National oil producers, mostly from non-OPEC states and formed in the mid-to-late 20th century, control a large portion of the world's oil reserves and meet over 40% of the world's production demand. A sort of restlessness is beginning to overtake this collection of low-profile producers, or perhaps it is the states in which they reside.
Much of the flag-waving popular support these nationalized producers enjoyed in their early years has played out. As autocratic and socialistic models of government yield to more democratic forms, the national oil company is being viewed, with some exceptions, as a stranded dinosaur. There are other problems:
- Short of capital: With limited ability to invest and measure return, national oil companies tend to exploit only the largest oil and gas accumulations and pass over moderate-to-small reserve pools.
- Short of technology: Without access to the best technologies, nationals tend to produce existing pools less efficiently and find difficulty in pursuing lateral or deeper pools surrounding existing wells.
- Unable to exploit value chain: Driven by government directives and riven by political intervention, nationals have great difficulty exploiting the value chain. Hedging and risk management skills remain largely undeveloped.
When compared with their faster, more flexible public equity brethren, the nationals are coming under increasing scrutiny and markup for change. The fact that some countries have been able to turn some of the smaller nationalized assets and their reserves into considerable hard currency is instructive to the remaining group.
Power demand creep
At one time, new electronic computing, control, and communications devices, with their low power consumption, were expected to replace less energy-efficient devices and processes. As a result, electricity demand would level off or maybe decline. It didn't happen.
Instead, a multitude of enhanced productivity devices was spun out of single electronic advancements, mostly for the consumer market, and falling manufacturing costs allowed competitors to drive down per-unit sales prices. Spurring on this activity was the rapid obsolescence of new technology. Consumer and business electronics sales simply exploded, and until the global sales market is saturated, there will be no letup.
On the manufacturing end, chip production and high-energy lithography facilities don't require as much electricity as steel mills and smelters, but there are a great many more of these high-tech facilities, and they began pulling on power grids everywhere.
The resulting surge in electrical base power demand went largely unnoticed in the mid-to-late 1990s because planners (1) were dealing with abnormally warm winters in the northern hemisphere and peak power capacity was rarely touched, and (2) lower per-unit GDP power demand was expected to limit major power needs. Last year, the reality of that mis-direction became apparent.
Peak power demand is being pushed hard in developed countries. In under-developed countries, long-running shortages in baseload capacity are growing more serious. Natural gas-fueled power plants built on a fast-track basis are alleviating some supply challenges, but an expansion in multi-regional baseload is inevitable. Nuclear, solar, coal, and wind generation will provide relief, but power suppliers will have to turn to natural gas for real gains. When that shift begins on a global scale, other changes are likely:
- With rare exception, natural gas has been treated as a regional fuel. If prices remain above US$4/Mcf or its equivalent for an extended period, LNG and trans-regional pipeline gas supply will become viable on a much larger scale than previously anticipated.
- Countries around the globe will begin pushing as hard for natural gas exploration and development as they did for oil. Although gas is valuable for domestic markets, what lesser developed countries are learning is that gas can be converted to a higher value product - electricity - and marketed to neighboring countries.
The result is that the search for natural gas and the transport of that gas will have to grow geographically in order to meet expanding global power needs. Certainly, natural gas will no longer take a back seat to oil in the search and development process.
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