Oil

Of all the commodities traded in the global economic system, oil is almost certainly the most crucial to its successful operation. Just as a car depends on motor oil as a lubricant to keep the engine running, so too do the various components of the world economy rely on a regular supply of petroleum to maintain smooth functioning. Crude oil is the basic material for a wide range of products from road surfaces to plastic materials, but of course its principal use is as a source of energy. It provides the fuel for almost all forms of transport, heats the homes of millions, generates electricity and is used in developing countries for cooking and lighting. Indeed, crude oil alone accounted for almost 40% of world primary energy consumption in 1989. The total share for petroleum-based products (ie including natural gas) was almost 60%. It is difficult to think of any other commodity which impinges so directly on the lives of so many people.

Few would dispute the beneficial economic impact of oil implied by the above, but there is also a negative side. Oil is a source of pollution both in its raw state and when used in combustion. Environmental concerns have moved up the political agenda, fuelled by the images of the darkened sky over Kuwait, and of dying birdlife in an Alaskan bay. Calls for new policies designed to stabilise or reduce harmful hydrocarbon emissions have taken on a new urgency and more effort is being put into the search for ‘renewable’ alternatives. These developments do not yet threaten the position of oil as a fundamental resource - in the developed world at least, to eschew its use altogether would be to advocate a transformed and much less comfortable way of life, which is unimaginable. They do, however, pose new challenges for those who work in the sector. Every legal norm designed to cut down or halt air pollution, or to reduce the risk of tanker spillages is reflected in higher costs.

For developing countries, the environment also has an increasing profile but the issues are more complicated. In certain areas, notably sub-Saharan Africa, the main source of domestic fuel is wood and the principal threat to the ecological system comes from desertification. Atmospheric pollution caused by power stations, industrial plants and road vehicles is far less serious and as a result, the environmental imperatives are different. Viable substitutes for wood - which in practice will usually mean petroleum products - are essential to tackle the problems of deforestation which the continent faces today. Concerns over air quality are abstract by comparison, and are unlikely to figure high on the political agenda.

A more general issue for the developing countries concerns the energy implications of development itself. While it may now be possible for advanced economies to achieve so-called ‘green growth’ in which expansion is accompanied by lower energy consumption, through investment in high-tech, fuel-efficient technologies such as new materials which improve insulation, this is unrealistic for most Third World countries. This is because, on a per capita basis, these nations currently use only a fraction of the energy consumed in the industrialised North and it is difficult to see how they could successfully develop without a significant increase in energy usage.

Given that the majority of developing countries are net importers of oil (the principal energy source), and suffer from a lack of foreign exchange to pay for their imports, the dilemma is clear. Growth is needed to pay for imported fuel while imported fuel is needed to generate growth.

The problem would be a difficult one to tackle, even if energy prices were stable. Unfortunately, the dollar price of a barrel of oil has fluctuated enormously over the past three decades and currency movements have exacerbated the situation. In particular, the two oil price shocks of the 1970s appear to have had a serious impact on many states which had to come to terms with burgeoning energy deficits. Indeed, there are those who see in these events, the origins of the subsequent decade of economic stagnation in much of the Third World. In recent years, prices have tended to be more stable although the huge increases during the early stages of the Gulf crisis and the equally precipitous fall in the price a few months later underline the extreme volatility of this most strategic of commodities.

One might have expected to find a rosier economic picture in those developing countries which are net exporters of oil. Sadly, the position in many oil-producing countries, including ACPs, is often discouraging. Oil may have provided a financial windfall, but several states have fallen victim to a combination of unrealistic expectations - reflected in unduly heavy borrowings and the same fluctuations mentioned above. A country which makes investment plans on the basis that its exported oil will bring in $35 a barrel will soon be in difficulty when the price drops to $15. There is also the view that the price rises of the 1970s may have induced some oil-rich countries to neglect other productive, but at the time, less profitable sectors, thereby leading to a weakening of the overall economy when oil prices slumped.

In this Dossier, we look at the subject of oil and the ACPs, with particular emphasis on the economic and environmental aspects. The issues raised briefly above, and other related problems are examined in greater detail. The authors who have contributed to the Dossier all have a professional interest in the oil industry or markets, but coming as they do, from a variety of backgrounds, they offer different perspectives and analyses of this vital sector.

Simon HORNER

Some basic facts about oil and gas in the ACP states

Of the 69 ACP states, only 12 have produced any oil. Nine of these are in West Africa (Angola, Benin, Cameroon, Congo, Gabon, Ghana, Ivory Coast, Nigeria and Zaire). The remaining three are Caribbean countries (Barbados, Suriname and Trinidad/Tobego).

Exploration for oil and gas has been carried out in a number of other ACPs.

The most important recent discoveries have been in Papua New-Guinea which is due to come ‘on-stream’ during 1991.

Nigeria - the giant of Africa - is also the giant of the ACP in the oil sector, producing almost 1.5 million barrels a day. Nigeria also has almost three quarters of the ACPs’ known oil reserves.

The other main crude oil producers are Gabon, Angola, Cameroon and Trinidad/ Tobago.

Two ACP countries - Nigeria and Gabon are members of OPEC (The Organisation of the Petroleum Exporting Countries).

Just over 2% of the world’s known oil reserves are to be found in ACP countries. ACP production represents less than 4% of total world output.

Trinidad/Tobogo and Nigeria are the two main producers of natural gas. Unfortunately they are big fish in a very small pond - the ACPs produce only 0.004% of the world’s gas.

The Bahamas used to have the largest refining capacity of any ACP state but the industry was closed down in the 1980s. Nigeria and Trinidad/Tobogo now top the league and 20 other ACPs have refineries.

With one eighth of the world’s population, the ACPs have only one-fortieth of its oil consumption.