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Tuesday, 28 June 2016

Energy authoritarians

Fading power of oil autocrats will aid growth

Autocrats and strongmen have long held the whip hand in global energy. Now democracies are starting to outclass countries like Iran, Venezuela and Russia in oil and gas production. That should reduce the economic and political influence of authoritarian states. And the West’s booming output ought to steady fuel prices, a rare boon for the global economy.

Until recently rich nations looked likely to become more reliant on repressive regimes for their energy needs. The democratically deficient Organization of the Petroleum Exporting Countries - whose members include Saudi Arabia and Kuwait - controls about 80 percent of the world’s crude reserves. Add in Russia, which has been veering back toward one-party rule under President Vladimir Putin, and this share rises to 85 percent. With demand for hydrocarbons surging in China, this seemed like a recipe for higher prices and even greater clout for oil potentates.

But the balance of power is shifting in the direction of mature democracies. They are likely to enjoy the biggest increases in oil and gas output in 2013. Revolutionary drilling techniques have enabled the United States to boost oil output by a third since 2008. It is now on track to surpass both Saudi Arabia and Russia and become the world’s top producer by 2017, according to the International Energy Agency. Canada is not far behind. Meanwhile Australia looks set to overtake Qatar as the leading global provider of liquefied natural gas by 2020. And within the Middle East the best hope for rising output is Iraq - though its status as a representative democracy is far from secure.

This trend should curtail the ability of energy bullies to throw their weight around. Russia, for example, which has often used its vast reserves to influence neighbors, was recently forced to cut prices for gas sold to Poland. Authoritarian regimes like Iran will also have less potential to cause disruptive spasms in oil trading.

Objectionable governments will continue to loom large in energy markets. And even if the United States becomes self-sufficient, China won’t. Still, climbing hydrocarbon output around the globe is at least providing a welcome check on the power of energy strongmen.

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Context News

The United States will overtake Saudi Arabia and Russia as the world’s top oil producer by 2017, the International Energy Agency (IEA) said on Nov. 12.

The IEA, the club of the big oil consuming nations, also said that the United States would come very close to achieving energy self-sufficiency by 2035. The United States currently imports about 20 percent of its total energy needs.

The IEA said U.S. oil production would reach 10 million barrels a day by 2015 and 11.1 million by 2020. BP, the oil company, estimates that the United States produced around 7.8 million barrels a day in 2011.

Consultancy IHS believes that Australia will also replace Qatar as the largest global source of liquefied natural gas.

European and U.S. oil sanctions against Iran have reduced the state’s oil production to a 32-year low. Last year Iran exported 2 million barrels a day on average. This has fallen to around 900,000 a day. In January 2012 the European Union, which accounted for roughly a fifth of Iran’s oil exports, introduced new sanctions prohibiting the purchase of Iranian crude, to be phased in over the course of the year. Since then the price of Brent crude has been flat at around $110 a barrel.

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