle East: Projected Total Global Oil EXPORTS by Source in 1995 and 22 (MMBD, EIA Reference Case) 12 1 8 6 4 2 22 1995 Asia TOTAL Middle East Persian Gulf Carribean South America FSU North Africa North Sea West Africa Asia.3.7 West Africa 2.3 2.1 North Sea 4.1 4.6 North Africa 2.5 2.3 FSU 5.6 2.6 South America 4.3 2.6 Carribean 6 4.2 Persian Gulf 41.8 15.4 Middle East 44.3 17.7 TOTAL 111.2 52.2 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1997, p. 36.

The Changing Geopolitics of Energy II 8/12/98 Page 39 World s Growing Dependence on the Gulf and Middle East: Projected Total Global Oil IMPORTS by Source in 1995 and 22 (MMBD, EIA Reference Case) 3 25 2 15 The West Asia 1 Europe Pacific Rim North America 5 Other Developing Industrial Asia 22 1995 China China 7.5.6 Industrial Asia 8.5 6.1 Other Developing 15.7 4.7 North America 15.2 8.9 Pacific Rim 11.7 5.1 Europe 12.3 11.7 Asia 27.7 11.4 The West 27.5 2.6 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1997, p. 36.

The Changing Geopolitics of Energy II 8/12/98 Page 4 Rising Asian Demand is Met by Rising Middle Eastern Production: Net Balance of Regional Imports and Exports: 1995-215 (Millions of Barrels per Day, EIA Reference Case) 4 3 2 1-1 -2 199 1995 2 25 21 215 Asian Imports OECD Imports North American Imports EE/FSU Exports Middle East Exports African Exports Latin American Exports -3-4 -5 199 1995 2 25 21 215 Asian Imports 7.2 1.6 14.5 18.7 22.5 26.7 OECD Imports 8.3 7.5 7.2 8.5 9.3 1.5 North American Imports 5.7 6.6 8.5 1.1 11 11.4 EE/FSU Exports -1.7-1.5-1.4-1.3-1.5-1.2 Middle East Exports -19.4-21.3-28.2-32.5-36.6-43.6 African Exports -1.9-2.3-2.5-2.4-2 -1.5 Latin American Exports -1.6-1.8-2.7-3.1-3.2-2.9 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1996, pp. 116-122.

The Changing Geopolitics of Energy II 8/12/98 Page 41 Large Amounts of Oil Production and Exports Are at Risk in Key Exporting Countries: 1995-215 (EIA Reference Case Estimate in MMBD) 25 2 15 1 Saudi 5 FSU Iran 73 75 8 85 9 96 5 1 15 2 Libya China Iraq 73 75 8 85 9 96 5 1 15 2 Libya 2.175 1.48 1.787 1.59 1.5 1.5 1.5 1.6 1.7 1.6 1.5 China 1.9 1.49 2.122 3 3 3.1 3.4 3.5 3.6 3.6 3.5 Iraq 2.18 2.62 2.514 1.433 2.2.6.6 2.1 3.2 5.9 7.8 Iran 5.681 5.35 1.662 2.25 3.2 3.9 4 4.3 4.5 5.7 6.8 FSU 8.32 9.532 11.11 11.585 11 7.1 7.5 9.5 12.1 12.6 13.2 Saudi 7.596 7.75 9.9 3.388 8.6 1.6 1.9 11.2 13.5 17.2 23.8 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1997, pp. 175, and EIA, Monthly Energy Review, April, 1997, pp. 13-131. Note that total world production is 69.7 MMBD in 199, 73. MMBD in 1995, 81.4 MMBD in 2, 9,5 MMBD in 25, 98.1 MMBD in 21, and 16.9 MMBD in 215.

The Changing Geopolitics of Energy II 8/12/98 Page 42 Cumulative Risk: Estimated Total Demand for Exports from Countries with Sensitive or High Risk Oil Production Capacity Affects 5% of World Supply (EIA Reference Case Estimate in MMBD) 6 5 4 FSU 3 China 2 Libya Iraq Iran 1 Saudi Arabia 1973 1975 198 1985 199 1995 2 25 21 215 22 FSU 8.32 9.532 11.11 11.59 12 7 7.7 9.1 9.8 1.6 13.2 China 1.9 1.49 2.122 3 3 2.99 3.1 3.2 3.3 3.5 3.5 Libya 2.175 1.48 1.787 1.59 1.375 1.39 1.8 2.2 2.4 2.5 1.5 Iraq 2.18 2.62 2.514 1.433 2.4.56 4.3 5.8 7 7.4 7.8 Iran 5.681 5.35 1.662 2.25 3.88 3.643 4 5.1 5.5 5.9 6.8 Saudi Arabia 7.596 7.75 9.9 3.388 6.41 8.231 11.4 13.3 15.8 22.3 23.8 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1997, pp. 175, and EIA, Monthly Energy Review, April, 1997, pp. 13-131. Note that total world production is 69.7 MMBD in 199, 73. MMBD in 1995, 81.4 MMBD in 2, 9,5 MMBD in 25, 98.1 MMBD in 21, and 16.9 MMBD in 215.

The Changing Geopolitics of Energy II 8/12/98 Page 43 The FSU, Saudi Arabia, and Iraq are the Three Most Critical Future Exporters (EIA Reference Case Estimate in MMBD) 5 45 4 35 3 25 FSU 2 Iraq 15 1 5 Saudi Arabia 1973 1975 198 1985 199 1995 2 25 21 215 22 FSU 8.32 9.532 11.11 11.59 12 7 7.7 9.1 9.8 1.6 13.2 Iraq 2.18 2.62 2.514 1.433 2.4.56 4.3 5.8 7 7.4 7.8 Saudi Arabia 7.596 7.75 9.9 3.388 6.41 8.231 11.4 13.3 15.8 22.3 23.8 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1998, pp. 175, and EIA, Monthly Energy Review, April, 1997, pp. 13-131. Note that total world production is 69.7 MMBD in 199, 73. MMBD in 1995, 81.4 MMBD in 2, 9,5 MMBD in 25, 98.1 MMBD in 21, and 16.9 MMBD in 215.

The Changing Geopolitics of Energy II 8/12/98 Page 44 Today s Rogues Had Damn Well Better Be Tomorrow s Suppliers: 1995-22 (EIA Reference Case Estimate in MMBD) 8 7 6 5 4 3 2 1 73 75 8 85 9 96 5 1 15 22 Libya Iraq Iran 73 75 8 85 9 96 5 1 15 22 Libya 2.175 1.48 1.787 1.59 1.5 1.5 1.5 1.6 1.7 1.6 1.5 Iraq 2.18 2.62 2.514 1.433 2.2.6.6 2.1 3.2 5.9 7.8 Iran 5.681 5.35 1.662 2.25 3.2 3.9 4 4.3 4.5 5.7 6.8 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, DOE/EIA-484 (97), April 1998, pp. 175, and EIA, Monthly Energy Review, April, 1997, pp. 13-131. Note that total world production is 69.7 MMBD in 199, 73. MMBD in 1995, 81.4 MMBD in 2, 9,5 MMBD in 25, 98.1 MMBD in 21, and 16.9 MMBD in 215.

The Changing Geopolitics of Energy II 8/12/98 Page 45 Pattern of Oil Exports Could Sharply if the FSU Does Not Meet Estimated Production Levels and China Cannot Exploit New Fields: Prices Rises Likely (Estimated Demand vs. Production Capacity in MMBD, EIA Reference Case) 14 12 1 8 6 4 2 FSU-Demand China-Demand FSU Production 199 1996 2 25 21 215 22 China-Production 199 1996 2 25 21 215 22 China-Production 2.8 3.1 3.4 3.5 3.6 3.6 3.5 China-Demand 2.3 3.5 4.4 5.6 7 8.8 11.2 FSU-Demand 8.4 4.4 4.4 5.1 5.9 6.7 7.5 FSU Production 11.4 7.1 7.5 9.5 12.1 12.6 13.2 Source: Adapted by Anthony H. Cordesman from EIA, International Energy Outlook, 1998, pp. 136, 175. Note that total world production is 69.7 MMBD in 199, 73. MMBD in 1995, 81.4 MMBD in 2, 9.4 MMBD in 25, 98.1 MMBD in 21, and 16.9 MMBD in 215.

The Changing Geopolitics of Energy II 8/12/98 Page 46 Domestic energy Demand Can Radically Change the Energy Available For Export: Middle Eastern Domestic Energy Demand As a Test Case (IEA Estimate in MTOE) 6 Pr i m ar y Ener gy Fi nal Cons um pt i on Oi l Gas 577 58 5 4 358 316 3 289 2 189 2 178 13 1 93 83 55 35 21 12 37 1 9 7 1 1 9 9 3 2 1 CC 2 1 ES CC = Capacity Constrained or maximum production ES = Energy Savings, or reduced energy use. Source: Adapted by Anthony H. Cordesman from IEA, World Energy Outlook, 1996, pp. 153-158.

The Changing Geopolitics of Energy II 8/12/98 Page 47 IEA/OECD Estimate of Middle Eastern Domestic Energy Demand (IEA Estimate in MMBD) Basic Energy Demand Trends Category 1971 1993 2 21 Capacity Energy Constraints Savings Primary Energy Consumption (MTOE) 55 289-577 58 Final Consumption 35 189-358 316 Solids 1-2 2 Oil 21 13-2 178 Gas 12 37-93 83 Electricity & Heat 2 21-62 54 Energy Intensity (TOE/$1) -.7 -.8.7 Energy Per Capita (TOE).8 2. 2. - 2.7 2.4 Fuel Shares in Primary Demand (%) Solids 1 2 2 2 - Oil 7 64 56 5 - Gas 29 34 39 46 - Hydro & Other 1 1 2 2 - Growth in Energy Primary Demand & Intensity: 1975-1993 GDP Primary Energy Energy Intensity Iran.4 5.9 5.4 Saudi Arabia 3.4 12.1 8.7 Other 11 Countries 1. 7. 5.9 Total Middle East 1.3 7.6 6.2 Final Energy Consumption Growth Trends 1993-2 2-21 1993-21 Capacity Constraints 3.5 4. 3.8 Energy Savings 2.9 3.2 3.1 Source: Adapted by Anthony H. Cordesman from IEA, World Energy Outlook, 1996, pp. 173-177.

The Changing Geopolitics of Energy II 8/12/98 Page 48 Downstream Operations Can Also Have Major Geopolitical Impacts: Gulf Cooperation Council vs. World Petrochemical Design Capacities: 1993 (Thousand Tons) 8 7 GCC Wor l d 6 5 4 3 2 1 4.8% of World 9.5% of World 1.% of World 6.% of World Et hy l ene Et hy l ene Gl y c ol M et hanol M T BE Source: Adapted by Anthony H. Cordesman from IEA, World Energy Outlook, 1996, pp. 179-181.