Norway, Brazil, Guyana & Canada’s Surge in Oil Production: Economy over Environment?

The oil war has not ended. Rather, it has sophisticatedly transformed into oil competition. We don’t need an introduction to oil conflicts and the emergence of the USA as a major post-crisis oil producer. However, countries lesser known for oil production are now joining in the world market on the name of energy-security. 

As per recent developments, Norway, Brazil, Guyana and Canada are about to add a million barrels per day by 2020 and a million more by 2021. While many countries such as France, Chile, Venezuela, Lebanon and Iran (major oil producer) are witnessing protests primarily against oil price hikes and inflation, a scenario of the global economic crisis impacting other countries as well cannot be denied. France is witnessing the ‘yellow vest protest’ since a year, Venezuela – Guyana’s neighbour – has become a failed state, Lebanon is increasingly considered as a ‘dysfunctional state’ due to economic crises, and Lebanon’s ally Iran, an OPEC member, is witnessing protests over fuel price hike. This makes clear why offbeat countries in the ‘oil world’ such as Norway, Brazil, Guyana and Canada are racing to achieve energy security. 

Ironically, these countries are signatories to the Paris Agreement. Norway is even well known for championing environmental policies. It has committed to reducing its emissions to 40% by 2030 and reaching “net-zero” emissions by 2050 for which, Norway must aggressively clean up its transportation sector. 

By 2017, half of the cars sold in the country were either electrical or plug-in hybrids. The government expects this figure to reach 100%, but how will that happen if increased oil production is going to lower global prices? Norway needs to tackle its industrial emissions and wean its economy away from oil to achieve climate goals. However, it seems as if Norway, which was setting an example in fighting climate crisis, is in no mood to lose the economic and energy security race. The country even has a tax system which deposits surplus wealth produced by Norwegian petroleum income in an ‘Oil Fund’ worth US$ 1 trillion used for investments which can influence the corporate governance market in Europe and also possibly China. Which country would want to stop high revenue flows in such cut-throat competition? 

Though lacklustre, Brazil and Canada are in the business too. Guyana is a new-found oil spot where US-based Exxon Mobil has invested along with China. Such investment is about to change the political scenario and bring economic relief in the region and beyond. This brings us to the discussion: is climate change a hoax created by the West to prevent developing nations from growing? Or is it just its economic security it is worried about?

Economic Aspect:

The global demand for oil has slowed down recently as the OPEC’s ‘World Oil Outlook’ suggests. Current global oil demand of about 99 million barrels per day (bpd) is likely to increase to just 104.8 bpd by 2024, and 110.6 million bpd by 2040. OPEC expects that rising demand from non-OECD countries will encourage oil production for the next two decades at least, and hence crude prices will continue to govern the pace of exploration and development. 

About 40% of the world’s crude is produced by OPEC countries. The surge in production by the four offbeat countries will diversify options for importing countries and lower global oil prices. This has major geopolitical tensions at a time when Saudi Arabia’s Aramco, probably among the world’s most profitable enterprises, has promptly announced to sell its shares. 

An International Energy Agency report has stated that oil demand has doubled in the third quarter of 2019. It also states that non-OPEC members, including these four countries, would increase production by 2.3mn bpd. The recent surge in global oil production is estimated to drop the price by $50 bpd, slowing the transition to electric vehicles. The USA has opted out of the Paris Agreement and was a top producer of oil last year with a production rate of 18mn bpd. 

Demand and supply figures accompanied by lowering prices are certainly going to complicate efforts of combating climate change bringing us to the rhetoric that money, and not morality or green diplomacy, rules the world. 

Dr Priyadarshini Karve, environmental expert and CEO of Samuchit Enviro-Tech gave me some insights into the environmental angle of the issue.

As an environmentalist, how do you see this surge in oil production after the Paris Agreement and numerous other failed environment agreements?

The issue here is not who is producing how much petroleum fuels on a country basis. The Paris Agreement is about shifting from fossil fuels to renewables, and that must be driven from the consumption side. 

While there has been a marked increase in deployment of renewable energy for electricity generation, we haven’t yet found good substitutes for petroleum fuels to fulfil the variety of mechanical and thermal needs they do. As a result, the share of coal and petroleum in the energy consumption of the world is still substantially high. 

If there is demand, naturally there will be efforts to fulfil it, and frankly, I’d rather see the world’s ‘petrodollars’ flow to democratic countries than to dictatorial countries! If there are more countries offering petroleum fuels in international markets, at least an ‘ethical’ choice becomes possible! 

Are these countries reacting to the spread of the economic crisis and striving for energy security or just enhancing the business?

It is a bit of everything. You cannot really blame them; every country tries to do what is best for itself, and citizens also expect policies that first ensure their immediate welfare from their respective governments. What we need is a universal and long-term outlook taken up by everyone, not just small groups here and there. There is no political push on governments to phase out fossil fuels. Most common people who believe in renewables are still using fossil fuels in their daily lives. 

[Pro-environment] rallies are getting bigger, but where is the real change? I do not see any climate week marchers flocking to shops to buy solar lighting systems for their homes and biogas plants for their cooking! If governments start phasing out fossil fuels today, are we citizens ready and willing to face the pain and cost of making necessary lifestyle changes at our end?

Amidst India’s situation of low GDP and slowing growth (many scholars have termed it as a ‘quasi-recession’, the government has decided to privatise the state-run oil refinery Bharat Petroleum Corp. Ltd. How do you see this impacting the oil business in India?

Global petroleum prices have been fluctuating wildly in the last few years. Some experts believe this to be a sign that we are approaching the end of the petroleum era. In India, many people still do not have access to clean and efficient energy sources. The fastest way to address this deficit is to expand existing energy networks of coal-based power and petroleum fuels – Indian governments have put forth this argument for decades to justify increasing oil import bills and coal use. 

However, industries and richer citizens are using up this cheap fossil energy, leaving the marginalised communities as deprived as ever. Privatising petroleum companies will aggravate this challenge. We must build a new energy system using available fossil fuels, enabling greater use of renewables to meet our energy needs in affordable and convenient ways.

(This post first appeared here in The Tilak Chronicle.)