Crossroads (Toward Philippine economic and social progress)
Philippine Star, 21 August 2013


With the Middle East political convulsions coming front-and-center on our TV screens nightly, should we be worried about energy issues again as in the past? I am wary but I am less alarmed.

Changing energy resources balance in the world economy. In the 1970s, when similar political convulsions hit the Middle East and the OPEC (Organization of Petroleum Exporting Countries) flexed its muscles, the world’s energy situation became a shambles. Energy prices quadrupled and those new price levels more than doubled further.

The US went into war in Iraq in the 1990s and also again in 2000s to put oil supplies under safer guard. Though energy prices zoomed up during that period of uncertainty, US presence in the Middle East assured the energy supply routes within friendlier hands.

The energy market in the meantime has adjusted. The rise of energy prices from the 1970s to the 1990s induced energy discoveries and further technological innovations in many directions.

Thus today, despite great turbulence in the Middle East, crude prices have remained within the range of $110 per barrel. Crude prices are lower this year than in 2012. In 2008, crude prices reached beyond $150 per barrel.

The fact is that oil and gas discoveries have spread in the inshore and offshore areas of the Americas (North and South), in Northern Europe, in the arctic regions, in Africa, in the Russian sub-continent and in the broader Asian continent. New oil and gas reserves are very comfortable today and are even rising.

Also, the new big consumers of energy – China and other large developing nations – have stabilized their supply chains through bilateral contracts and their own discoveries. It helped further that world economy has been weak, thus holding down demand.

Technology of energy production and discovery has advanced enormously. Technological advances have been significant in the form of processes for tapping energy as well as in changing product composition of the energy supply options.

Discovering new energy sources has advanced toward the use of deeper and more intricate exploration technology. The rise of energy prices helped this development immensely. The deeper explorations went not only offshore but deeper on land, too.

Many of the new discoveries of oil and gas have been offshore. So, coastal areas have become potentially rich sources for energy in many countries. New sources of land based oil had been extensively discovered also in Africa and in the Americas, even where the landscape was harsh and impenetrable before.

In the countries where oil fields were well-exploited before, a new process for exploration, known as “fracking” (or stimulating underground gas formations to get harvested as natural gas and energy output) was successfully applied. Hitherto large reserves of shale oil and other gas resources can now be aactively converted into energy supply.

Even without fracking, the geography of energy resources is already extensive. But with fracking technology added, the United States has achieved not only energy independence and has become once again a net potential exporter of energy. Add to these the enormous supplies that could be derived in Canada and in other continents where fracking has become a new technology of use for energy exploration. The world’s energy map has changed completely!

Though the Middle East will continue to be a major supplier of oil and natural gas, thereby providing enormous wealth to all the countries of that region, the strategic importance of the area is somewhat diminished. Thus, world energy supplies are now more stable because of other supplying regions.

Non-conventional sources of energy. I do not even mention yet the growth of non-conventional, including renewable, energy. Nuclear power has been an alternative boon for years on the production side and has provided a large steady base load of electricity generation for many industrial countries. Geothermal energy has come of age. In our country, it is a flourishing source of electricity generation. Bio-fuels have come of late in many countries (although at current crude oil prices, and the likely fall of energy prices in the future, biofuels would become a luxury.

Developments in solar power as well as in wind power have been the most extensive new non-conventional sources. Their long term viability would depend on how the world embraces or forces upon the modern world an energy base that is less dependent on carbon. At current prices of carbon energy, oil and gas as well as coal are superior generators of power. Only cost rises in fuels based on carbon can make non-conventional sources dominant alternatives. That might depend on world environmental policies.

An optimistic view of long term energy picture is that sources are more varied and options for producing the same energy equivalent are also broader. This is true of carbon based fuel as well as for the alternative options involving non-carbon fuels. For the moment, when all current costs are considered, the carbon alternative is still dominant, with the exception of nuclear power.

The canal shipping transport route is less strategic today. Transportation technological advances have made the canal shipping route less strategic.” Thus, the Suez Canal which is located in Egypt, is no longer the important trade shipping link between Europe and Asia that it used to be.

With Egypt threatened by political instability today, the Suez Canal is of course also threatened. But that is no longer as menacing to world trade as it was decades ago. Pipelines have been constructed (or are under construction) to connect oil and gas supplies from Asia and from Russian steppes to their European destinations through their Mediteranean ports that are independent of the Suez Canal route.

Moreover, advances in air transportation and industrial technology have made it possible to ship by air. One aspect of industrial technology is “miniaturization” of products and of mechanical parts and the use of lighter industrial materials. All these have fitted well with the technological developments in transport.

The invention of energy efficient air transport carriers in the form of lighter and bigger jet transports (a benefit from the materials innovations of the space age of earlier times and the surge in fuel costs of the last few decades) has induced facilitated innovations by air. Much of international trade based on light merchandise is now carried by air traffic.