Abstract

Over the past century peak oil forecasts have had a profound influence on US national security policy.  Unquestioned acceptance of a variety of oil scarcity forecasts, all of which proved wrong, repeatedly led policymakers to assume that rival powers sought to seize dwindling supplies.  Perennial expectation of resource conflict gradually elevated the perceived importance of Middle East (ME) oil, which was thought to be the last left on earth.  In response, increasingly aggressive US policies were adopted to secure a US share of ME oil.  Belief in a scarcity imperative for aggressive policy is here called “oil scarcity ideology.” Over the course of three iterations of the scarcity syndrome from 1909 to 1980, pre-emptive action to avert scarcity became a national security norm. 

During the 1970s Cold War scarcity ideology became particularly complex and dangerous.  Widespread belief in a new generation of peak oil forecasts engendered fear that an Arab oil weapon could cripple the US economy.  Even more ominously, the CIA forecast an impending Soviet production collapse.  From these two forecasts security experts inferred that an oil-starved USSR would try to seize Iranian oil production by force.  If the Soviets were not deterred by President Carter’s verbal warning against such action, some security experts urged that the US must launch its own invasion, occupying Iran’s oilfields to preempt the Soviets from seizing them.  If conventional force failed to halt the Red Army, the US must resort to nuclear war. In conjuring this oil-marauding USSR from scarcity ideology, security policymakers actively disregarded a great deal of market information indicating that global production would not soon peak and that Soviet production would not soon collapse.  The non-apocalyptic outlook was shared by a large cohort of market analysts, academics and government agencies.  Nonetheless, the National Security Council (NSC) was able to persuade the President to proclaim that the US would use unlimited force to protect Persian Gulf oil supply.  Carter’s threat, now known as the Carter Doctrine, has rationalized Persian Gulf force projection ever since.

The essay plan is as follows.  I first describe early iterations of the scarcity syndrome that recurred around the 20^th century World Wars.  In both iterations, scientists and high officials of the Department of the Interior convinced national security policymakers that (i) US oil would soon run out, (ii) that Western Hemisphere supply could not meet the shortfall, therefore (iii) aggressive policies were required to wrest a share of ME oil from rival powers.  I then describe how peak oil theories advanced during WW2 formed the basis of Cold War scarcity ideology, in which the Soviet Union played the rival’s role. Finally, I consider implications of this historical record for international security theory.  My research utilizes two sources not widely available, (i) recently declassified documents from the Jimmy Carter Presidential Library and (ii) the historic petroleum trade journal collection of The University of Tulsa’s McFarlin Library. 

China's coal market is now in the midst of a radical restructuring that has the potential to change how coal is produced, traded and consumed both in China and the rest of the world.  The restructuring aims to integrate the coal and power sectors at giant "coal-power bases" that combined would churn out more coal annually than all the coal produced in the entire United States. 

Coal-power integration is now a focal point of the Chinese government's energy policy, driven by the dramatic "coal-power conflict".  Coal prices are market-based, but power prices are tightly controlled by the government.  This has caused massive losses for Chinese power generators in 2008 and 2010 and triggered government intervention in the coal market with attempts to cap the price of coal.  The pervasive conflict between coal and power is now driving the Chinese government to remake these markets.

Coal-power base policy aims to establish upwards of 14 major coal-power bases, each producing over 100 mt of coal with consuming industries on-site.  The plan envisions that roughly half of China's coal production would be produced at a handful major coal-power base sites that are controlled by key state-owned enterprises (SOEs) and the central government.    

PESD's new research analyzes China's coal-power base reforms and how they will impact Chinese and global coal markets.  Several key findings are:

First, the implementation of coal-power bases would enhance central government's control over the coal sector and over coal prices.  The government could control coal pricing in a large share of the market and mitigate power sector losses by mandating lower coal transaction prices within integrated SOEs.  Using this kind of internal transfer pricing at below market prices for up to half of China's coal would represent a meaningful shift in how coal is priced in China.  If a large share of China's coal were transacted in this manner, it might create an unofficial two-tiered pricing structure in the coal market.

Second, coal-power base policy would bring about modernization and mechanization of a larger share of China's coal production, in theory bringing larger economies of scale to the sector.  While up-front capital investment per ton produced will certainly increase, the marginal cost of coal production should decrease, all other things equal. 

Third, the massive rebalancing of China's coal market implied by coal-power bases is poised to have important impacts on the globally traded coal market.  Since 2009, China's import behavior has become a dominant factor determining the price of globally traded coal.  In simple terms, when Chinese domestic prices are higher than global prices, the country imports.  The development of coal-power bases could radically alter coal price formation in China and directly impact China's appetite for imports, and therefore has the potential to alter coal price formation globally.

Executive summary:

Statoil was founded in 1972 as the national oil company (NOC) of Norway.  Along with Brazil's Petrobras, Statoil today is a leader in several technological areas including operations in deep water.  With its arm's length relationship to the Norwegian government and partially-private ownership, it is generally considered to be among the state-controlled oil companies most similar to an international oil company in governance, business strategy, and performance.

Statoil's development and performance have been intimately connected to its relationship with the Norwegian government over the years.  The "Norwegian Model" of distinguishing Statoil's commercial responsibilities in hydrocarbons from regulatory and policy functions granted to other government bodies has inspired admiration and imitation as the canonical model of good bureaucratic design for a hydrocarbons sector. 

However, the reality is that Norway's comparative success in hydrocarbons development, and that of Statoil, has been about much more than a formula for bureaucratic organization.  Belying the notion of a pristine "Norwegian Model" that unfolded inexorably from a well-designed template, the actual development of Norway's petroleum sector at times was, and often still is, a messy affair rife with conflict and uncertainty.  But Norway had the advantage of entering its oil era with a mature, open democracy as well as bureaucratic institutions with experience regulating other natural resource industries.  Thus far, the diverse political and regulatory institutions governing the petroleum sector-and governing the NOC-have collectively proven robust enough to handle the strains of petroleum development and correct the worst imbalances that have arisen. 

Mark Thurber and Benedicte Tangen Istad make the following six principal observations from their research.

First, Norway's policy orientation from the start was focused on maintaining control over the oil sector, as opposed to simply maximizing revenue.  As a result, the country was more concerned with understanding and mitigating the possible negative ramifications of oil wealth than with any special advantage that could be gained from it. 

Second, the principal means through which Norway was able to exert control over domestic petroleum activities was a skillful bureaucracy operating within a mature and open political system.  Civil servants gained knowledge of petroleum to regulate the sector through systematic efforts to build up their own independent competence, enabling them to productively steer the political discourse on petroleum management after the first commercial oil discovery was made.  Robust contestation between socialist and conservative political parties also helped contribute to a system of oil administration that supported competition (including between multiple Norwegian oil companies as well as international operators) and was able to evolve new checks and balances as needed.

Third, Statoil did play an important role in contributing to the development of Norwegian industry and technological capability, in large part because it had the freedom to take a long-term approach to technology development.  With a strong engineering orientation and few consequences for failure as a fully state-backed company, Statoil developed a culture valuing innovation over development of a lean, commercially-oriented organization.  These priorities may not have always contributed to maximization of government revenues in the short run-costs came to be perceived as high in Norway (for various reasons not all related to Statoil) and Statoil was on occasion responsible for significant overruns.  However, the focus on innovation contributed to significant technological breakthroughs and helped spur the development of a high-value-added domestic industry in oil services.

Fourth, the formal relationship between Statoil and the government has become more arm's-length as Norway's resources and oil expertise have matured.  Under its first CEO, experienced Labour politician Arve Johnsen, Statoil aggressively flexed its political muscles to gain special advantages in licensing and access to acreage.  As domestic resources began to mature, Statoil's leadership (starting with Harald Norvik in 1988, and continuing through the tenures of subsequent CEOs Olav Fjell and Helge Lund) focused more on forging an independent corporate identity and governance structure that would allow the company to compete effectively abroad. 

Fifth, notwithstanding changes in their formal relationship, it has remained impossible to sever the close ties between the Norwegian state and a company with the domestic significance of Statoil.  These residual ties can manifest in various ways, including: 1) the effect on policy decisions of direct personal connections between Statoil leaders and politicians; 2) persistent "Norway-centric" influences on Statoil's strategy even in the larger context of efforts to internationalize; and 3) public pressure from politicians who continue to see themselves as Statoil's masters.  Such pressures can affect large strategic companies, public or private, in any country, but their effect is magnified by Norway's small size and Statoil's importance within it as the largest petroleum developer.

Sixth, Statoil's experience thus far casts doubt upon the conventional wisdom that NOC-NOC connections provide material benefit in opening resource access around the world.  To the extent that such linkages are important, Statoil would seem to be among the best-positioned to benefit from them as both a highly competent producer and a company that might be sympathetic to the needs of resource-rich countries.  However, there are few instances so far where Statoil's status as an NOC has been an obviously decisive factor in unlocking resources that would otherwise be off-limits.

Electric power systems can be disrupted by a variety of circumstances impacting failure and recovery rates. However, conflict-induced stress, primary fuel supply disruptions, and impediments to repair have rarely been incorporated into a systematic analysis of power planning and dispatch. In this paper, we augment the traditional Monte-Carlo reliability modeling framework to also represent primary fuel delivery and distributed generation (DG) topologies. We characterize five failure modes for the integrated system and compare the performance of centralized to DG systems under various levels of stress including conflict-induced stress. Our findings show DG to be significantly more reliable than centralized systems and when whole-economy costs are considered they are also more economical. These findings are significant in power planning for areas concerned about conflict-induced stress or where other factors may impact reliability of supply to a far greater extent than has been the norm in OECD countries.