Oil: Six Myths Debunked - EEES2024 Past Paper PDF

ENERGY, ENVIRONMENT AND EUROPEAN SECURITY EEES2024 10 OTTOBRE 10.15 8 NOVEMBRE 10.15 5 DICEMBRE 10.15 Esame scritto 6 domande, 2 per ogni modulo. Per essere valutato rispondere a tutte e sei le domande 10 dicembre primo appello **OIL: SIX MYTHS TO DEBUNK** 1. *Oil is found in large undergro...

ENERGY, ENVIRONMENT AND EUROPEAN SECURITY EEES2024 10 OTTOBRE 10.15 8 NOVEMBRE 10.15 5 DICEMBRE 10.15 Esame scritto 6 domande, 2 per ogni modulo. Per essere valutato rispondere a tutte e sei le domande 10 dicembre primo appello **OIL: SIX MYTHS TO DEBUNK** 1. *Oil is found in large underground caves*: false. Oil is found in **layers of porous rock**, where it is dispersed and scattered in millions of **tiny droplets**. Oil is complicated to find (we look for droplets, not caves), making it difficult to locate the deposits, evaluate their size, and extract the oil. 2. *Oil is a homogenous produc*t: false. There are **multiple types of crude oil**, and the different qualities found in oil concur to set the price. Poor-quality oil may make it less convenient to start an oil business/company. The best quality, higher the price. Only the **refining process** allows us to get homogenous products. It's a costly but necessary step. The best quality oil can be found in the Middle East, specifically in Libya, then Saudi Arabia, United Arab Emirates, Qatar, and Kuwait. It's the minerals (not) contained in oil that make it the best quality: the more minerals it has, the poorer the quality. The most abundant and the best one is in the Middle East.\ Lower quality one is in Canada to make it better, you must refine it\ the reason is the minerals contained in the oils.\ Canada, Siberia and Russia store poorer quality oil that requires a longer refining process, which means more money needs to be spent. 3. *Oil is like "black gold*": false. One barrel of oil costs 80 US\$. One barrel contains **159** Liters of oil. This means that, with a price of 80\$ per barrel, one Liter is sold at 0.5\$ or eurocents. It can be defined as "black gold" if you possess a huge amount of it. We sell and buy approximately 80 million Liters of refined oil every day globally this is what makes the public call it "black gold". In the world, every day, 80 million barrels are sold, keep in mind the political dimension of this. 4. *"Who finds oil finds a treasure*": not ever.\ Why not ever? There are some biases. It depends on several things like **Ground confirmation**, **environmental difficulties**, and **poor-quality oil** can make a field exploitation not profitable. A solid and hard ground makes it much more difficult and expensive to reach the underground oil (ex. Siberian rocks, whereas Libyan soil is much softer and easier to work). Oil can be extracted from offshore platforms as well, but it's best to first evaluate the business before creating one as it can be very costly. In past years, many oil activities have been closed down or have not started at all, but there's a solution: the same oil can become remunerative and profitable if oil prices go up. When prices go up and reach a 100\$ per barrel or more, it's profitable to start an oil business even exploiting the poorer quality oil fields. - - - - - - - 5. *OPEC controls the world's oil production*: no more.\ NB OPEC: The Organization of the Petroleum Exporting Countries This used to be true in the '70s and the '80s, but it's no more: OPEC members' whole productive capacity is today **40% of the total world oil production**. The international scenario changed a lot in the last 30 years new oil producers entered the global oil affairs as non-OPEC members: Russia, USA, Canada, and Norway. Among the three largest producers in the world (Saudi Arabia, USA, and Russia), Saudi Arabia is the only OPEC member. Keep in mind the huge contribution of those states that are United States and Russia are producing a lot and they are not OPEC member states. Very different scenarios are presented if we talk about oil production and oil exportation: USA is a very strong producer but doesn't export, as the country itself needs it for its own infrastructures, industries and agriculture, whereas Russia is both a huge producer and exporter. OPEC memberships may change year by year; current members are Ecuador, Venezuela, Algeria, Libya, Nigeria, Equatorial Guinea, Gabon, Republic of Congo, Angola, Iraq, Iran, Kuwait, Saudi Arabia, UAE fragmented membership. In analyzing these countries' role in the oil business, considering **oil reserves** is not enough: information about **oil production** and **oil consumption** is fundamental to provide a complete analysis. Oil reserves owned by OPEC constitute 79.4%, whereas non-OPEC countries possess the remaining 20,6%. This is in contrast with the data pertaining to oil production.\ E.g. Kuwait inhabitants half of million but Iran counts 90 million\ Saudi Arabia 22 million huge amount of foreign workers, not citizens\ Both of these countries enjoy proven oil reserves, but since they have different numbers of inhabitants this means in non-equal distribution of oil wealth\ \ World crude production increased (non-OPEC countries from 40 to 50 barrels per day)\ Saudi Arabia is the main exporter: good exporter, a good quality, a lot of reserves, very few people they don't need all that oil, that's why they are an exporter\ China? Importer of oil and natural gas because they need it for agriculture, and transport, currently investing a lot in renewables. 6. *The producing countries get the highest share of revenues*: false. - Only 30% of the final price goes to the producing countries, only 1/3 goes to the producing countries - Another 10-15% is for transport and refining. - 60% of the final price goes to the governments of the consumer countries (EU). This is a political choice to build up the welfare system in European countries. The final cost of oil products in the USA is lower that the final cost in Europe, where the crude oil represents 28% of the final cost.\ \ E.g. Us 47% price of crude oil, 37% industry margin, 16% tax\ In the US oil products, the oil companies can get 37% of the final cost, in Europe only 22% goes to the oil companies. From a political perspective the oil companies in the US have a higher capacity to press more the national government to get more revenues. The largest oil companies are American indeed.\ In EU we have a very high level of taxation for oil products, much more than US. This difference is reflected by the different political choices in the two countries. National health service is different. The US gov does not need to have high taxation since they don't have a welfare system, or they just have a less expensive one. ( NB. oil companies can press more than other players in the market)\ To pay for our welfare system, the EU governments need more taxes.\ Long term consequences of these strategies? A graph of oil prices Description automatically generated Comparing Europe with the US, oil companies' share of revenues for the same oil products: in the USA, 37% of the final cost goes to the oil companies, when in Europe approx. the 20%. This means that, from a political perspective, we may say that the oil companies in the US have a higher capacity to get more, press the national government in order to be allowed to get more revenues from the same oil products. This is probably true considering that the largest oil companies are American. In Europe taxes on oil products are much higher than they are in the US. This difference is reflected by the different political choices made in Europe and in the US, where there's no free national healthcare, e.g. The national government in the US doesn't need a higher oil tax because national healthcare is much more expensive than it is in Europe.\ In Italy: 1,70 price per one Liter of gasoline 0,85 goes to our governments in terms of taxation 0,35 transport and refining 0,50 price of crude oil **PROVED OIL RESERVES** Estimated oil preserves are different from proved oil reserves, that guarantee the existence of billions of barrels in precise geographical locations. The highest proved oil reserves are located in Venezuela (302.3, 32 million inhabitants) and Saudi Arabia (266.2, 22 million inhabitants). This doesn't mean these countries are the richest of the world, as this has more to do with politics than with economics. There are still other relevant countries in terms of oil reserves: Iran (90 million inhabitants), Iraq (20 million inhabitants), Kuwait (500 thousand inhabitants) and UAE (10 million inhabitants, most of them being foreigners), all located in the same region, the Persian Gulf. The regional tension that can originate from this unequal distribution of oil in countries this close geographically speaking is high. Non-OPEC countries raised their oil production in a significant way from 40 million barrels per day to 50 million from 2006 to 2020. This has permitted an increase in global oil production in the same time frame: from 73 million to 83 million barrels per day. On the contrary, OPEC countries decreased their production, going from 32 in 2006 to 30 million barrels per day in 2020.  We don't how much oil each country exports, but we know that the USA produce 14,7% of crude oil produced globally and Saudi Arabia produces 13,2%. That being said, the USA consume most of the oil they produce for domestic purposes. Saudi Arabia is the main exporter of oil globally: they produce a huge amount along with having big reserves, but ≠ Russia and USA the country does not host that many people, hence the exporting industry Saudi Arabia has created. China is on the other hand a relevant importer of oil, needing loads of energy for its industrial production and transports China's oil is insufficient to cover its oil needs. **OIL AND GAS: ESSENTIAL GLOSSARY** ***BARREL***: unit to measure oil amount. One barrel corresponds to 159 Liters ***CHOKEPOINTS***: narrow maritime passages through which most of oil and gas are transported across the globe between the producing countries and the importing countries A map of the world with arrows and points Description automatically generated Malacca, Hormuz, Bal el-Mandeb and Bosphorus are natural passages ≠ Suez and Panama are artificial infrastructures that have been opened between the late XIX century and the early XX century. ex: Malacca, Hormuz, Bab-El Mandeb, Bosporus in Turkey these are natural passages. Suez and the Panama are artificial infrastructures). These are crucial point of interest for oil trade. Any threat to one of these chokepoints will immediately result in tension in the oil business and an increase in oil price. This is one of the factors that impact oil prices. Four out of these points are located in the Middle East, in which all wars were the product of tensions on the oil market and price increase for crude oil. ***COAL***: the main source of energy in Europe. The Industrial revolution in Europe was possible because of coal, and since the early XIX century, energy in Europe was granted mainly by coal. The reason lies in the fact that coal was available in Europe, whereas oil was not. Since cars, plastic and cheaper products demand arose, coal was not an option anymore. It could still be used to propel ships and trains, but for those as well it was decided to switch to oil. Coal is also very polluting, more than oil and natural gases. With the passing of time, governments and UE citizens convinced themselves coal was not the best solution even if Europe possesses a large quantity of it. Oil became largely available after WWII, when it was cheap, cheaper than coal. The European market and consumers gradually shifted from coal to oil products after the war. If we look out of Europe today still, we have relevant (economically and demographically speaking) countries that still use loads of coal for their energy needs (Australia, China, India and USA). Within China's borders, e.g., there are many coal mines, it's easier to rely on coal than to import oil. The reason is that coal was available in Europe, not oil. Large quantity of it all over Europe (Poland, Romania, Italy.) Problem? You cannot use it for the cars, moving from coal to oil. In addition, coal is very polluting, more than oil and natural gas. Coal was not the proper solution for the European energy needs. Available after WWII, oil was very cheap, cheaper than coal. European market and consumers shifted from coal to oil. Today, we have relevant countries that are still using coal for their energy needs: Australia, China, India, USA. ***COMBUSTION ENGINE***: the shift from coal to oil in western societies. It became, for the large public, available in the 1920s in the USA and in the 1940s in Europe. It can only work with oil products. The massive distribution of private cars in the US and later Europe was among the drivers of the shift from coal to oil. We can presume they will be replaced by other forms of energy (electric, hydrogen). ***CORPORATIONS***: many of them are US based. The same companies are operating since the XX century (Anglo-Persian Company is now called BP). All of these oil companies are private, meaning they have private goals and need to refer to the private owners of those same companies (individual entrepreneurs, banks, insurance companies...) in order to make business choices. They move as private investors: oil companies' vision does not always align with the public interest's one. We can't expect that oil companies spontaneously move to follow the public interest. National governments or international organisations can act in order to convince or press the private companies leading them to a possible common interest.  ***DRILLING***: a drilling rig is a machine that creates holes in the ground. It was the first solution found to get oil out of the underground fields in Pennsylvania in the late XIX century, and it's still used to this day. It is a vertical machinery that creates hole in the ground. ***ENERGY MIX***: usually referred to the national or regional (UE) panorama. It tells about the different sources of energy we use to cover our total energy needs of the countries. You can have different shares of it. - renewable energy, - nuclear energy, - natural gas, - oil products, - solid fuels. It's likely for the energy mix to change year-by-year as the price of different energy sources is subject to change over time. According to prices' fluctuations of the different energy sources, we have a different mix in each country. Another factor that can impact energy mix is goverments' laws, regulations and incentives. ***FIELD***: area where oil/gas are located we talk about oil fields and gas fields, but they can sometimes converge (oil and gas can be found in the same fields). ***LIQUIFIED NATURAL GAS (LNG***): natural gas can be transported as a gas but would need a pipeline (gasdotto) to do so. We learned how to transform gas into a liquid and transport it as such in special ships created for this purpose to be then transformed into gas again. This process has relevance not only in the energy market but in international politics as well: as long as gas is gas and has to be transported as such, we can't choose the supplier. We can't move pipelines from one supplier to another. When technology allows to liquify, you don't need pipelines, but ships that can move from one continent to another the diplomatic and political impact this point has is enormous. When you have LNG you don't need the pipelines between countries but you can liquefy it and use ships to move it (obviously if you use the ships it would take longer and costs more in terms of money and time but you don't depend on the pipelines from another country) ***OIL PEAK***: it is the possible point in which global oil production cannot increase anymore, the oil business reached its pick. The pick has been moving in time. The energy business is confronting itself, since the early XX century, with the concept of oil peak, which is the possible point/time in which global oil production can't increase anymore because the oil available is finished. Oil companies can imagine when they'll reach their maximum capacity, but this point has been moving throughout history ever since oil was discovered: with the discovery of new oil fields and with the development of new technologies that allow oil companies to get oil offshore or in Northern Canada and Siberia (where the extraction is made harder by the ground that characterizes those regions), the oil peak moved. A graph showing the growth of oil prices Description automatically generated ***PERMAFROST***: environmental biases can make it very difficult to start oil and gas activities. Permafrost (permanently frosted) refers to frozen soils present in Canada and Siberia that make drilling operations challenging. Permafrost is or may be an obstacle and constitutes a raise in costs. When oil is cheap it probably isn't convenient to open a new oil business in one of these territories. If it goes up, new oil businesses can be opened and be fruitful. ***PIPELINE***: an oil pipeline can't transfer gas, and vice versa, even if they're apparently the same infrastructure. Pipelines are a useful infrastructure because they're faster than ships and can transfer larger amounts of oil or gas in very little time, but at the same time pipelines have much more political implications than ships and maritime trade of oil and gas. A pipeline connecting two different countries can't be moved to another supplier, and as long as you have that pipeline you have to rely on it. New ones can be created, but that may cause new political implications to arise. Is it a good idea to have pipelines with Egypt, e.g., or Azerbaijan instead of Libya or Algeria? We don't know, it's a risk. Pipelines have another limit: you can't cross the ocean with a pipeline. Our technology at the moment doesn't allow a pipeline crossing the ocean. The distance can be of some thousand kilometres. The choice between pipeline and maritime route is not a technical choice but has a lot to do with political and diplomatic choices. ***PLATFORM***: it's the latest development of offshore oil and gas activities (the first offshore platform having been built in the 80s). They can operate in the Mediterranean, in the North Sea, in the Caribbean, but not in the middle of the ocean, where the water is so deep it makes it impossible to reach the underground oil and gas fields. Offshore platforms made available more oil and gas fields and are very needed in the current situation. They have a huge cost but are a relevant player in the field. Any technologic incident can result in a tremendous leakage in the water pollution (environmental concerns). It's not a simple drilling rig but they are relevant player in the gas and oil market. Very risky for the possible linkage in the water, already happened more than once. Some environmental concerns. ***RENEWABLES*** (as opposed to non-renewables/fossil fuels meaning oil, gas and coal): can be solar energy, wind energy, hydro-electric energy, geothermal and biomass. They differ in terms of availability and resources. The supply is infinite. They have an impact and effects on the environment but pollute much less than fossil fuels. A political consideration: fossil fuels are not available everywhere in the world; some countries are very rich in terms of oil and gas and others that have none or very little. The same goes for coal. This may be a source of tension in the international community, especially when energy and fossil fuels became so relevant for industrial activities, military purposes, agriculture. Solar energy is the most available for most countries (except in the extreme north or south of the globe) and the technology you need to exploit solar energy is relatively cheap and easy to manage. Almost the same goes for wind energy. Hydroelectric energy is not available everywhere, but excluding desertic areas in the world, all other countries can enjoy some water resources. Geothermal is everywhere. If we compare the availability of fossil fuels and renewables, we'll obtain two completely different pictures that impact politics and diplomacy.. Can we say the same for the renewable ones? Solar energy is the most democratic one, apart from the extreme north and extreme south, you have solar energy everywhere and the technology needed is not that expensive and management. The solar one is the most **democratic**, **available for everyone**. Wind is different, some regions have it some not that much. Wind energy is nevertheless in mostly every region. Water is not available everywhere (deserts) but if we exclude that, all the other countries can enjoy the electric power coming form he water. Geothermal energy is the same, more or less available everywhere. If the compare the available of the renewable energy sources with the fossil fuels, we can see the impact on the political side and the international relations implications. ***SHORTAGE***: of energy, food, water, gasoline. This may happen in times of crisis, war, tensions in the international community. How to react?\ ***STOCKS***: we can reduce the risk of shortages by having enough stocks of oil and natural gases to sustain our energy apparatus, which obviously has a cost. In the UE, all members must have mandatory stocks of oil that can cover the country's energy consumption for at **least 90 days** to reduce and possibly avoid the risk of shortages in the EU. ***SUPPLIER***: a country who is able to export energy to the consuming countries. A supplier is usually in a comfortable economic position because others need their supply of energy. There may also be a supplier whose only source of income is its oil exportation business, in which case its need to export is fundamental, as without it the country would have no other revenue. ***TANKER***: they can travel across the ocean and can cover very long distances, but they need time. When tankers reach chokepoints, they sometimes have to wait in order to be allowed to enter the Suez Canal or Panama Canal, e.g., as they are very narrow. If consuming countries are experiencing shortages, it may take more time to get oil or gas through because chokepoints can be very crowded. ***TRANSIT COUNTRY***: energy needs to be transported from the producing areas to the consuming areas (between the European and the Caucasian region: the transit country is Turkey, not an energy producer). Being a transit country can become a strategic asset and constitute a comfortable position as it makes the country able to negotiate to get some advantages from its transit country status. ***WELLS***: pozzi. ***FROM STEAM TO OIL: 1850-1950*** Mankind has needed energy for its development ever since the beginning. Energy was one of the main problems for humanity across the world. Before coal and before oil, wood, wind, water and animals (as a form of transportation) were used as sources of energy. When oil was first discovered, it was used a medical treatment (when it was called petroleum): it was considered a natural remedy for several diseases, and it was its only use at the beginning of the XIX century. In Pennsylvania, in the 1860s, the first drilling rigs of the modern era were created. They were not yet enough technologically advanced to make a hole in the ground and water needed to be pumped down in order to make oil come out (since it's lighter than water). The same technology is still used today. The first barrels that were available in Pennsylvania in those same years were empty barrels of whiskey. Drinking whiskey in large amounts made a relevant number of barrels available, which begun to be recycled to contain and stock oil. Since the very beginning crude oil was not fit for final purposes and refining processes were needed before it could be used. As refining process became fundamental to exploit crude oil, trains became of importance as well as they were used to transport crude oil to the refining fields. Pipelines were introduced from the very beginning of oil businesses as well. The process is still the same. In the first decades, oil was used for lighting as a propellant for lighting in private houses and public spaces. During the Cuba Independence War in 1896, when oil was first used to attack the enemy, the Spanish soldier Eloy Gonzalo became a hero because he was able to stop the enemies by using oil and fire. This is relevant because from this period onwards, oil became a military strategy. Its purpose shifted and it was not only used solely for lighting, but in wars as well. WWI was the first large war where oil became fundamental for military purposes. The first airplanes were used in WWI, and they needed naphtha. Tanks were moved by oil products as well as military ships, no more propelled by coal. This growth in oil usage in the military field was another element that contributed to make modern countries more and more dependent on oil. The history of oil is so articulated that even Walt Disney was inspired in creating Rockerduck on the likes of John Rockefeller, founder of Standard Oil in California in 1872. The first oil activities in Europe were opened in Azerbaijan (in today's capital Baku) in the early XX century, a region of the Russian Empire at the time. Among the oil workers in Baku were Stalin and Lenin, where they met for the first time. Oil activities had an impact not only on the economic side, but also had social and political developments. Stalin and Lenin started working as unionists among oil workers, the first unionists in Russia as there was no working class before the oil business was created. In 1906, new oil activities arrived in Persia, when a British entrepreneur asked the king of Persia to start an oil business in the western region of Persia. This is the first oil business in the Middle East. In those years, oil from the Middle East was not relevant at all, the main producers being Pennsylvania and the Russian Empire. After the European entrepreneurs started to look for oil in the regions close to western Persia (then Ottoman Empire, today Iraq, Kuwait and Saudi Arabia), they realised they were able to extract oil by using the first oil wells, and from then on, they hoped to find oil fields in the surrounding regions. When the Ottoman Empire collapsed after WWI, a new Middle East was created by the European powers different national entities and the European powers were interested in this new business. They still didn't know how much oil was available but were quite sure that a good amount was present. They started following or driving the political developments in the region: Syria and Lebanon were under French rule from 1920 to 1946, Iraq and Transjordan under British rule from 1920 to 1945). The real turning point in the oil market in the Middle East was not Persia nor Kuwait, but Saudi Arabia, created in 1932 when the Kingdom of Saudi Arabia was born under the Saudi family. The first king became such in a completely desertic land which presented very little resources across a large territory (approx. 8 times larger than Italy). The idea was to take inspiration from Persia and its oil business and try and search for other oil fields in the Saudi region bordering the Persian Gulf. The Saudi king was not willing to ask Britain nor France, who were considered as colonial powers. The Saudi family then decided to ask for technical investments to the US, not involved in colonial activities from the Saudi perspective. From 1936 the first engineers and geologists from US companies arrived in Saudi Arabia and started looking for oil, of which they immediately found a lot. Three US companies merged, making a joint venture, as they were not able to manage such quantities alone. They started pumping oil in 1938. At the same time, the US government asked the Saudi family for a US military base in Dhahran close the oil fields, request that was allowed by the Saudis: even if the US government was not involved in the oil business, this constituted an important step for diplomatic, political and military purposes. This strategy was relevant in a few years. WWII started a year later and was fought for 6 years when oil products were fundamental for both sides. The longer the war, the more oil products were needed. After 1939, when it was clear the war was not ending, the availability for oil was an absolute priority for both sides. Oil in the Middle East (Saudi Arabia and Persian oil controlled by the British Empire) were useful for military purposes (military ships for English and Americans), airplanes and tanks. It was preferable to transfer oil from the Middle East than from the US, as the war fields were in Europe. When Germans and Italians opened war on the USSR in July 1942 by entering the Soviet Union, the idea was to occupy southern USSR and the Caucasus, because they wanted to reach the oil fields in the Caucasus. They needed it badly because the war was going to be going on for years to come and had no oil in their territories. They didn't manage to do so because of the resistance perpetrated in Stalingrad by the Soviet Army, aided by the US and Britain, who were able to transfer oil to Stalingrad from Persia. A military operation from Libya (under Italian rule) to Egypt was then led by Italy and Germany, who were aiming to take control of the Suez Canal and reach the oil fields in Saudi Arabia. The battle took place in El Alamein, where the British Empire tried to stop the Axis troops, who were defeated. This side of history is part of the outcome of the war. The position of the Axis powers with reference to oil sources was very different compared to Britain, US and USSR's position who, on the contrary, controlled many oil fields. Oil became a relevant factor not only to enrich oneself, but to win the war as well. This remained of importance during the Cold War as well, as the confrontation between the two blocks was also disputed on the oil business. Looking at oil production in 1924, the USA were by large the most relevant producer and consumer of oil compared to other oil producing regions (South America, Europe, Middle East, Africa, Far East).  The graph presents aggregate data of the world's primary energy consumption in the last century. A hundred years ago, coal was by large the first source of energy globally. This situation lasted until after WWI, when oil's use started growing in terms of energy source. Coal was still a relevant source of energy but diminished a lot. Oil became the most relevant source of energy during the '70s and continues to be so today even though, from the '80s onwards, a growth in natural gases usage has been registered. This has to do with nuclear and hydroelectric energy, that emerged together during the same time. - Tremendous change in the global energy mix we experienced in the last century. How much does this change in energy mix did affect global diplomatic relations? The increase in oil consumption was mainly registered in Europe from 1945 up until 1973: 11-fold increase in Europe vs 3-fold increase in the US. Oil was then much cheaper than coal European countries needed cheap oil for their recovery and that was available and easy to obtain. Can we say that this phenomenon had no diplomatic effects? Even if oil is not the only factor that can explain the relations between Europe and the Middle East, it's still a factor that had an impact from 1945 onwards. In the case of Europe and Japan, from 1948 there's an increase in private transport and subsequently on oil consumption. 1948: 53 million of cars in Europe and Japan 1973: 250 million of cars in Europe and Japan - It's a problem that continues to impact our international relations. What's more, as of 2020, the total number of cars in the world corresponds to 1.2 billion (280 million in the US, 290 in China, 210 in India, 270 in the UE, of which 47 million in Germany and 39 in Italy) becoming less dependent on private cars and gradually shifting towards different sources of energy is imperative, but this takes time and money. Also: Germany and Italy could afford to pay for this gradual shift, but what about India and Brazil, e.g.? The impact on the Middle East's oil production: huge increase in its oil production after WWII. 1950: 1.7 million barrels per day 1973: 20.5 million barrels per day - The increase is due to European economies' recovery and the increase in private cars in Europe and Japan. This large flow of oil from the Middle East to Europe was provided by ships and tankers, but in 1950 a new pipeline was built to connect the Persian Gulf with the Mediterranean Sea (the Tapline: Trans Arabian pipeline). A map with a red line Description automatically generated As Israel was created in 1948, new tensions arose in the Middle East, and at the last minute it was decided to redirect the last section of the pipeline to southern Lebanon to not involve Israel it's a matter of politics as well as geography. National Security Council, **resolution 138, Jan. 6^th^, 1953** (the Truman administration was being replaced by Eisenhower's administration): "Since Venezuela and the Middle East are the only sources from which the free world's requirements for petroleum can be supplied, these sources are necessary to continue the present economic and military efforts of the free world. Nothing can be allowed to interfere substantially with the availability of oil from those sources". - Economic and military priorities for the US and the Western block. The assumption was that we, as the US administration, must be ready to intervene in order to avoid any interference. The oil from the Middle East needed to be extracted and refined and transported from the Middle East to final consumers in Europe the Seven Sisters: the private oil companies that interlaced the US, Europe and the Middle East who, being different players, had different plans. From 1945 to the mid-70s, the oil market was controlled by: - Standard Oil of New Jersey (then Exxon-Esso) - Shell (Anglo-Dutch company) - Anglo-Iranian (then British Petroleum, UK) - Gulf Oil - Texas Oil Co. (then Texaco) - Standard Oil of California (then Chevron) - Socony (then Mobil)  It's not enough to say that the Seven Sisters were able to control half of the global oil production during the '60s and the '70s, a clearer picture is shown by this graph. Low prices for Middle Eastern oil (price the companies had to pay to the producing countries): 1950: 2 US dollars per barrel 1970: 1.2 US dollars per barrel - incredibly cheap, today approx. 80 dollars per barrel 1959: the US government passed a law to limit oil import to 19% of national consumption to protect domestic oil activities from external competition + protecting the US economy from becoming too dependent from external sources of energy a matter of national security and a national limit that had loads international effects. The Seven sisters were interested in trading oil from the Middle East to the consuming countries, but they now had a limit to transfer middle eastern oil to the US they became more involved in European energy security, as in Europe there was no limit to energy imports. Meanwhile, US companies begun acting mainly as traders between Europe and the Middle East instead of playing as a trader between the Middle East and the US. The Seven sisters kept producing oil but were forced to transfer this oil to Europe and Japan as they couldn't transfer it to the US anymore mainly a decision of national security and a measure to protect the domestic production of oil as oil from the US (hundreds of small oil businesses that were struggling due to the competition with middle eastern companies) was more costly than oil from the Middle East. A new government led by the prime minister Mohammed Mossadeq came in power in spring 1951 in Iran. - Juxtaposition between two Time magazine issues that put Mossadeq on the cover in June 1951 and again in January 1953. In August 1953, Mossadeq was forced to resign. We know now that his resignation was organised by the US and UK secret services as to them it was a matter of national security, not solely an economic issue. The oil market changed a lot throughout the '50s and '60s, and another element that contributed to this change in the oil business was the USSR's oil production raise from 1949 to 1973. 1949: 600.000 barrels per day 1973: 8.5 million barrels per day The Soviet Union, being the leader country of the eastern bloc, needed oil and it subsequently increased its production to cover its domestic needs and to support the eastern European countries that were its allies. This new large availability of oil contributed to the decrease in oil price (the more oil is available the less it will cost). The increase of oil production by the USSR together with an increase in production in the Middle East were an explanation in the decrease in oil prices during that time. After the collapse of the USSR, Russia is today a relevant oil producer and produces 10 million barrels per day. Oil prices were declining good news for consuming countries and western economies and car companies. What about the producing countries? They were getting less money for the same amount of oil. The reaction by some oil producing countries was to create the Organization of Petroleum Exporting Countries: OPEC was founded in 1960 in Baghdad (Iraq), with the contribution of Iraq, Iran, Kuwait, Saudi Arabia and Venezuela. They were not in control of oil production, as it was controlled by the Seven sisters. These governments were willing to try and control the oil prices but were not in the position to do so. This was a relevant initiative that became more effective with the passing of time. In the first years, the OPEC organization did not influence the oil princes, and OPEC countries became more influential after 10-12 years. Enrico Mattei was the founder and first president of Eni (from 1953 until his death in 1962): Eni was a public company owned by the Italian state it entered the oil business as a public company, but the oil business was managed by private companies globally. As such, its arrival was disturbing for the private oil companies, as Eni and Mattei were acting as a public body. In some way, they were conflicting, not with producing countries but with private companies. Mattei's idea was to have direct cooperation with producing countries (not with the Seven sisters) to reach new agreements with local governments offering better conditions if the Seven sisters were willing to transfer a certain amount of oil wealth to the local governments, Mattei wanted to double what the private companies were willing to give. From 1953 onwards, Mattei started negotiations constituting changes in the global oil market. The Seven sisters were forced to follow Eni's example and re-negotiate their agreements with the local governments. During the '60s and the '70s, even if Mattei was not the president anymore, Eni kept offering better conditions for local governments. One more strategy used by Eni was that it proposed to include the local engineers and workers in the management of oil activities. Eni started teaching how to manage oil activities to local workers, sharing knowledge. This was a winning strategy, from the perspective of producing countries their interest was not to get more money but knowledge and skills as well to run an oil business successfully. Offering better economic conditions together with technology and knowledge sharing was the key in breaking the seven sisters' monopoly. THE END OF THE GOLDEN AGE AND THE OIL CRISIS IN THE 1970s The Golden Age came to an end because, starting from the early '70s, oil wasn't as cheap as it was in the '50s and the '60s international tensions. The need to keep control of oil fields in Latin America and in the Middle East overshadowed the US' anti-colonialism tradition. With the passing of time, the anti-colonial approach that the US were willing to present to the rest of the world was declining the priority became maintaining availability of oil resources in Latina America and the Middle East. The US were in need to avoid any trouble (per res. 138) that could prevent them from getting oil from Venezuela and the Middle East. In the same years, the oil companies became complementary to the US government for international needs. How could the US administration maintain control of oil fields in Latin America and the Middle East? This was only possible thanks to the cooperation with oil companies, who had some common interests with the US' and the European governments. - In the '60s and '70s, we experience a convergence. - No more emphasis on anti-colonial discourse, no mention of the need to allow newly independent countries to have their opportunities. The priorities changed for the US administration. Confronting the Soviet bloc and trying to avoid its enlargement could justify the will to maintain control of oil resources at the global level. These were the years in which decolonisation reached its peak: Third World countries arose as important players in the international community the Non-Aligned movement was founded with the view to advancing interests of developing countries in the context of Cold War confrontation + Arab nationalism. - The limit imposed in 1959 on oil imports in the US (for security reasons + to avoid dependence from foreign sources of oil) poses a risk to oil corporations. - Over-supply of oil during the 1960s partly because of Soviet oil's price increase. - Prices drop down. As a reaction to the cheap oil prices, the most relevant oil companies reduced their oil production in the Middle East as oil was abundant. As prices were so low, one possible action by the Seven sisters was to reduce their production to try and resolve the over-supply problem. This reduction resulted in less revenue for local governments, and OPEC was born as a response to this decision. 1973 OIL CRISIS: PREMISES The oil crisis was caused by several factors: 1. The process of **oil activity nationalisation** by some relevant oil producing countries: Libya, Algeria, Iraq, Iran, Saudi Arabia, UAE, Kuwait). Mossadeq was too early in his nationalisation, as a wave of nationalisation only arose between 1970 and 1975 there was no opportunity of an oil crisis happening before these countries nationalised their oil businesses. 2. **1973: the US domestic spare oil production reached its peak** (spare oil production additional production you may have and are storing for future needs). Spare production is a strategic asset, as it allows the single country to maintain flexibility and react to any trouble in the international oil market. With no spare production, a country will have no strategic asset to react or influence the oil market. In the previous years, the US had been a relevant player because they maintained an important quota of spare production which allowed them to influence the oil market. From 1973, this is no longer true for the US vulnerability in case of international crisis. 3. **April 1973**: the US was forced to **cancel its limit on oil imports** established in 1959, the law which placed a 19% limit to oil imports to the US is abrogated. **OIL PRICES BEFORE THE 1973 CRISIS** OPEC controlled the 55% of the world oil production as oil prices went up from 1.2 US dollars in 1970 to 2,90 US dollars per barrel in 1973 these two factors did not reduce oil demand: consuming countries wanted to have more oil even if they had to pay more for it. This meant a lot to producing countries, who were now in the position to raise their prices arbitrarily. YOM KIPPUR WAR -- OCTOBER 1973 Egypt and Syria declared war to Israel to try and occupy the territories Israel conquered during the Six days war of 1967. Israeli authorities were in danger, as Egypt and Syria were able, in the first few days of the war, to advance both in the Sinai Peninsula and the Golan Heights Golda Meir asked Nixon to transfer additional weapons from the US to Israel. Nixon transferred a relevant amount of weapons in a few days, and this intervention was crucial in determining the outcome of the war: after two weeks Israel was able to stop the Egyptian and Syrian troops. The October war was not fought for oil, but the Arab producing countries not involved in the military operations \[Egypt and Syria were not oil producing countries (Egypt is today) but were and still are part of OPEC\] decided to react as they were complaining about the US' intervention. The Arab oil rich countries wanted to stress their disappointment about the American interference: - They decided to **continue increasing oil prices monthly** until Israel decided to free the occupied territories: from 2,90 US dollars to 5.10 US dollars. - They decided for a **cut in production** by 5% and an additional 5% for each month oil as diplomatic tool. - Imposed a **selective embargo** on the US and Netherlands (the Dutch government had maintained a clear pro-Israel position during the war) These three decisions impacted western economies greatly. DIPLOMATIC EFFECTS OF THE 1973 OIL CRISIS Western governments put effort into coming up with economic, political and diplomatic actions to counteract the Arab oil producing countries' decisions (Iran not included as it did not apply any embargo to western countries the Shah was forced to flee the country by the population). To avoid negative consequences: 1. the **Euro-Arab Dialogue** officially started **new diplomatic channel**. It was a comprehensive approach that dealt with other issues other than oil. The idea was to have a continuous confrontation, self-reliance and common grounds as an insurance against future possible tensions. 2. **International pressure** on Israel and Egypt to find compromise after 30 years of tension peace treaty signed by both parties in 1978: Camp David Agreement, where the US were willing to act as a mediator and a diplomatic player in the Middle East. 3. The increase in oil prices resulted in a **huge transfer of money from the western economies to the OPEC countries** to pay the amount of oil that the western economies needed for their infrastructure. After 1973-1974, OPEC countries earned a tremendous amount of money they never had before and decided to invest the majority of it in western economies by buying assets, properties, shares of western companies that became property of the OPEC governments. The remaining sum was used to buy weapons from the West and the Soviet Union. EFFECT ON THE ENERGY MARKET 1. **Erection of the first offshore oil fields** in the North Sea, Caribbean, Mediterranean. With oil being so expensive, oil companies could afford to spend money to build oil platforms offshore. 2. **Development of nuclear and renewable energy** as oil prices were going up and often not sustainable. Germany, UK and France were amongst the countries who invested more in renewable energies. Would we have had a development in this sense if oil prices hadn't increased? Possible positive side. 3. **Increase in production costs** -- double digit inflation in the '80s. The increase in production also resulted in an increase of final prices, of goods used by European companies. 4. **Public spending cuts** -- Reagan and Thatcher Their economic policy was to cut public spending as a measure to reduce the inflation in their countries. Cuts in public spending can be one of the solutions employable to control prices, but they will have big social effects impact on public services and welfare system. 5. **Third world countries' debt**: seeing as most of them had no oil, they needed to import it to support their development policies. The rise in oil prices meant that more money was needed for their economic development loans from the World Bank resulting in a long-term debt they're still paying today. SECOND OIL CRISIS After the first oil crisis in 1973-74, oil prices jumped to approx. 20 US dollars per barrel. 1979: Iranian revolution 1980: Iran-Iraq war The political unrest in Iran and the war immediately impacted oil production. Some oil facilities were destroyed during the war, others were not operating properly anymore. Tensions along the border also put many of the Iranian and Iraqi oil fields in danger. In a few weeks, approx. 8% of the global oil production was no longer available big impact on oil prices: from 20 to 35/40 US dollars per barrel. - Tremendous blow for oil consuming countries. **ENERGY SECURITY IN EUROPE** Energy security can be described as: - Availability of a **sufficient supply of energy** (domestic or imported) - at an **affordable price** (fluctuations can be expected, but the average cost should be an affordable one) Maintaining energy security at an affordable price takes work as anything can jeopardize energy's availability: 1. **technical** factors: accidents, natural disasters or blackouts 2. **political** reasons: supply interruption (wars, riots, strikes) 3. **economic** factors: prices volatility and fluctuation (growth or decrease in the case of producing countries) ACCIDENTS OR BLACKOUTS: SHORT-TERM TECHNICAL FACTORS - Preventive measures in order to avoid technical problems: - **maintenance**, - **network investment**, - **network integration**, refers to pipelines and to electric grids having a well-integrated network of pipelines and electric grids with other European countries will help because it makes it possible to exploit different transport routes in times of need if one country's pipeline/electric grid experiences technical problems it will be possible to get energy from other countries' pipeline/electric grid routes - **two-side flux**, refers to pipelines, which are usually used to transfer oil or gas from one site to another. But if an infrastructure can work in both directions with the possibility to invert the flux this will strengthen Europe's energy security as the same pipeline can be used to go in the opposite direction (but a higher cost) - Emergency measures: - **Technical collaboration** among countries, - **consumption monitoring**, it's possible to check and decide to provide energy for important infrastructures such as hospitals and keep it off for pools, e.g. - **stocks**, - **exchange of products** from and to surrounding countries. SUPPLY INTERRUPTION FOR POLITICAL REASONS International crisis can affect energy security. - Preventive measures: - **Increase the number of suppliers**: relying on multiple suppliers gives more security the more suppliers the more security (but more costly as each supplier means one pipeline more for a country to have) - **Increase up-stream joint-ventures**: up-stream has to do with the beginning section of one's energy activity: search of oil fields, opening of the first oil fields, opening of the first refining fields. Up-stream can be done with other countries common economic action that has economic and political advantages (sharing technologies will reduce the risk of political tensions between countries involved in joint-ventures) - **Improve more stable diplomatic relationships**, even if it's not always easy. - Emergency measures: - **Stocks** - **New suppliers** try and change suppliers if there's a new one available (with pipelines, years are necessary to change suppliers) - **Diplomatic actions with former or current suppliers** in order to maintain energy security HIGH GROWTH IN PRICES (ECONOMIC FACTORS) - Preventive measures: - **Energy saving and efficiency** will protect countries from higher energy prices, but it's not free of cost: windows, walls, lightbulbs need to be substituted with energy-saving items - **Energy mix**: it can be changed to adapt to energy costs (if natural gases are included in one's energy mix and natural gas' prices go up, the energy mix can be modified in order to spend less) - **Renewable energy**: it usually doesn't need to be imported it's safer in terms of energy security and its economic impact is more manageable - Emergency measures: - **Fiscal tools**, such as raising taxes on energy products to reduce energy consumption as much as possible - **Austerity** (suspending private traffic to consume less energy, e.g.) - **Diplomacy**, try and find a solution that reduce the pressure on energy prices globally Each threat can be addressed with some countermeasures by: - EU institutions and EU members - Oil companies - Final consumers - collective effort to protect one country's energy security. At the European level, these countermeasures are partially set and codified since the late '70s. We don't need to find a different solution every time as booklet of solutions were written down and made available to use each time there's the need to. An overall preventive action is to have, in each EU Member State, mandatory stocks of crude oil that must satisfy the country's 90-day-consumption needs. Can dependency on external suppliers be avoided? Not in the EU in the medium term. The EU's dependency from external sources will grow from 50% to 70% by 2030. - Self-sufficiency in energy is an illusion - Diversifying sources and suppliers can help but does not suffice. Are oil prices always a negative factor? At first sight, and from the final consumer's perspective it is, as very low oil prices led to neglect energy saving and alternative sources. When oil became more and more expensive, it resulted in our efforts to save energy, finding alternative sources of energy and reducing oil consumption. Cheap oil discourages investments in other energy sources. THREATS TO ENERGY SECURITY IN EUROPE Looking at oil, pipelines, refinery infrastructure. 1. [Too long pipelines] the longer the pipeline the riskier. There's a maximum limit of kilometres that can be covered pipelines (2000-3000 km) and connecting continents to each other by using pipelines is not doable. 2. [Old refinery plans] refinery processes are necessary, old age will need more maintenance. 3. [High dependence on external supplies] of oil and gas 4. [Low investments in the last 20 years] by European companies and governments the EU is pressing for renewable sources and energy companies are slightly moving from gas and oil to more environmentally friendly energy sources. We are no more maintaining the same level of efficiency in infrastructures, and this can result in technical accidents that will affect our energy security 5. [Insufficient interconnection] of gas and electric grid NATURAL GAS DEPOSIT (LNG) - Electricity can't be stocked, liquified natural gas can (as well as oil) - EU has oil stocks, but not a lot of gas Empty fields of natural gas in Europe can be exploited by refilling them with natural gas coming from elsewhere and use it as a stock, but it can be very costly. - Much more can be done to have LNG stocks A relevant player up to 2022 (war on Ukraine) in Europe was the Russian company Gazprom, created in 1993 in Moscow. It was the main supplier of natural gas in Europe. It still is a relevant producer of oil and gas that sells well with other consumers. Before 2022: - Ranked 11^th^ among the world's oil and gas corporations - Produced over 17% of the world's natural gas - Provided about 27% of the gas consumed in Europe - Politics can abruptly change economics Gazprom acts not only as an energy company but it's the owner of different activities in Russia: banks, newspapers, football teams. The current PM Dmitry Medvedev has served as deputy chairman of the Security Council of Russia since 2020 as well as president of Russia from 2008 to 2012 strong connection between the political sphere in Russia and the company. In 2020, Italy was getting the oil it needed mainly from Russia (28.5%), Algeria (15.1%), Norway and Qatar (6.9%). Netherlands stands at 0.9% but it's relevant to remember that it's an important natural gas producer in Europe, as well as Denmark can share some quantity of their natural gas. On oil: the first importer to Italy is Azerbaijan, then Iraq, Russia, Saudi Arabia, Kazakhstan and many more we can't avoid importing energy as our domestic production is not enough to cover the Italian consumption rhythm. It's important to have these many importers as it makes it possible to rely on multiple suppliers and have backups in case the agreement with one of these countries falls off (more energy security in oil than in gas for Italy). **WORLD ENERGY PRODUCTION IN 2020** A graph and chart of energy production Description automatically generated Total 2020: 14155 Mtoe (million tonnes of oil equivalent). We don't know if these countries need to consume all the energy they produce for domestic needs or if they are able to export it. Sources of energy at the global level:  A graph of a pie chart Description automatically generated with medium confidence We look to consumer countries as the most vulnerable, but some producing countries need to sell their energy as they have no other sources of income (ex. Iran: if it were to stop exporting oil, its only other forms of revenue would be exporting carpets and pistachios). Transition from fossil to renewables must be followed by transition to green electricity. If we move towards more electric power but maintain coal to produce electric power, this is not a transition. Electric power is nice to have but as long as we are able to produce it with no fossil fuels or less of them. Coal is still 1/3 of power generation at the global level. Renewables is 28% in the world, in Europe it's more or less 40%. A graph of the world co2 Description automatically generated These numbers should be compared to the population living in these countries/regions to understand where and how to act. We have the technical capability to do better, but we need is political will to go further in this direction. Gross inland consumption (energy mix (%) -- primary products only) For private transport we use a lot of oil while there are very little alternatives to reduce this use. If the electricity needed to drive our private cars will be renewable the graph will change, otherwise it won't.  **Exam information\ **test information October 10 Building D15 room 1.02 or 3.06\ You don't need the computer, the test is not mandatory, if you pass all 3, your test results will be added to your final grade (doing the average between the tests). There are 30 questions, 4 possible answers for each question, 40 minutes, PowerPoint slides, **don't do** the reading materials just the notes.\ \ e.g.: liters of oil per barrel? 156\ \ You must know the most relevant natural gas supplier, not about numbers but a ranking list of suppliers of natural gas to Europe.\ \ **Extra EU imports of pipeline natural gas by partner:\ **Immagine che contiene testo, schermata, Carattere, diagramma Descrizione generata automaticamente**\ \ \ HUGE CHANGE** in natural supply for the European Union in just one year:\ This could be a question for the exam, the difference in the supply from one country from one period to another.\ \ - Russia is 38.8% in 2022 Russia in 2023 is 17.4%, less than the previous year\ This was possible because Norway and Algeria were able to increase their supply to the European Union. If you want to increase means your current pipeline is transporting more respect to the previous year, this means additional capability.\ The EU can benefit from additional transport capability from other countries\ - Now Russia in 2024 is around 10, 12% max\ \ **\ \ \ \ \ \ \ Extra EU Imports of LNG by partner: annual LNG imports by exporting country (2020-2023)\ ****\ \ \ **The EU decided to act not only with pipelines but to increase to natural gas import as LNG.\ NB there is no pipeline connection US to Europe or Qatar but if you liquified it, you can do it.\ The United States became a relevant supplier of LNG in a couple of years (2020-2022).\ Still importing from Russia, but not so relevant in the general supply of LNG to Europe.\ The idea it is not sufficient to have one solution, you need to apply different dimensions, you can change your supplier of natural gas but at the same time you can increase the LNG.\ Only if you have 3, 4 different actions, you can act effectively- this is the proper way to react to energy security problems.\ \ \ **\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Extra EU Imports of natural gas, pipelines and LNG, 2023\ \ **Immagine che contiene testo, schermata, diagramma, linea Descrizione generata automaticamente**\ **\ In the graph all the natural gas in Europe both natural gas and liquified.\ The US was not relevant in 2021 but became more relevant in 2023, North Africa\'s Algeria stayed the same, and **Russia\'s supply dropped from 2021 to 2023**. The count measure changed the picture of natural gas suppliers in just 2 years. To do that you need to have cooperation in the EU, with energy companies with common policies with those private companies.\ Norway is an important country, and the relationship with the EU is good and long-lasting. When it comes to the relations with countries that are not EU ones, you need to even improve the:\ - political cooperation\ - technical capability\ - diplomatic cooperation\ \ \ \ Natural gas as a liquid is easy to transport but as a liquid, you cannot provide your final consumers with the liquid form of the gas (it does not work in households). You need to increase the re-gasification infrastructure, this is what the EU has been doing in the past years.\ In blue you have the regasification plans that are already operational (Spain, Portugal, Belgium, Italy, France), and other regasification (in orange) operational but with the same planned extension, for what has been said above, more gas to re-gasify.\ \ This point is very **controversial** The regasification in Piombino, is a difficult choice for the locals. In Piombino, they are installing floating plants, but the local administration is not willing to have them.\ Why Piombino? There is always cooperation and involvement not only in the energy capabilities but always the involvement of political\ \ **Gas Storage in the EU**\ In June 2022, the EU approved a new regulation on storage facilities Mandatory gas storage\ All the EU member states are to fill their gas deposit before the cold season approaches. Natural gas is mainly used in the cold seasons to exploit the difference between the seasons to save natural gas in the hot seasons, store this gas we don't use and keep the natural gas that we will need in the cold season. In this way, our consuming line of natural gas will not change during the year by maintaining the same supply of natural gas. Underground gas storages must be filled to at least 80% of their capacity by 1 November 2022 and to 90% by the subsequent winters.\ \ **\ Total final energy consumption by sector, 2022\ \ **Immagine che contiene testo, schermata, Carattere, Policromia Descrizione generata automaticamente**\ \ \ \ **The final use of the energy we use in Europe necessary information for decision-makers\ Important to know the final use of **energy**.\ \ - **industry** 23.5% in 2022 of the final energy consumption in Italy;\ - **transport** 28.5%;\ - **residential** 24.6% lighting, cooking, cooling, and cleaning (daily activities that need energy) which is the same amount of energy in the industry sector;\ - **commercial** and public services fisheries\ - **non-energy use** consuming energy for non-energy use with 7.4% of the final energy consumption goes to deposit and storage, stock of energy. This is important since it is not a low rate, but it consists of 7.4%, so we can say that it is a usage of energy in terms of energy loss in the distribution. How to overcome this to have less loss? Improve the **technology** and the **transportation** infrastructure.\ \ Our government can act and move in the transport and residential dimensions to strengthen the energy security in Europe if we improve the energy in the public transport, not the private one, this will result in a more efficient use of energy in the EU.\ The EU Commission is aware of the chart, and it is pressing the EU member states to change their behaviors to have more energy savings in the transport and residential sectors.\ \ \ **\ \ \ \ \ \ \ \ \ \ ** **\ \ \ \ \ \ \ \ \ \ GROSS INLAND CONSUMPTION\ **\ **Country by country- energy mix 2020\ **- oil\ - natural gas\ - coal\ - renewable\ - nuclear\ To explain how **hard** is to have a **common energy policy**, each country has its own energy mix different energy needs in terms of energy security, which will result in a weaker or at least more difficult energy policy\ \ E.g.: see the differences among the countries\ - Germany/France differences\ Germany does not use as much nuclear as France, natural gas in France is not that relevant but in Germany it is\ - Italy has very important natural gas but not nuclear and more renewable than France\ - Cyprus has no local production and importing oil They don't care about other sources of oil, few renewable\ - Hungary some renewables\ - Austria top performer in renewable with Finland, Portugal, Sweden\ - CZ They have coal and they are still using it just like Bulgaria\ \ The meaning of this chart is realizing the many energy mixes in every country this **DO AFFECT** the common energy policy, so hard to put that into force\ This picture shows a real problem, where to invest? The conditions on the ground are very different, the leaders must know that this is the starting point. The countries need time to change their energy mix and money. If a country is producing a specific source of energy, to change it means a higher price (e.g. Bulgaria or CZ republic)\ \ **\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ Energy Import Dependency\ **Immagine che contiene testo, schermata, linea, Parallelo Descrizione generata automaticamente\ Energy imports Dependency (%) + net imports (Mtoe)\ The same countries are highly dependent on external sources, Belgium imports more than 85% of its energy consumption, France is more comfortable importing 45% mainly because of Nuclear, Germany 65%, Italy 70%, Malta depending on 100%\--\> rate of dependency on external sources of energy\ If you're more dependent, you want a common policy, but if you're less dependent you're not willing to have a change in the energy mix, it's not a priority\ This is another reason why it's **hard to have a common energy policy** in the EU. What is relevant is the political picture of this, you can use the different charts to explain the energy security policy in the EU.\ \ \ \ **\ The EU Policy as response to Energy Security Threats**\ Apparent need for a common energy policy we should work to have a stronger and stronger common energy policy in the European Union. When we move from the ideas, good ideas and steps to the day-by-day policy we see that the national governments are transferring the competence from their sovereignty to the European one. Most of the power is still with the national governments, they are not willing to give up on that. Energy is considered as part of the national security, each government is still willing to keep control as part of the national security.\ The second reason energy needs in each countries, this make more difficult to have a common energy policy, this helps national governments to keep control.\ \ **The numerous attempts by the EU Commission to create some degree outcomes of energy common policy:**\ European Commission's Long March\ The very first European organization was about coal and steel and with the sharing of energy, there was a will to find a common ground (in this case on coal and steel). The organization was efficient in avoiding clashes among EU countries. The beginning was very promising. However, only after 30 years (from the mid-50s to the mid-80s) can we find new steps forward. The momentum was the creation of the Single Market. It dealt with energy prices, to work together on the same basis.\ Since then, the Commission in the 80s started creating new departments and new offices able to collect information about energy mix and consumption. This was still missing in the mid 80 at the EU level. The EU Commission wanted to give a clear picture first.\ only after gathering the information, the EU Commission was able to set targets in terms of security, energy, dependency, and energy saving. For finally implement activities, even if at the hand the power still remained in the hands of governments.\ \ In the late 80s, the agenda for energy policy began to change: Key factor\ - weak oil prices\ - Massive over-capacity in supply the EU governments who has less concerns about the energy, energy was cheaper and abundant\ -weakening of the scarcity approach\ - new focus on more efficient allocation of energy sources distribution more efficient, and possible options to reduce Europe's dependency. This was the moment when the EU introduced more energy saving also with renewables\ \ In the same years the EU Commission was doing the same in other industrial sectors the EU felt legitimate because was doing the same in other countries\ more competitive arrangements\ open access for equipment and service sale, the goal was to remove the obstacles in the European infrastructures, since Europe was doing it in some industrial sectors was easier doing the same in the energy sector.\ \ The advantages of INTERNARNAL ENERGY MARKET:\ - cut costs for private consumers and companies\ - makes European producers more competitive\ - increase supply security, by improving integration and rationalization of the energy sector\ \ A real European common energy market can be a great thing for the final consumers and the industries, also in terms of energy security. One European market is more able to react to any shocks than one national market. All the European countries can be way more vulnerable than the whole European union. This is a common idea, awareness but it is very difficult to translate it into political actions by the governments.\ \ The EU Commission was able to get some important results since 1988:\ - liberalized the procurement practices,\ - made some progress on liberalizing the electricity and gas supply market\ - liberalized the offshore exploration sector\ \ \ \ **ENERGY DIPLOMACY:**\ Another action promoted by the EU to make European security more stronger which implies a political effort by the Commission and the Governments to set a numbers of diplomatic activities.\ ***EC Agreement with the Gulf Cooperation Council, 1989\ ***It was a regional organization including the Arab countries in the Persian gulf, Arab oil rich countries but not including Iran since it is not an Arab country.\ The very first one with an external player which includes Saudi Arabia, Bahrain, Kuwait, Oman, Qatar, And united Arab emirates.\ Regular meeting between the energy minister of the EU and the GCC foreign minister. The ratio is to have a desk always available. **Tacis Program, 1991**\ After the collapse of the soviet union, when EU relised to provide technical assistance to help former Soviet Republic, to 12 former countries (Armenia, Belarus, Georgia, Kazakhstan)All the energy logistics was no more there because of the collapse, new languages, new borders, ner organizations. The tacis programe to prove help and support to these new countries in the field of energy of production and refining.\ Two of them:\ **TRACECA** the need for new distribution lines, new highways, new pipelines in order to allow the tranfern the oil from the central asia to Europe. This is still going on, even if there are some problem with Russia. Traceca programe includes all the central Asian countries and Caucasus even Mongolia.\ The effect of this programme are not only on energy trade, but it can support the trade of any goods, but also including the support on the other direction\ **INOGATE** Interstate oil and gas transport to Europe, mainly focus on pipeline system.\ Problem? All the existing pipeline are crossing Russia, the old ones gave Russia a very confrontable position. The idea was to build an alternative one to create a corridor, a pipeline corridor, form kazakistan to Europe, on the lower part of Russia\ Inogate members don't include Russia (see which ones) NB the EU is the only European participant, not single governments\ \ **\ Energy Charter Treaty, 1994**\ signed in December 1994 very large agreement with more than 50, 52 members European and non-European countries. More political than a technical program (see the slide). This does not deal with technical one but political, how to increase energy security at the global level.\ Your main concern will be the set of rules you need to sure the legislation is going to stay there fot at least 10,20 years since you're risking the money of your company, you need to neo which are the rtule.\ Long term goal is another goal to build up a set of rules, whatever they are that is clearly states and defined to allow the foreign companies to move in a clear environment.\ \ **Euro-Mediterranean Partnership, 1995**\ started in 1995 in the Barcelona Process, not only in the field of energy, but also trade, culture, university exchanges and energy.\ Algeria, Egypt, Giordan, Lebanon, Morocco, Tunisia and Turkey, Syria, Palestinian authority this is very hard, wishful thinking to really create a long-lasting cooperation with countries. Authoritarian governments. This has a lot to do with politics than energy. The general observation is not enough to have energy policy or migration policy (we have some needs and concerns) but this should be put in a larger framework. The general goal is to improve stability and security and trade across the Mediterranean which includes the energy side as well.\ \ **EU-Russia Energy Dialogue**\ established in October 2000, when the EU decided to have a clear open direct dialogue with Russia on the energy relations in the long term.\ For the moment this energy dialogue is not working, we can work in order to resume asap this program, but we need some condition that are missing.\ The idea was to create a mutual dialogue and transparency on both sides.