Geological Politics

Is Europe prepared for a world where Chinese and Japanese competition for Russian resources is a key geopolitical question?

For months China and Japan have been locked in a diplomatic battle over access to the big oil fields in Siberia. Japan, which depends entirely on imported oil, is desperately lobbying Moscow for a 2,300-mile pipeline from Siberia to coastal Japan. But fast-growing China, now the world’s second-largest oil user, after the United States, sees Russian oil as vital for its own “energy security” and is pushing for a 1,400-mile pipeline south to Daqing.

Emphasis added to the original article. If I had to guess, I would think that the EU-25 uses more oil, and other petroleum products, than China. I’d probably have to flip a coin to decide if the enlarged EU uses more oil than the US; I think it’s very close. (If anyone can point me to good statistics on this subject, I’d be grateful.)

Given that the bulk of Russian gas now goes west to Europe, to heat homes and, to a lesser extent, generate electricity, what are the chances that when the Chinese convert coal-fired power plants to gas-fired, Russian gas might go east, to fuel the world’s fastest-growing large economy?

Is there a European approach to this sort of question? Should there be?

This entry was posted in A Fistful Of Euros, Europe and the world by Doug Merrill. Bookmark the permalink.

About Doug Merrill

Freelance journalist based in Tbilisi, following stints in Atlanta, Budapest, Munich, Warsaw and Washington. Worked for a German think tank, discovered it was incompatible with repaying US student loans. Spent two years in financial markets. Bicycled from Vilnius to Tallinn. Climbed highest mountains in two Alpine countries (the easy ones, though). American center-left, with strong yellow dog tendencies. Arrived in the Caucasus two weeks before its latest war.

22 thoughts on “Geological Politics

  1. Not exactly on topic, except it’s about the globalization of farthest Eurasia, but I just briefly tutored a HS student from Kyrgystan.

    He’s from a business family, and family members of his routinely travel to Istanbul, Mecca, Moscow, and Beijing. He is seemingly intended to be his family’s U.S. foothold. Apparently they had little connection with Japan, but I think that they were working on it. Western Europe was not mentioned, except maybe united Germany.

    His loyalties are clearly Russian, and he loves Pushkin. His parents are strongly secular, though they have business relations in Saudi Arabia. He has an animus against Turks, even though the Kyrgyz are the ur-Turks with their “Manas” epic. He’s also cautious about to the Uzbeks. He does not like living in the US — noise, hurry, unhappy people, and bad food.

    So anyway, places that we used to think were just sitting there are moving around on the game board.

  2. Kyrgyzstan is part of OSCE-Europe, the one whose press releases talk about its reach “from Vancouver to Vladivostok,” unless they’ve recently imposed better forms of cliche control. Anyway, I’m not surprised that Pushkin is a fave, now that the hand of Moscow is further away. Direct control is gone these thirteen years, but the old links are still there. I’d be interested in more about views on Turkey, especially given its prominent role as a potential model throughout the Islamic world. Though given that much of Central Asia was referred to as Turkestan for a long time (all the way to Chinese Turkestan, where the Uighurs roam), some animus against a cultural hegemon probably shouldn’t surprise either.

    I’d go a step further, though: Not only are the pieces no longer sitting still, they’re not just moving themselves but other pieces as well…

  3. The majority of Kyrgyz are fluent in Russian, and probably all educated Kyrgyz are. From my contacts with Mongols and Central Asian Turks, the positive impact of Russian influence comes through. Compared to Afghans, who lived mostly under indigenous rule, and these peoples really are a part of the great world. Stuff like secularity, emancipation of women, science education, etc.

    BTW I am not rabidly anti-Islamic. But I’m much less likely than I was 20 years ago to decide questions based soley on national self-determination and respect for the indigenous culture.

    My source was only ~17 years old, and really spoke only for himself and his parents. His feelings about Turks were based on contacts with Turks in Kyrgyzstan, and possibly also the experiences of the Kyrgyz refugee minority in Turkey.

  4. For understandable reasons, China is becoming very pushy over access to oil, hence the long running territorial disputes about sovereignty over the Spratly Islands, an archipelago in the South China Sea somewhat north of the Philippines, south of China and east of Vietnam:
    http://www.cia.gov/cia/publications/factbook/geos/pg.html
    http://www.globalsecurity.org/military/world/war/spratly.htm

    I’m not sure most of us have quite come to terms yet with the prospect of China emerging as the world’s largest economy in two or three decades time and the implications that will have.

    Someone remarked a while back that the population density south of the Sino-Soviet border is a good deal higher than it is north of that border. With global warming, the climate of Siberia, north of the border, is likely to become more congenial and Siberia has extensive deposits of mineral resources besides oil and gas.

    Contrary to rumours emanating from some sources, the world is not about to run out of oil in the near future. The best, short brief I’ve found is here: http://www.kcpc.usyd.edu.au/discovery/9.2.2/9.2.2_OilReserves.html

  5. As I remember, about seven countries have claims to the Spratleys. The Philipine Navy, however, consists of something like three ships with a total crew of 113, so they’re not expected to contest the issue.

    I feel confident that somewhere in the Chinese press there are articles about how Chinese have always felt that the Spratleys are an integral part of the ancestral homeland, like Taiwan, and Mongolia, and maybe Burma, but probably not Singapore at this time.

  6. Thanks, John. I make absolutely no claim to expertise on world oil reserves and the projected future balance between consumption and production. All I can do is step sceptically through reports I come across among the deluge, recognising that some contributors may have self-serving agendas unrelated to dispassionate objectivity. In the end, I suppose, it comes down to provenance, the writer’s motivation and whom I believe. Try these, both more recent than the article in Scientific American:

    ” . . Some experts though, such as Professor Peter Odell of Erasmus University in Rotterdam, think there are plenty of reserves left and that the world is running into oil rather than out of it. . . ” – from: http://www.guardian.co.uk/theissues/article/0,6512,1217181,00.html

    “But looking behind the politics and other reasons for the upward pressure on prices (such as historically low oil and petrol stockpiles in the US), just how much oil is left under the surface of Planet Earth? Loads – or more than 1,000bn barrels of proven (we know for sure) reserves to be precise, up to 40 years’ worth. Add that still yet to be discovered, and the figure and timescale is much higher still.” – from: http://news.bbc.co.uk/2/hi/business/3590137.stm

    Having lived through WW2, I’m old enough to recall the Club of Rome’s predictions from the early 1970s, made by computer modelling, that the world was going to run out of many raw materials sometime around the end of the last century. Do you recall the famous bet between Julian Simon and Paul Erlich in 1980? http://www.futurist.com/futuristnews/archive/archive__new_old_economy.htm

  7. Anti-enviros have been flogging that Simon Ehrlich bet for years now. Grant the point, but it doesn’t exactly end the dispute forever. Ehrlich was one guy.

    Simon has his own skeleton in the closet. At one point he argued that, since there are an infinite number of points in a line, we will never run out of resources.

    True, he retracted the statement later, but how could he not have? It was completely loony, and it certainly calls his judgement into question generally.

  8. I didn’t know that the Erasmus University had a geology department. I thought they only teached economics

  9. Zizka: “It was completely loony, and it certainly calls his judgement into question generally.”

    That’s rather ad hominem and Julian Simon was far from being the only ranking economist who was sceptical about the Club of Rome’s predictions of doom. Nordhaus, at the time, was another, and Martin Beckerman, in Britain, another. Simon’s rationale under-pinning his wager was substantive – most inflation-adjusted raw material prices have declined on trend, not what we would expect from increasing scarcity.

    The whole environmentalist lobby seems to have past its peak and weakened over the last ten to fifteen years. The cause has rather lost its thrust and the activists have shifted their allegiance to anti-globalization, another dead-horse IMO.

  10. It is utterly batshit, howling-at-the-moon loony to say that, since the points on a line are infinite, we will never run out of resources.

    That’s the point I made, not anything about the Club of Rome. Simon did say that, and for that reason, no one should ever take anything he said for given.

    I did not make any ad hominem remark. I came to a conclusion about Simon’s overall reliability based on somthing he said which was entirely ridiculous.

  11. Zizka,

    I’ve no vested interest in defending either Simon or the loony comment you – rightly, for all I know – attribute to him.

    What ultimately matters in this is the analysis. If Simon said something loony in all seriousness, so be it but it does not then follow that everything he said and wrote is therefore flawed. As best I know, Ghengis Khan, Ivan the Terrible, Stalin and Hitler all believed that 2+2=4 but try invoking that in your local superstore for a complaint that there was a mistake in adding up the bill at the checkout.

    Even if everything Simon did say or write is flawed, it doesn’t follow that the methodology, let alone the conclusions, of the Club of Rome and its progeny are therefore valid. What Simon has proved substantively correct about is that most inflation-adjusted prices of raw materials have declined on trend, exactly the opposite of what we should expect to observe with increasing scarcity of raw materials. This should not be surprising. Technological innovation reduces the (real) costs of discovering, processing, producing and refining raw materials as well as reducing the amounts of materials required in uses. Think how big computers used to be when they were literally hard wired.

    Many environmentalists and greens write and speak as though they discovered the notion of externalities and spill-over effects, whether socially beneficial or malign. In fact, the concept goes back at least a century or so to the writings of two British economists, Marshall and Pigou. Since then, a huge professional literature has accumulated in refining and elaborating the concept. Presence of externalities has long been accepted as a potential cause of “market failure” or the inefficient allocation of resources in a market economy with the possibility that some reallocation is capable of making at least some people better off without making others worse off.

    There has also been an extensive downstream debate on whether alternative ways of allocating resources, including state intervention, could lead to preferred outcomes. There is absolutely nothing novel about this debate. At one time, some people actually believed that central state planning with state ownership of all resources and the modes of production would lead to better outcomes. So confident were they in their belief that they were inclined to imprison and kill any who criticised their prescriptions. Not many still believe that nowadays.

  12. For energy statistics Doug you want BP’s Statistical Review of World Energy 2004 which is here (http://www.bp.com/subsection.do?categoryId=95&contentId=2006480)

    (or if it doesn’t work try google)

    On oil consumption (http://www.bp.com/liveassets/bp_internet/globalbp/globalbp_uk_english/publications/energy_reviews/STAGING/local_assets/downloads/spreadsheets/statistical_review_of_world_energy_full_report_workbook_2004.xls) this excel spreadsheet has the data.

    In 2003 the USA consumed 20m barrels a day, with 4k more from Canada and Mexico.

    ‘Eurasia’ consumed 19.7m barrels a day. Clearly therefore the new EU consumes less than the US, with Russia a big consumer in Eurasia. My (rough) calculation came up with about 14.5m barrels a day (the new EU members aren’t a great consumer — probably less than 1m barrels a day).

    Out of interest in 1965 Eurasia consumed about 11.5m barrels a day, slightly more than the US. In 2003 China consumed 6m barrels, more than Japan’s 5.5m barrels.

  13. First, I was not defending either the Club of Rome or Ehrlich. That’s a pretty old debate, and the anti-enviros love it because it falls their way. The contemporary arguments are quite different.

    Second, I stand on what I said about Simon. Some statements are just too outrageous to forget (and yes, it can be documented). Now a stoppped clock is right twice a day, but Simon has to be thought of as a brilliant polemicist but erratic who was willing to say anything whatsoever to make his point.

    Third, while economists may have had a theoretical niche for externalities long ago, before about 1960 externalities were ignored in policymaking. (I took Econ in 1965, and they still were talking about “free goods” then — air and water). The reason why economists are slowly beginning to work these kinds of things into their systems is that they’re under heavy pressure from people (environmentalists) from outside economics.

    In many discussions economists try to speak of geographers, demographers, climatologists, oceanographers, et al, as if they were “soft scientists”, whereas economists are hard scientists. This is risible. In general, nothing economists as such say about global warning should be given any attention at all, since economists, by definition, don’t study global warming. (Of course, there needs to be a hybrid discipline — environmental economics — made up of people trained in both fields).

    Dragging Stalin and Mao into this discussion is not acceptable, even if you don’t mention their names.

    Free-marketers tend to be Utopians, and Lomborg has described himself as a “cornucopian”. It is absolutely necessary for their economic dream for the carrying capacity of the earth to be infinite. For that reason, they need to ignore the conclusions of demographers, geographers, et al, except when they can be bent to Utopian purposes. One problem with the Simon-Ehrlich debate was that it focusses on rare resources (metals). The important constraints seem to be topsoil, fresh water, the atmosphere, and energy in about that order. I have read someone claiming that with infinite fusion power infinite amounts of fresh water can irrigate large uncultivated areas, but even then you run out of surface area eventually.

    I’ve had people shift into purely hypothetical arguments with me. For example, outside Phil 1010 the fact that we don’t know exactly how much fresh water there is does NOT mean that the amount of fresh water might be infinite, but I heard people assume that. I’ve also frequently heard people assume that any future problem will be solved by technical advances, which is not true even as a generalization from past successes.

  14. Oil, smoil, boil, toil and trouble, something wicked this way comes. Oh look; its the never-ending “will we run out of oil” debate.-

    A few points. As the remaining oil reserves get harder and harder to extract the price will go up and people will find alternatives, up to and including synthesising the bloody stuff out of air, water and ridiculous amounts of electricity. Basic economics. – So we will never run out, although it might get more expensive eventually.

    Second: Russian gas is almost exclusively used for heating and electricity production right? I do belive we already have a perfectly adquate, clean and cheap substitute energy-source for those purpouses. Nuclear power.

    Third. The real issue with fossile fuels isn’t scarcity – It is the pollution.

  15. Zizka: “Third, while economists may have had a theoretical niche for externalities long ago, before about 1960 externalities were ignored in policymaking”

    C’mon. Cost-benefit analysis (CBA), which is about quantifying and valuing all social costs and benefits of proposed public projects, was up and running by then. I have by me a copy of Roland McKean’s book: Efficiency in Government Through Systems Analysis – A RAND Corp. research study (Wiley, 1958). After a fashion, even some New Deal projects during FDR’s long administration (1933-45), such as the huge dam projects of the Tennessee Valley Authority, took some account of potential externalities even though they were not called as such. Water resource projects have long been a regular target for CBA precisely because the prospective benefits from flood control, irrigation and new transport opportunities are often so widely diffused that it is not feasible to charge beneficiaries according to the benefits received so a market system alone will exclude socially worthwhile projects.

    As Adam Smith put it: “The third and last duty of the sovereign or commonwealth is that of erecting and maintaining those public institutions and those public works, which, though they may be in the highest degree advantageous to a great society, are, however, of such a nature that the profit could never repay the expense to any individual or small number of individuals, and which it therefore cannot be expected that any individual or small number of individuals should erect or maintain.” [Wealth of Nations (1776)]

    In France, Dupuit’s famous paper, on valuing the public benefits of a new river bridge in terms of the maximum payments that could be exacted from users, dates from 1844. Public administration in France was steeped in its own long national tradition of applying economics to the public sector, which is why France’s planning system was upheld both as an explanation for the relatively strong performance of France’s economy during the 1950s, despite almost ceaseless political turbulence there, and a model for others to follow.

    Most industrialised countries have long provided “free” public schooling. We had smoke abatement legislation in Britain in the 1950s. And in the private sector, the notion of agglomeration economies has been understood for centuries, which is why London became a world financial centre, diamond merchants tended to congregate in Hatton Garden, fine tailors to set up in Saville Row, special steels to flourish in Sheffield and textile manufacturing in Lancashire and Yorkshire. We even understood the economics of the tragedy of the commons, which is why about half the land in England was already enclosed as early as 1500. And to resolve the problem of who made the public decisions and accountability, we evolved Parliamentary government.

    We tend to under-estimate the wisdom of our forebears. Focusing on Simon’s loony comment is just dodging the substantive issues.

  16. Bob: The smoke abatement legislation in Britain in the fifties (less than ten years before the date I gave) came because of a 1952 fog which killed as many as 12,000 people. That’s not good testimony to a concern for externalities before that time. RAND reports are unofficial, and the 1958 report (TWO years before my deadline) was presumably at the proposal stage. And New Deal dam builders paid “some” regard to externalities? Well, well.

    Given that the discussion so far has mostly been about environmental externalities, your other examples are not to the point.

    What I said about Simon was about Simon, and by extension about Lomborg, as well as their followers. I think I am about right about classical economics’ relative indifference to the environment, however.

    Which issue is it that I’m dodging? And may I say, I raised some issues of my own which I haven’t seen you addressing.

    Thomas: “Synthesising the bloody stuff out of air, water and ridiculous amounts of electricity” — I guess you’re talking about fusion power and hydrogen cells. That’s the only minimally plausible solution I’ve seen. There is a down side to fusion power, and the whole idea seems to be a way of postponing the day of reckoning a little further.

    The ideas that “There are no limits” and “Resources are infinite” and “Technology will solve every problem” are being pushed as though they were obviously true, and as if anyone who demurs is a Luddite cave man, but it looks like utopian freemarket wish-fulfillment to me, of the same plausibility as any other cargo cult.

    London killer fog: http://www.npr.org/display_pages/features/feature_873954.html

  17. Zizka: “The smoke abatement legislation in Britain in the fifties (less than ten years before the date I gave) came because of a 1952 fog which killed as many as 12,000 people.”

    As a resident in inner London at the time, I remember that (s)fog well, especially going out to see a movie with my Dad. Absent functioning public transport, we walked about a mile or so to a local cinema. It was functioning but the boxoffice lady said sight of the screen was obscured by the smog so we could go in to see if we could see the screen before deciding whether to buy admission tickets.

    “That’s not good testimony to a concern for externalities before that time. RAND reports are unofficial, and the 1958 report (TWO years before my deadline) was presumably at the proposal stage.”

    McKean’s book was published in hardback by a mainstream publisher (J Wiley) in 1958 and I bought it in a bookstore, not least because at the time he and I were academic colleagues at the same university – he was over here, with family, for a year, as a visiting scholar. And I still have the book, so there is absolutely no doubt that the early, basic concepts of CBA were already in the mainstream. Ronald Coase’s famous paper on: The Problem of Social Costs, was published in 1960, with its message that those gaining/losing from unpriced spill-overs would have cause to bargain with the generators and would thereby reach efficient outcomes, providing the transactions costs of bargaining are negligible – a big proviso if many parties are involved, as is usually the case with major water resource projects. Already in the 1960s, papers were appearing on social and private rates of return for expenditure on higher education in the context of university expansion.

    “The ideas that ‘There are no limits’ and ‘Resources are infinite’ and ‘Technology will solve every problem’ are being pushed as though they were obviously true, and as if anyone who demurs is a Luddite cave man, but it looks like utopian freemarket wish-fulfillment to me, of the same plausibility as any other cargo cult.”

    We need to focus on specifics. Obviously, the earth is finite but it doesn’t follow from there that humankind is anywhere close to physical resource constraints. The basic issues at stake are whether markets are the most efficient social arrangement for allocating scarce resources and, if not, in what circumstances and why not and what to do about it. If some resource was expected to become scarce in the foreseeable future, we should expect to see a clear upward trend in its inflation-adjusted price and for arbitrageurs to move to try to corner the supply in the hope of making a killing in the markets. We should also expect to see active searches for previously unidentified supplies and research into possible substitutes. That analysis does not indicate to me that we are approaching physical resource limits.

  18. Bob, my original statement was, “Before about 1960 externalities were ignored in policymaking”. Your examples are from the fifties. Rachel Carson came along with Silent Spring in 1962, which was the beginning of the environmental movement. We’re really arguing about less than ten years.

    “That analysis does not indicate to me that we are approaching physical resource limits”. What analysis? You were talking about economics. Economists will be the last to know. What I’ve been trying to say is that people, above all economists, should listen to geographers et al. You have peatedly failed to engage that point.

    I think that we each know what the other thinks, and the issues here are a bit big for the blog-comment format, so I think I’ll bow out now.

  19. You seem to imply that at some point, China will switch from coal-fired generation to gas-fired.
    This was maybe the conventional wisdom 2 years ago, but it is no longer the case, with the current prices of natural gas.
    Even in the US, I would not bet that the future significant wave of investment in generation will be gas-fired plants.

  20. The Chinese communists don’t care about the worries of environmentalists, so China could very easily adopt nuclear power as their primary energy source.

    I wouldn’t mind if the USA and China co-occupied the Arabian Peninsula and sold oil at low prices for the common benefit of mankind. Seems unlikely at the moment though.