"He who owns the oil," observed Henri Berenger, "will own the world." The French industrialist's dictum has influenced global politics since the Second World War, when he made the uncomfortable comment. In the ensuing century, Mr. Berenger's words have echoed out of the Middle East, where oil power has since been concentrated.
But the politics of oil and gas are shifting with the flow of dollars. Influence is drifting away from the Middle East. Asia and North America will soon be projecting a greater influence.
To see the trend, all one needs to do is "follow the money." Intriguing data from IFP Énergies Nouvelles, the French public sector institute for energy transport and the environment, shows where the upstream oil and gas money is going – and not going.
Globally, there will be about $700-billion spent on upstream oil and gas activity in 2013, followed by an estimated $750-billion in 2014. But it's the rationing of that $700-billion that will define the future geopolitics of oil and gas.
Our feature chart this week highlights a series of tower charts spanning 2008 to 2013. Each tower shows regional, upstream oil and gas capital spending trends. Asia-Pacific and North America (U.S. and Canada) are clearly the magnets for investment. (See chart.)
Shale gas, light tight oil (LTO) and the oil sands have triggered a 50-per-cent increase in North American spending over the past five years. We know what's happening in U.S. plays like the Texas Permian basin, North Dakota's Bakken and Pennsylvania's Marcellus. Yet of the $185-billion in current year expenditures, about $65-billion will be plowed into Canada. That's a staggering amount. Consider that upstream spending in Western Canada is now equal to or greater than Europe, the Commonwealth of Independent States (CIS), Africa or the entire Middle East. Expect the spending momentum to continue in both the U.S. and Canada, because oil prices are robust, capital is plentiful and upstream innovations are driving up productivity.
Expect greater spending in Asia-Pacific too, although the doubling of annual capital expenditure between 2008 and 2012 has other dimensions. Proving up supply for Australia's mega-liquefied natural gas-projects has driven the natural gas side of the equation. India too has been on a natural gas spending binge. China's state-owned oil and gas companies are exploring and developing the region to mitigate excessive foreign dependency.
Latin America's 35-per-cent growth is largely a function of Brazil's offshore spending blitz, however some cash is making its way to locales like Argentina to seed potential shale gas operations. Ditto for Europe, where shale gas may be a future boon to the region's excessive dependency on Russian natural gas flows.
Spending in Africa has been nudging up, coming mostly from China's purse. Exploration and development in hydrocarbon-rich countries such as Angola and Uganda are promising. Nevertheless, the magnitude of what's happening in Africa – whether measured in absolute terms, or percentage growth – is a small yawn when compared against North America and Asia-Pacific.
The CIS gang of Russia and the "Stans" are showing a $20-billion uptick since 2010. That's notable, but sustainability is debatable. Foreign oil and gas companies have learned that spending money in these countries is a clear lesson in "follow the money" to find corruption, rather than opportunity.
Finally, the spending profile in the Middle East is flatter than a desert. Iraq has been pumping harder with new investment, but many foreign interests are now seeking to vacate. The rest of the region looks complacent, although $50-billion a year is not loose change. But it's only 7 per cent of global spending in a region that produces 25 per cent of the world's oil and gas. Admittedly, finding and development costs are relatively low – fewer dollars are needed to coax production. However, the lack of expansion capital relative to Asia and North America is a precursor to waning influence.
Oil and gas are vital commodities. Upstream spending is a leading indicator of field activity, production growth, infrastructure builds and geopolitical sway. A dollar spent today is typically felt five to10 years hence. The past five years of data suggest that a new world order of hydrocarbon power will emerge, starting in the latter half of this decade. There will be less concentration (and consternation) on Middle Eastern oil. And the increasing bias to natural gas may dilute and rephrase Mr. Berenger's words to say: "He who owns the gas will own the world."
Peter Tertzakian is chief energy economist at ARC Financial Corp. in Calgary and the author of two best-selling books, A Thousand Barrels a Second and The End of Energy Obesity.
Peter Tertzakian